Demand Planning With SAP APO Concepts And Design
Demand Planning withSAP APO —Concepts and DesignAvijit DuttaShreekant Shiralkar
TABLE OF CONTENTSTable of ContentsPreface123457Introduction to SCM111.1Key aspects of SCM131.2SCM solutions181.3Summary22APO as an SAP SCM solution232.1SAP Supply Chain Management242.2SAP APO262.3Summary35Our business scenario373.1The business scenario: DM Consumer Appliances, Inc.373.2Demand planning scenario403.3Business challenges423.4APO DP as solution to business requirements and challenges433.5Summary44Demand planning process454.1Demand planning introduction454.2Demand planning process flow474.3Summary56Design in APO BW for demand planning575.1Create the Source System575.2Create the Application Component595.3Create the DataSource605.4Create the InfoSource645.5Create InfoArea665.6DSO design675.7InfoCube design705.8Transformation design755.9Summary805
TABLE OF CONTENTS6789Design in ERP for Demand Planning816.1ERP configuration816.2Connectivity between ERP and APO886.3Master data in ERP926.4Core interface settings946.5Integration model execution for data transfer1016.6Summary106Basic design in APO DP1077.1Establishing connectivity between ERP and APO1077.2Master data in APO1147.3Master planning object structure design1197.4Characteristic value combinations1237.5Storage bucket profile and planning bucket profile1307.6Planning area design1337.7Data structure realignment and copy functionality1487.8Planning book, data view, and selections1527.9Summary167Advanced design in APO DP1698.1Forecast profile setup: Master forecast profile1698.2Alerts design1968.3Macros design2058.4Summary228Appendices2299.1Business scenario data: DM Consumer Appliances, Inc.2299.2Important transaction codes2339.3Important tables2379.4Important user exits and BADI functionality2419.5Important SAP Notes242AAbout the Authors248BIndex251CDisclaimer2586
2 APO as an SAP SCM solutionIt is essential to understand and appreciate SAP APO and SAP SCM in general whilelearning about Demand Planning (DP). In this chapter, we will focus on the context ofSAP SCM and SAP APO. DP is a module within APO wherein APO is a component ofSAP SCM. DP takes its input from several other modules and components and viceversa. The tasks and actions executed within DP have consequences on many functions of SAP APO and SAP SCM. For instance, the demand plan output from APO DPdecides the supply network plan in APO SNP. Similarly, APO DP decides the production plan in APO PP/DS. The contextual knowledge of APO and SCM will essentiallyhelp understand and appreciate DP as we progress through this book.We begin by introducing different components of SAP SCM and their functionality inbrief. Next, we will focus on SAP APO, wherein we describe the different business processes that SAP APO espouses through its modules. We will explain different APOmodules, their functionality, SAP APO integration to other systems, and an overview ofSAP APO architecture.SAP Supply Chain Management (SAP SCM) is the supply chain management solution fromSAP that originally evolved from SAP Advanced Planning and Optimization (APO) Version1.1 in 1998. Thereafter, other components were also added to SAP APO and formed SAPSCM. SAP SCM exists as a combination of multiple components as shown in Figure 2.1.Therefore, SAP SCM is a superset of SAP APO. It is important to note that SCM as a business term includes both supply chain planning, as well as supply chain execution activities.However, SAP SCM mostly centers on planning activities with SAP APO as its core component. Other select execution modules in SCM are EM, SNC, EWM, and APO GATP. Themain SCM execution solution from SAP lies in the SAP ERP solution SAP ECC, which haslogistics modules like sales and distribution, materials management, production execution,etc. SAP ECC also has planning components albeit with limited functionality.SAP SCM facilitates planning, optimization, collaboration, tracing and tracking, and warehouse management for complete management of the supply chain. In the process SAPSCM helps companies improve their return on investment and total cost of ownership.SAP APO is a state-of-the-art and sophisticated planning solution from SAP that synchronizes demand and supply planning in the entire network and carries out production planning for the entire bill of material structure. SAP APO is the planning and optimization solution in SAP.DP is the demand planning module from SAP APO. DP integrates with other modules inAPO and helps provide an integrated planning solution. Let’s dive in and take a closer lookat different components in SAP SCM, APO as an SAP SCM solution and different aspectsof SAP APO.23
