• Planning time horizons
  
  
• Order-versus-time series structures
  
  
• SCM business processes
  
  
• APO configuration process

These key concepts help new users understand important APO areas so they can get up to speed more quickly. I’ll explain each of them and how they relate to APO.

Planning Time Horizons

SAP designed APO’s planning modules around planning horizons. With enterprise resource planning (ERP) tools, new users learn about concepts such as time horizons and time fences. If you understand the planning horizons and their interrelationships, you can appreciate how SAP designed the SCM modules to work with one another.

The planning horizons applied in APO include strategic planning, production execution, procurement execution, operational planning, demand planning, tactical horizon (an amalgam of the procurement and production execution horizons), and frozen horizons, which occur during the transition from one horizon to the next.

Strategic planning horizon. This is the longest horizon and typically addresses events that occur anywhere from one to five years out. In strategic supply chain planning, you determine whether, when, and where to open new sites or close old ones. Exceptions occur when strategic events spill into the outer edges of a demand picture, such as an entrance to a new market that occurs inside of 12 months. They also occur when opening or closing a site might affect a supply network planning solution by increasing build opportunities or decreasing available supply or production capacity.

You address the effects of these events inside APO. For example, say your company decides to build a factory with an opening date in 18 months. In six months, the factory is available for scheduling, so it’s visible in APO. This strategic event now becomes relevant to APO planning.

Production (manufacturing) execution horizon. In contrast to the strategic horizon, this is typically the shortest time horizon, often as short as three days. It addresses the amount of time necessary to provide immediate scheduling flexibility and assembly stability for lots already released to production. In other words, to give the shop floor the maximum flexibility to schedule orders and lots to work centers, you have to stabilize demand and supply signals to restrict changes to production requirements.

When dealing with large units, you set this horizon according to how long it takes to make or process a product. Alternatively, when dealing with small units, you set this horizon according to how long it takes to complete an entire production lot of products, though these are not rigid rules. For example, an airplane manufacturer may define the production execution horizon as the time required to build just one plane. An automobile manufacturer may define this horizon as the length of time necessary to compile and package a single lot of sedans. A produce distributor, capable of processing and packaging hundreds of lots a day, may define this period as a week to align it with labor schedules, or less than a week if changes in demand are tolerable because the packaging process is so simple.

Non-manufacturing companies can use a form of the production execution horizon. A port, for example, does not manufacture anything but may want to conduct detailed lot scheduling similar to a manufacturing enterprise. In this case, the port may have an analogous docking horizon, which is the production period during which the port controls and carries out activities.

Procurement execution horizon. The output of procurement execution is purchased raw materials and component parts that are the material input to the production execution horizon. The procurement execution horizon addresses the time necessary to procure raw materials, semi-finished goods, subcontracted products, and any other services necessary to stage for final production execution. This horizon varies, but you define the extent of the horizon by the longest lead-time part. Most companies must cope with a variety of parts, some that are readily available and others that are constrained in their supply. Constrained parts ordinarily require additional planning and longer lead times.

A luxury car manufacturer, for example, may procure both window glass, which is plentiful, and LCD screens for onboard DVD players, which are more complex to manufacture and restricted in availability. The lead time on purchase orders for window glass may be as little as 10 to 14 days while that of LCD screens may be two or three months. As lead times for purchased parts vary widely, the lengths of the procurement execution horizons similarly vary with some being four weeks, eight weeks, three months, or sometimes longer.

You can avoid some of the worst strategic pitfalls associated with misappropriating APO modules such as Production Planning/Detailed Scheduling (PP/DS) and Supply Network Planning (SNP) if program managers and executives understand that the procurement execution horizon is the same as the production planning horizon. In production planning, you schedule, control, and execute procurement activities to stage raw materials, semi-finished goods, labor, and equipment appropriately to enter into the production execution horizon. Often developers and decision makers are not aware that although these activities are all part of production planning, it is the procurement execution horizon that concretely defines when network-level operational planning must give way to detailed, localized, procurement execution, and management.

Operational planning horizon. This is the entire horizon beyond the procurement execution horizon during which you plan operations, including supply, capacity, transportation, and any resource present in the supply network that might incur constraints. The most distinguishing characteristics of the operational planning horizon are that it concerns planning and focuses on capital resources, which you can re-plan inexpensively before execution. On one side, this horizon abuts the procurement execution horizon and execution activities. On the other side, it ends at the point at which it is no longer profitable for an organization to be concerned with the planning of constrained resources.

