In a normal industry scenario for established products, building subassemblies to stock to meet the expected demands of a final product is a norm to reduce the lead time of production. However, in many engineering design scenarios, procuring components in advance is required without building subassemblies and final assemblies. This is because the subassemblies can be built only after a design is finalized. This is applicable for almost any industry that uses engineering builds. A good example is semiconductor motherboards for which assemblies cannot be built until the design configuration is complete, but components need to be procured in advance.

One key area that drives value in the semiconductor domain is the “Design Win” process, which requires coordination with channel partners to manage leads, campaigns, and market design, and to share revenue. Another important task is to enlist contract manufacturers and component suppliers to bring economy of scale to reduce the cost of manufacturing. This requires an extensive collaboration between the upstream and downstream channels of information, inventory availability, and sales data.

A key competitive advantage for this process depends on how fast a prototype can be built for customers. Creation of the prototype, also known as engineering builds, calls for building the prototype as soon as the design is complete. This build is critical for design wins.

Following are the material requirements planning (MRP) settings required to procure components without building subassemblies, the procedure to create demand for components, and an analysis of an MRP run to confirm that the functionality works as expected.

Material Master Settings

Consider the simple product structure shown in Figure 1. It shows a finished product, FG_ASSY, which is made by assembling a subassembly, SFG_ASSY, and a component, COMPONENT3. Consider also that the subassembly SFG_ASSY is made by assembling the materials COMPONENT1 and COMPONENT2, which are of long lead time and therefore need to be procured in advance. Assembling these components to make subassembly SFG_ASSY is currently not required, but the planner could decide on it at a later time when it is needed.

Figure 1

Bill of material (BOM) of an engineering build assembly

The functionality to procure components and not to build subassemblies is controlled by material master MRP view settings. To ensure that MRP supports procurement of only the components COMPONENT1 and COMPONENT2 when forecasting for FG_ASSY, carry out the material master settings seen in Table 1.

Table 1

Material master planning parameters for assemblies and components

The descriptions of the parameters listed in Table 1 are as follows:

• EX: Lot for lot order quantity
• E: In-house production
• F: External procurement
• X: Both procurement types
• Strategy group 52: Planning without final assembly without make-to stock
• Individual/Coll. value 2: Collective requirements only
• P* and M* refer to MRP type values starting with the letters P or M, such as PD and M0.
• Special procurement type 60: Standard SAP parameter Phantom in planning

Now we explain how these settings help to procure only components in an MRP run:

• The MRP types for materials must be P* or M* so that in MRP run, the BOM explosion and dependent requirements transfer occurs from the top level BOM material to the subassemblies and components. A consumption-based planning scenario for components does not support this.
• The strategy group 52 signifies that for the top level finished goods, MRP will not plan for the final assembly.
• Special procurement type 60 for the subassembly helps to pass the requirements from the top level BOM assembly to components without building the subassembly like that of a phantom assembly (even though a subassembly is not a phantom assembly).
• The components have to be set for collective requirements of total quantities required for all subassemblies that require the components

Creating Demand for the Top Level Assembly Material

Assume that you have created BOMs for FG_ASSY and SFG_ASSY in Plant 1000 with BOM usage 1 (Production). Also assume that you created routings for FG_ASSY and SFG_ ASSY in the plant. The first step for procuring components against the top level assembly forecast is creating demand for the top level assembly in the system to drive dependent demand for components.

Create Planned Independent Requirements

To create planned independent requirements of requirement type VSE for FG_ASSY in Plant 1000, use transaction MD61 or follow menu path Logistics > Production > Production Planning > Demand Management > Planned Independent Requirements > Create to create demand (Figure 2). Enter the material, plant, and date range and select active version 00 for the demand.

Figure 2

Create planned independent requirements for the top-level assembly

Press Enter. The system opens up a new screen (Figure 3) where you enter demand schedules for the top-level assembly. Enter the demand quantities for different dates in the future. These are the dates by which the planner expects the assembly is needed. The earliest date entered must be after the procurement lead time of long lead-time components.

Figure 3

Enter quantities and dates for the top-level assembly schedule

Next click the Items tab. The system populates the standard requirement type VSE for the planned independent requirement type based on the material master parameters, as seen in Figure 4.

Figure 4

Display planned independent requirement Items tab

Save by clicking the save icon.

The system then shows the status message  at the bottom of the screen indicating that the requirements have been saved.