APO AS AN SAP SCM SOLUTION2.1SAP Supply Chain ManagementThe SAP SCM solution is an umbrella solution that primarily includes planning, as well asexecution activities. SAP SCM seamlessly integrates with other major solutions and applications, e.g., SAP BI, SAP ERP, and non-SAP systems as shown in Figure 2.1.In this section, we will review the different SAP SCM components and provide a brief explanation of each.Advanced Planning and Optimization (APO)APO is the advanced planning and optimization solution component in SAP SCM. We review it in detail in Section 2.2.Supplier Network Collaboration (SNC)SNC is an SAP SCM component that facilitates collaboration with internal and externalpartners in the supply network. With SNC, we can collaborate with suppliers, customers,and contract manufacturers. From a system integration perspective, SNC establishesseamless integration with SAP ERP, i.e., SAP core execution system through SAP ProcessIntegration (PI) technology. Collaboration primarily uses web technology and warrants minimal investments from partners (i.e., only a web browser).Collaboration with suppliers includes: purchase orders, advanced shipping notifications,invoices, incoming shipments, release processing, Kanban, supplier managed inventories,replenishments, forecasts, etc.Collaboration with customers includes: vendor managed inventories, forecasts, promotions,replenishments, and advanced shipping notifications.Collaboration with contract manufacturers includes: procurement, work orders, subcontracting purchase orders, advanced shipping notifications, invoices, incoming shipments, supply network, and inventories.Extended Warehouse Management (EWM)EWM facilitates flexible, automated, and optimized warehouse management support formultiple goods movement and inventory management activities for warehouses. EWM isparticularly suitable for companies that have high volume goods movements, processoriented storage control, complex warehousing activities, and complex goods movementnetworks. EWM increases warehouse management productivity and offers centralizedwarehouse monitoring.EWM is primarily an execution-oriented module and includes planning activities as well.EWM seamlessly integrates with other logistics and fulfilment processes like transportationmanagement, logistics execution, global trade management, global available to promisechecks, and event management.24
APO AS AN SAP SCM SOLUTIONEWM carries out warehouse management activities for inbound processes, outbound processes, storage and operational processes. EWM also offers cross-functional warehousingactivities such as resource and labor management, cross docking, yard management, material flow system, etc.Event Management (EM)EM facilitates visibility on processes, assets, and performances across the entire supplynetwork through monitoring, notification, adjustment, collaboration, and analysis of business events.EM is able to integrate and communicate across multiple technologies, architectures, andplatforms and is in a position to provide seamless visibility for the entire business networkfor both supply chain planning and supply chain execution.Forecasting & Replenishment (F&R)F&R is the SAP Forecasting and Replenishment solution in the SCM space. F&R executesforecasting on a near real-time basis with the objective of maintaining an optimum inventoryacross distribution centers and retail stores across the entire supply network. This is coupled with automated multilevel replenishment planning and ordering capabilities of thegoods to increase productivity, decrease order fulfilment costs, and increase service levels.Figure 2.1: SAP SCM components and interfacesAll of the components explained above and shown in Figure 2.1 often interact with oneanother depending on the business requirements. Furthermore, the entire SAP SCM system integrates with the SAP ERP execution system, big time, for master and transactionaldata. SAP SCM also integrates with other SAP systems like SAP BW, SAP CRM, SAP25
APO AS AN SAP SCM SOLUTIONSRM, and SAP PI depending on the business need. SAP SCM can also integrate with webapplications, as well as non-SAP systems.2.2SAP APOSAP APO is the Advanced Planning and Optimization component of SAP SCM. The acronym APO stands for Advanced Planning and Optimization. SAP APO provides collaboration, planning, and optimization across the entire supply chain network.APO: Not a standalone systemAPO cannot exist as standalone system, as it needs a backend ERP system for input data and also eventually to pass planning data back to theERP system for execution.SAP APO helps to address supply chain challenges by providing a robust and sophisticatedplanning solution.SAP APO integrates seamlessly with other major components of SAP SCM as depicted inFigure 2.1. However, SAP APO also integrates with SAP systems, non-SAP systems, andthe web as shown in Figure 2.2.Figure 2.2: SAP APO modules and interfacesIt is important to understand that APO represents an advanced planning and optimizationcomponent. This is precisely because we do get a miniature version of planning in ERPitself. The planning functionality in SAP ERP is quite generalized and is not as comprehensive as SAP APO. Needless to say, the SAP APO optimization functionality that reinforcesthe planning output does not exist in SAP ERP.26