Demand planning horizon. This is the length of time you wish to forecast, plan, and manage demand. The demand planning horizon is the longest within SCM and the strategic planning horizon is the longest outside of SCM. Sometimes the operational planning horizon includes the full length of the demand planning horizon; other times it is contained within the demand planning horizon. It is never longer because it makes no sense to plan operationally for resource constraints when you have no visibility to demand.

Organizations differ widely in their use of demand planning horizons. Companies that produce large products, such as airplanes or ships, often find it necessary to conduct demand planning for two to five years out. Most organizations, however, find a demand planning horizon of 12 months or fewer to suffice.

Two other horizons, tactical and frozen, come into play when setting up business processes or information systems that address organizations’ planning requirements. They are related more to colloquial habits or technical restrictions on activities.

Tactical horizon. This includes both the procurement and production execution horizons. You carry out procurement execution simultaneously with production planning to prepare for production execution, so tactical horizons usually include production planning as well. The trick when relating the meanings of these horizons to your own organization and their uses in APO is to be clear about the horizon’s definition. For tactical horizons, this is normally the beginning of procurement execution activity.

Frozen horizon. This is sometimes called a fixing period. You usually apply this term to a time fence that approaches, but does not start with, the end of the procurement execution horizon. It includes the production execution horizon. Throughout the horizons leading up to either procurement or production execution, changes in demand often result in changes in procurement patterns to maximize early production and minimize inventories. However, you reach a point of diminishing returns wherein the cost or risk associated with such changes exceeds any benefit.

For example, changing the details of a purchase order may delay receipt of critical parts that you are about to stage for production. If this delay occurs within a week of the requirements date to begin production, then the unavailability of the parts results in production lines being down. This is the worst possible condition — nothing is happening, but labor and equipment are incurring costs. To avoid this, many organizations apply frozen horizons shortly before the start of the procurement or production horizons during which procurement changes are forbidden. Procurement continues to take place, but no changes are allowed. This ensures the stability of supply.

Another place where frozen horizons apply is at the overlap of the operational planning horizon, during which you plan and schedule supply network operations and the procurement execution horizon, when planning yields to execution. During a cross-over period, where the operational planning horizon yields to the procurement execution, you may prevent changes to the operational plan for procurement of constrained parts while continuing to allow for changes to production as long as the now-constant purchasing plan continues to support them. This period typically lasts eight to nine weeks.

For example, in the case of the luxury car manufacturer, you would prohibit changes to the procurement plan of the LCD screens at 60 days out, the length of the LCD screens’ lead time. You could continue to permit less extreme changes to the production plan that do not rely on the availability of the constrained part, such as a mix change to build more of a higher-end model of SUV and fewer of the medium-end model, which would still require the same number of LCD screens called for in the original plan.

Time Horizons and APO Modules

Having considered the planning horizons of the supply chain, let’s address how APO modules apply specialized competencies to address the requirements of each horizon (Figure 1).

Figure 1

APO modules are built around the requirements of supply chain planning time horizons (Source: SAP SCM: Applications and Modeling for Supply Chain Management (with BW Primer), Daniel Wood, Copyright © 2006, John Wiley and Sons. Used with permission of John Wiley & Sons, Inc.)

PP/DS. In this module, DS serves the needs of the production execution horizon. You use the larger PP/DS module to create the orders that feed DS so everything is prepared when DS is ready to take over. When you enter the manufacturing execution horizon, DS takes control of operations from PP and all other modules and applications.

PP addresses the business needs of the procurement execution horizon. It receives a plan from SNP and applies that plan at a site level to schedule, manage, and execute procurement and stage all necessary components (materials, goods, labor, and equipment) for final production.

The title of this tool may be misleading. In my experience, many developers outside PP/DS tend to make the assumption that the entire module is limited strictly to shop-floor control. You can use either terms “production planning” or “procurement execution” to describe the procurement execution horizon in PP. Even though those who work with PP/DS may understand the inclusion and equality of procurement execution within production planning, the nuance is often lost on those who work outside the module. Failure to recognize this may lead to strategic miscalculations where, for example, a company may apply SNP in procurement execution, where SAP did not design it to work.