Display the Stock/Requirements List for FG_ASSY

To display the stock/requirements list for FG_ASSY, use transaction MD04 or follow menu path Logistics > Production > MRP > Evaluations > Stock/Requirements List. Enter the material and plant values. Press Enter. The system displays the Stock/Requirements list, as seen in Figure 5.

Figure 5

Stock/requirements list for the top-level assembly

Plan for Components in the MRP run

Now that you’ve set up demand for the top level assembly in the system, run MRP for material FG_ASSY in Plant 1000.

Use transaction MD02 or follow menu path Logistics > Production > MRP > Planning > Multilevel Single-Item Planning to run MRP at the multilevel for the material. Enter the MRP run parameters as shown in Figure 6. In this example scenario, we have used the parameter values NETCH, 1, 3, 1, 3, and 1, respectively (see Table 2 for an explanation of these values). You may use these values for the MRP run, or you could use other values in accordance with your company’s general planning method and logic.

Figure 6

The initial screen for a single-item multilevel MRP run

Table 2

MRP run parameters

Press Enter. The system provides a warning message prompting you to check if the appropriate planning parameter values are selected for MRP run. Press Enter again. The system shows the MRP run status, as seen in Figure 7.

Figure 7

The MRP run status display

Now, display the Stock/Requirements list for the material FG_ASSY in plant 1000 to see how it changes based on the MRP run. Use transaction MD04 or follow menu path Logistics > Production > MRP > Evaluations > Stock/Requirements List (Figure 8).

Figure 8

Stock/requirement status after the MRP run

The system created planned orders but shows them with INDR value display, which means that this cannot be produced into stock. This is the desired functionality you need and the system behaves as expected based on the material master settings.

Testing the Functionality

Having observed that the MRP is creating planned orders as expected, you need to test and confirm that the planned orders cannot be converted into production orders. For this, double-click the line for the planned order 61213 in Figure 8. This takes you to the screen shown in Figure 9. The planned orders created are of type VP (this is the standard order type for planned orders to indicate that they are not convertible). Note that there is no push button available in the pop-up window to convert the planned order into a production order, meaning that it cannot be converted. Accordingly, the planned orders cannot be converted to production orders to build the assembly.

Figure 9

Planned order type VP cannot be converted into a production order

If system settings were to support converting a planned order into a production order, the push buttons in the pop-up window would appear as shown in Figure 10. This is not the case for the settings in this article.

Figure 10

System settings for converting a planned order into a production order

Now, click the order report icon  in Figure 9 to show the elements planned by MRP for the levels seen in Figure 11.

Figure 11

Planned orders created for top-level assembly, subassembly, and the purchase requisitions created for the components

Double-click the subassembly material SFG_ASSY. The system displays the planned orders for SFG_ASSY (Figure 12).

Figure 12

Order report showing the components’ purchase requisitions

The planned order for subassembly 000061216 is again of the type INDR and cannot be converted into production orders. This again is the desired result because you only need to procure the components without building the top-level assembly or subassembly. The details of planned order 000061216 are shown in Figure 13.

Figure 13

Planned order for the subassembly material cannot be converted into a production order

Lastly, you can display a purchase requisition for a component. For example, double-click the purchase requisition 10097375 in Figure 14.

Figure 14

Display the stock/requirements details of COMPONENT1

In the window that appears as a result of the last double-click, again double-click the line for purchase requisition 10097375 (Figure 15).

Figure 15

Window showing a button to convert the purchase requisition to the purchase order

This requisition could be converted into a purchase order to procure the materials into stock. This confirms that the components would be procured to stock, thus completing the process for procuring only the components.

Janev K. Veettil

Janev K Veettil has more than 15 years of SAP experience in SAP Production Planning and logistics modules. He has worked on various SAP implementation projects for different industries and his key focus is on manufacturing. 

 

You may contact the author at jveettil@deloitte.com.

If you have comments about this article or publication, or would like to submit an article idea, please contact the editor.

Mohan Thiruvadi

Mohan Thiruvadi is a Senior Manager at Deloitte consulting with more than 18 years of consulting experience. His focus areas are Supply chain Planning, Procurement, Manufacturing and Logistics. His SAP experience over the last eight years has been in the High Tech and life sciences industry.

You may contact the author at mthiruvadi@deloitte.com.

If you have comments about this article or publication, or would like to submit an article idea, please contact the editor.