APO AS AN SAP SCM SOLUTIONIn this section, we will look at the different business processes and modules that pertain toSAP APO, the building blocks of SAP APO, its integration with the core execution systemlike SAP ERP, integration with different peripheral systems, integration with non-SAP systems, and finally SAP APO architecture.2.2.1 Business processes and modules in SAP APOSAP APO addresses multiple business processes through its modules, features, and functionality. Custom enhancements to SAP APO address specific business functionality needsfor individual companies. In some instances, SAP APO co-exists with other technologyapplications that carry out very different business processes. We will look at some of thebroad business processes that SAP APO handles in the following section and in Figure 2.3.This will also provide an understanding of the demand planning business process and DPmodule in the entire context of APO.Let’s take a closer look at Figure 2.3. At a very high level, there are five main entities in asupply chain: supplier, manufacturer, distributor, retailer, and consumer.Please note that consumer is different from customer in the sense that the consumer is theone who finally uses or consumes the product and does not engage in moving products inthe supply chain through selling or transporting. Customer in contrast is a relative term.TV customer vs. consumerA TV manufacturer is a customer of the supplier of TV parts, the TV distributor is a customer of the TV manufacturer, and the TV retailer is a customer of the TV distributer. However, the person purchasing the TV inorder to use it for watching at home is a consumer.Typically, products and/or services flow from the supplier through the consumer as shownin the diagram in Figure 2.3.Product demand comes from the consumer to the retailer and that constitutes independentdemand of the product. That, in turn, creates dependent demand on the distributor. Thedistributor then creates dependent demand of the product to the manufacturer. However,independent demand can also come from other companies directly to the distributor ordirectly to manufacturer. The Demand Planning module in APO carries out the businessprocess of planning independent demand. Using APO DP, we can carry out statistical forecasting, promotion planning, new product lifecycle planning, collaborative demand planning, etc.Based on the planned independent demand explained above, actual independent demandin the form of sales orders and dependent demand arising in the supply network we cancarry out the business process of supply planning to meet the total demand arising in thenetwork. The APO Supply Network Planning (APO SNP) module handles the businessprocess of supply planning and dependent demand generation for the network. ThroughAPO SNP we can handle unconstrained supply network planning, constrained supply net27
INDEXB IndexAActivate incremental data transfer 113Activate the integration model 103Activation 101Active integration model 101Active model 114Active planning version 114Activity 54Advanced Planning and Optimization 24,26Aggregate level 137Aggregation 139Aggregation and disaggregation 47, 123,139Alert management 196Alert monitor 196, 197Alert profile 196Alerts 196Alerts design 196APO 23, 24APO architecture 33APO BW 48, 57APO BW design elements 57APO BW process Fflow 48APO Demand Planning 27APO DP 27, 45, 46APO DP as solution to businessrequirements and Challenges 43APO DP process flow 50APO GATP 29APO Global Available to Promise (GATP)29APO master data 114APO Production Planning and DetailedScheduling 28APO SNP 27APO Supply Network Planning 27APO Transportation Planning and VehicleScheduling 29Application Component 59Application specific alert profile 196Application tool bar 209Attribute 138Automatic Model Selection 1 192BBaseline forecast 135Basic Design in APO DP 107Basic value 172Benefits of supply chain solutions 21Block 47Business challenges 42Business Scenario 37Business scenario data 229Business system group 110CCalculatn type 143Calendar 130Cannibalization 55Causal analysis 195Centered moving averages 172Characteristic value 123Characteristic value combinations 123Characteristics 46, 50, 60, 137CIF 32Clipboard 208Components of SAP SCM 19Composite forecast profile 195Composite forecasting 153Configuration in ERP 81Connectivity between ERP and APO 81,88Connectivity between ERP and SCM107Consensus demand planning 55Consensus forecast 51, 55, 211Consensus planning 54, 165251