SNP. SAP designed this module for Sales and Operation Planning (SOP) activities. SNP constitutes the most pure planning module of the entire APO application, concerned neither with the analytics and determination of demand nor with execution. Successful use of SNP requires that project planners and developers be sensitive to its boundaries and competencies.

Use SNP at the first point at which constraints are introduced to planning. It may be helpful to consider each horizon as staging for its successor. Demand planning stages a demand forecast and fulfillment allocation plans for supply network planning. Supply network planning stages all of the capital resources of the entire supply network for execution: factories, subcontracting facilities, suppliers, distribution centers, and transportation lanes. The more execution in the plan, the more cost you incur with re-planning. Therefore, unlike procurement and production execution horizons, execution demands do not restrict SNP. With no execution to restrict capital-resource level re-planning, SNP can apply its solvers (heuristics, Capable-to-Match [CTM], or optimization) to move around any supply network resources to stage them for execution.

After you stage suppliers, subcontractors, and transportation lanes in SNP, you can use them for procurement execution. This in turn results in the staging of materials for production execution. The deeper you move into execution, SNP’s capital resource re-planning competencies become less useful.

Demand Planning (DP). This module is organized around the standard supply chain business requirements of the demand planning horizon. In DP, you must develop an unconstrained forecast or demand plan (i.e., a demand forecast without constraints that would restrict it). It can be difficult to accurately forecast demand. Beyond demand forecasting, however, you can apply DP to disaggregate demand, assigning bits and pieces of it to various geographies or producers in the supply network.

Order vs. Time Series Structures

Whereas planning time horizons address APO in aggregate, order and time series structures are concerned with APO in detail. Every APO module is concerned with storage and data display methods. You may need to store data using one method while displaying it another way.

Say you are interested in units of demand that drive production, such as forecast or customer sales orders, and corresponding units of supply that fulfill the demand, such as purchase orders or production orders. For this level of detail, use an order-based view that depicts the details of each order (Figure 2).

Figure 2

Order-based view (Source: SAP SCM: Applications and Modeling for Supply Chain Management (with BW Primer), Daniel Wood, Copyright © 2006, John Wiley and Sons. Used with permission of John Wiley & Sons, Inc.)

What if your concern is with activity scheduling? In this case, you may be interested in demand, supply, or both. You also may be interested in constraints such as labor or physical resource capacity. At this level, are order- level details so important? No. For scheduling, you usually need a time-series view of activities that aggregates order information according to units of time (Figure 3).

Figure 3

Time-series view (Source: SAP SCM: Applications and Modeling for Supply Chain Management (with BW Primer), Daniel Wood, Copyright © 2006, John Wiley and Sons. Used with permission of John Wiley & Sons, Inc.)

At high levels of scheduling, it usually does not matter if one, two, or 10 individual orders drive demand 10 weeks from now. All that matters is the total demand in week 10. Similarly, it does not matter how many production orders you divide to meet that demand, as long as you set them up within capacity limitations. It’s fine if one order, at one location, is sufficient to cover demand. However, you may have four or five orders split between work centers or sites. All that matters for scheduling is the aggregate plan for the time-bucket: how much you produce in that week or in that week at that site.

When presented with the four primary non-geographical APO UIs — product view, planning book, Product Planning Table, and Detailed Scheduling Planning Board — the first question you should consider is whether any of these UIs is suited to an order-based or time-series analysis. When presented with the liveCache memory bank that controls data between APO and R/3, ask if the system stores data as order-based only or both order based and time series. Recall that Core Interface (CIF) always deposits data in APO first as order-based. If a time-series view of data is necessary, such as with the planning book, translation to time-series objects is also necessary.

SCM Business Process

Training both SCM users and developers entails addressing the overall objectives of the SCM application or module, then spending the balance of the training addressing SCM features and capabilities. Despite its complexity, APO almost always follows the same process for carrying out business problems. The process is relatively simple and consists of computational processes, alert monitors, human intervention via UI, and plans of record (PORs).

Computational processes. Computation processes comprise about a third of the overall SCM planning process. The processes are statistical analyses for demand planning, heuristics, and optimization for SNP and PP/DS as shown in step A in Figure 4.