INDEXConsistency check for the macro 224Constant demand 170Constant Model 177Constant Model with Automatic AlphaAdaptation (1st Order) 177Control parameter 184Core execution system 81Core interface 32, 94Core interface settings 81, 94Corrected forecast 135, 136Corrected history 135Create characteristic combinations 124Create InfoArea 66Create InfoSource 64Create the Application Component 59Create the DataSource 60Create the Source System 57Create Transformation betweenDataSource and DSO 75Create Transformation between DSO andInfoCube 77Creating time series objects 145Croston’s Model 182, 188Customer satisfaction 22Cycle time 22DData copy 150Data loading 51Data loading design 57Data loading to APO BW 70Data realignment 148Data structure realignment and copy 148Data transfer between ERP and SCMsystems 99Data Transfer Process 49Data view 134, 156Database alerts 197DataSource 48, 60DataStore Object 67Days in period 185Default macro 208Delete CVC 130Deleting an integration model 101Demand and supply alignment 21252Demand planning 11, 29, 45, 81Demand planning alert profile 201Demand planning process 45Demand planning process flow 47Demand planning scenario 40Dependent demand 13, 27Dependent variable 195Depot 208Design groups 47Design in ERP for Demand Planning 81Design of Macro for Alerts Generation onForecast Variation 221Design of Macro for total forecastcalculation 211Design steps 47Diagnosis group 183, 189Dimension tables 70Direct Sales 38Disaggregation 137, 139Distribution center 37Distribution definition 112DM Consumer Appliances, Inc. 37DP 11, 23, 29DSO 48, 67DSO design 67DTP 49Dynamic alerts 197EECC 81EM 25ERP configuration 81Error total 187Establishing connectivity between ERPand APO 107Event Management 25EWM 24Exchange rate type 138Execution of integration model 81, 101Exit macro 209Exponential smoothing 172Ex-post forecast 136, 174Ex-post method for outlier correction 184Extended Warehouse Management 24External forecast 183
INDEXFF&R 25Fact table 70Features of macros 206First order exponential smoothing 177Fiscal year variant 169Forecast accuracy 136, 185Forecast Alert Profile 196Forecast alerts 197Forecast calculations 174Forecast error 185Forecast future demand 170Forecast horizon 169Forecast key figure 169Forecast planning alert profile 198Forecast profile based on AutomaticModel Selection 1 192Forecast profile based on Croston’sModel 188Forecast profile setup 169Forecast settings 141Forecast with Automatic Model Selection1 179Forecast with Automatic Model Selection2 181Forecast with Seasonal Models 178Forecast with Seasonal Trend Models179Forecast with Trends Models 178Forecasting & Replenishment 25Forecasting model types 177Forecasting strategy 177Formula for first order exponentialsmoothing 175Formula for second order exponentialsmoothing 176GGATP 31Generate alert 196Generate integration model for location95Generate integration model for material97Generate integration model for stocksand PIRs 99Generation and execution of integrationmodel 94Global Available to Promise 31Globalization 17HHierarchical structure of macro definition209High Definition Television 37Historical data adopted 181Historical Input 135Historical value marking 183History data 170History horizon 169Holt and Winters’ Exponential Smoothing179Holt’s method 178IImportant SAP Notes 242Important tables 237Important transaction codes 233Important user exits and BADIfunctionality 241Inbound quoues 111Incremental data transfer 113Independent demand 13, 27Independent variables 195Indirect Sales 38InfoArea 48, 66InfoCube 48, 67, 70InfoCube design 70InfoObject catalogs 60InfoObjects 48, 60InfoPackage 49InfoProvider 66, 70InfoSource 48, 64Initialization 51, 136, 145, 146Initialize 130Integration model 94Integration model activation 101Integration model activation for material103253
INDEXIntegration model activation for stocksand PIRs 104Integration model for location 95Integration model for material 97Integration model for stocks and PIRs 99Integration model for the transactionsdata 99Integration with non-SAP systems 33Integration with SAP ERP 32Integration with the SAP peripheralsystem 32Interactive planning 51, 156Intermittent demand 170Inventory 21JJDA Supply Chain Planning andOptimization 20KKey figure 45, 51, 60, 134LLCD 38LCD TVs 38LED 38LED TVs 38Level change macro 208Lifecycle planning 54, 163, 169Like profile 54Linear regression 182LiveCache 33Location 82, 116, 123Location integration model activation102Locking logic 141Logistics Management 11Lumpy demand 170MMacro 51, 156, 205, 206Macro Books 206Macro dependent alerts 196Macro elements 207Macro processing area 207, 208254Macro tools 208Macro Workbench 206MacroBuilder 206Macro-dependent alerts 197Macro-driven SDP Alert Profile 201Macros design 205MAD 185Maintain selection 161Maintaining forecast profile 192Manual correction 55, 136, 211Manual creation of CVCs 124Manual forecast 182Manufacturing plant 37MAPE 185Mass creation of CVCs 127Mass processing 54Master Data 92Master data in APO 114Master data in ERP 81Master Data in ERP 92Master forecast profile 169Master planning object structure 119,139Master planning object structure design119Material 94Material Masters 92Mean absolute deviation 172, 185Mean absolute percentage error 185Mean percentage error 186Mean square error 186Median Method 179Median method for outlier correction 184Mobile supply chain 18Model 114Model and version management 114Model consistency checks 114Model initialization 172, 174, 175, 176,183Model Parameters 172Model Parameters like Alpha (α), Beta (β)and Gamma (γ) 183Model reinitialization 183Model reinitialization settings 183Model Type
INDEXConstant 172Seasonal 173Seasonal Trend 173Trend 173Moving average 171, 177MPE 186MSE 186Multiple Linear Regression 153Multiple linear regression profile 195NNavigational attribute 138Networked and digitized world 17OOptimization 34Options for the structural disaggregation140Options for Time based disaggregation140Oracle SCM 20Original forecast 135Outbound queues 111Outlier correction 184Outliers 135Overall alert profile 196Plant 81, 116PP/DS 28, 30Predictable execution 21Primary execution system 107Process chain 54Process groups 47Process steps 47Product 118Product lifecycle 15Production planning 166Production Planning and DetailedScheduling 30Promotion 54, 135, 136, 187, 189Promotion attribute 55Promotion base 55Promotion key figure 55Promotion level 55Promotions planning 55, 164Proportional factor 137, 140Proportionate factors 51PSA 48QQueue 91Queue type 91RPPartner collaboration 22Period indicator 169Periodicities 130Periodicity 132Phase-in profile 54Phase-out profile 54Phi parameter 184Planning accuracy 21Planning area 51, 133, 139Planning area concepts 134Planning area design 133Planning area LiveCache 134Planning book 51, 134, 153, 156Planning bucket profile 131Planning data 134Planning table 208Planning versions 114Read historical data 176Realignment 148Release and transfer of demand plan 55Release of demand to APO 165Release to SNP 54Retail stores 37RFC destination 90RMSE 187Root mean square error 187SSales forecast 134Sales history 134Sales history data 57SAP Advanced Planning andOptimization 23SAP APO 23, 26, 27SAP ECC 20255
INDEXSAP ERP 20, 81SAP ERP ECC system 81SAP NetWeaver platform 34SAP SCM 19, 23, 24SAP SCM on HANA 35SAP Supply Chain Management 23, 24SCM 11, 13, 19SCM challenges 15SCM execution components 20SCM planning components 20SCM solutions 18SDP Alert Profile 196Seasonal demand 170Seasonal indices 172Seasonal Linear Regression 178Seasonal model and test for trend 180Seasonal Model Based on Winters’Method 178Seasonal trend demand 170Second order exponential smoothing172, 176Second-Order Exponential Smoothing178Selection criteria 163Selection ID 163, 166Selections 161Semantic checks output area 208Service Parts Planning 32Smoothening techniques 174Smoothing 171Smoothing factors 172, 174Smoothing method 171SNC 24SNP 30source system 48Source System 57Sporadic demand 170SPP 29, 32Standard macros area 208Start macro 209Statistical forecasting 54Storage bucket profile 50, 130, 138Stretched supply chains 15Structural aggregation anddisaggregation 139256Supplier Network Collaboration 24Supply chain disruption 16Supply chain efficiency 21Supply chain execution 14, 19Supply Chain Management 11Supply chain network 37Supply chain pipeline visibility 21Supply chain planning 13, 14, 19Supply chain visibility 15Supply network management 11Supply network planning 165Supply Network Planning 30Synchronization of plan and execution15TTarget system 91Test for season 180Test for trend 180Test for trend and season 180The APO Service Parts Planning 29Threshold limit 196Time horizon 130Time series 170Time series method 170Time series objects 51Time series patterns 170Time-based aggregation anddisaggregation 139Total cost of ownership 22Total forecast 55, 136, 211TP/VS 29, 31Transfer of demand to ERP 166Transfer to ERP 54Transformation 48, 75Transformation design 75Transition from linear supply chains toresponsive and collaborative networks18Transportation Planning and VehicleScheduling 31Trend dampening 184Trend dampening settings 184Trend demand 170
INDEXTrend model and test for seasonalpattern 181Trend Model with Automatic AlphaAdaptation (2nd Order) 178Trend value 172Trends in SCM 16Type of forecast profiles 169Univariate forecasting model types,forecast strategies and modelparameters 177UWUnivariate forecast profile 51, 170, 192Univariate forecasting 153Weighted Moving Average 177Weighted moving averages 171Weighting profile 183Worklist loading 127VValue of alpha, beta or gamma 172Version 114257
SAP APO is the planning and optimization solu-tion in SAP. DP is the demand planning module from SAP APO. DP integrates with other modules in APO and helps provide an integrated planning solution. Let’s dive in and take a closer look at different components in SAP SCM, APO as an SAP SCM so
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