Figure 4

SCM Process (Source: SAP SCM: Applications and Modeling for Supply Chain Management (with BW Primer), Daniel Wood, Copyright © 2006, John Wiley and Sons. Used with permission of John Wiley & Sons, Inc.)

Alert monitors. Alert monitors in SCM employ a customized alert profile that scans the results of computational processes and looks for specific conditions or thresholds that should alert a buyer, planner, or controller to perform an action, as shown in step B in Figure 4. You can invoke these alerts from almost any of the UIs.

Human intervention via UI. After the system sends an alert for a specific condition (e.g., purchase order is late, demand has spiked), buyers, planners, and controllers call suppliers to bargain for a pull- in, call customers to bargain for a product swap, or call the shop floor to check on unreported raw materials inventory. This group could also use reports generated by SAP NetWeaver Business Intelligence (SAP NetWeaver BI) to input changes. This results in a new proposal, which users either accept and pass to production or analyze and change further as shown in step C in Figure 4.

PORs. These could be several different types of planning output, which I summarize in Table 1.

With the SCM core process flow, business analysts and consultants may organize their task into four parts: computational requirements, alert profiles for the alert monitor, UI requirements, and output PORs. Of course, you may require some additional areas, such as data interfaces to external systems. Besides serving as a guide to project organization, the four steps also can help you organize internal training materials targeting end users.

APO Configuration Process

The last key is of particular interest to developers. Configuration is the most complicated aspect of APO, so I won’t go into substantial detail. Nonetheless, configuration of APO, regardless of the module, follows a pattern. As developers work out the settings necessary to meet the unique business needs of users, I advise that they compose build books that carefully delineate the process of rolling out configuration, setting by setting, to build complete supply network models quickly, without losing the lessons learned from one project phase to the next. Such build books may include all of the settings appropriate to each configuration area (e.g., CIF model variant configuration, module profile configuration) following the APO configuration process sequence in Figure 5.

Figure 5

APO configuration process (Source: SAP SCM: Applications and Modeling for Supply Chain Management (with BW Primer), Daniel Wood, Copyright © 2006, John Wiley and Sons. Used with permission of John Wiley & Sons, Inc.)

The APO configuration process aligns with six general steps:

Step 1. Master data setup. This step includes configuring CIF integration profiles and variants for profiles; activating and deactivating transactions; and deleting and changing pointer transactions. It also includes setting up and configuring master data elements that you can maintain only in APO.

Step 2. Transactional data setup. Similar to master data setup, this also includes configuring CIF integration profiles, their variants, and any associated CIF maintenance transactions.

Step 3. IMG configuration. In this step, you configure settings in the IMG that may be necessary for proper CIF function — for example, the distribution definition. Note that this step may be interchangeable in its order with step 1, depending on whether you are carrying out configuration in a development or production environment.

Step 4. Model/module profile configuration. This step has two parts. First, it is necessary to configure the model and version (or models and versions) that you employ in APO. For example, you always must configure model 000, version 000 for active production use with any special module-specific settings. You may configure another model/version, such as model 000, version SIM for inactive, simulation use. After this is complete, you set up configuration profiles specific to the module in use (e.g., DP, SNP, PP/DS), according to the business process requirements defined for the module by earlier business or gap analysis.

Step 5. UI configuration. Many UIs are configured as a consequence of the module- specific configuration in step 4. Others, such as the planning book, require their own unique configurations.

Step 6. Alert profile configuration. You configure alert profiles, customized to individual job roles or users, to notify users when important conditions arise either as a result of computational processes, interfaces, or other user data entries.

Apart from these six steps, some other cases are likely to arise, such as configuring SAP NetWeaver BI for data archiving, retrieval, or reports. Additional maintenance and construction activities are required in any project that employs code changes in user exits or additional function modules. Even so, these six steps form a secure basis that any project team should be able to add to as necessary to meet its overall development requirements.

Daniel Wood

Daniel Wood is a lecturer at Arizona State University in the W.P. Carey School of Business and a former industry SAP SCM business system analyst. He is author of SAP SCM: Applications and Modeling for Supply Chain Management (Wiley)

You may contact the author at daniel.c.wood@asu.edu.

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