Leverage SAP ECC's and Global ATP's Rounding Capabilities to Optimize Supply Chain Logistics

  • by Srinivas Krishnamoorthy, Principal APO Consultant, SCM Practice, Infosys
  • March 30, 2012
Supply chains, especially retail supply chains, have specific requirements in the area of logistics lot sizing to not only improve the use of transportation resources but also to facilitate material handling. See some standard and simple custom rounding methodologies in Available-to-Promise functionality that can help make deliveries to the sales orders logistics compliant, thereby achieving a cost-efficient supply chain.
Key Concept
Supply chains can be made more cost-efficient by constraining fulfillment of sales orders and stock transport orders using rounding strategies. For example, if a supply chain organization ships in quantities of 24 and a customer orders 25, then the extra item would be automatically removed from the order by rounding it down to the closest shipping quantity. Based on pre-agreements with customers, the quantity of both ordered and confirmed quantities can be rounded up or down or true-rounded (rounding up or down based on the closest rounded unit). Once the order is made rounding compliant, it is easier to logistically manage since most of the material handling equipment presumes a certain lot size. This is true throughout the fulfillment process, from shipping an order out from a plant to a distribution center, to loading it on a truck or picking it up, to putting away in warehouse. Logistical costs per unit come down, and such cost savings can be passed on to the customer in a process known as SLOG — streamlined logistics pricing.

In industries such as the consumer packaged goods (CPG) industry, companies have the option of ordering stocks in various units of measures that may not always be logistically convenient to manage. As a result, such orders have to be managed in terms of lot sizing or rounding to create optimal shippable units of measure. An SAP system provides several different ways to manage rounding functions in your supply chain, which I cover in detail. These methods can help optimize logistical functions such as transport load building and transportation management. Existing documentation does not cover this topic comprehensively, and information about the process is distributed across disparate module level documentations.

The benefits of lot sizing confirmations in sales orders include bringing down material handling and management costs. In a sales order you have the ordered quantity, which is what is ordered by the customer for fulfillment, and the confirmed quantity that is actually available in inventory. The confirmed quantity can also be rounded or lot-sized just like the ordered quantity. For example, a customer orders 100 units, but the company only has 84 units in the warehouse, and the lot size is 10 units. Thus the confirmed quantity would be rounded down to 80 units in this case. Following are some features of lot-sizing confirmations in a customer sales order.

  • By basing the rounding of a quantity in a sales order confirmation on its unique customer requirements, you free up unrounded quantities of inventory that can then be made available for other, smaller customers who are placing smaller orders. For example, you have 86 units of a specific stock keeping unit (SKU) in a warehouse. A big customer expects a lot size of 10 units while a mom-and-pop store expects a lot size of five units. In such a scenario if both customers have ordered 100 units, you can satisfy the big customer up to 80 units, while the smaller customer at least gets five units. Thus it improves the service levels of the supply chain for both smaller and larger customers.
  • Having an effective customer-based rounding strategy combined with a pricing strategy is an incentive to the customer to order in more aggregate units of measures that are easier to manage logistically. The resulting cost savings can be passed on to customers. An organization can do a cost-benefit analysis of both scenarios —  having a customer order either in rounded units or unrounded shippable units — and  then decide whether to reduce the price per unit.
  • Shipment of orders with larger lot sizes is easier, which helps optimize loading, moving, handling, packaging, and unloading materials. There are economic benefits of scale with larger lot sizes, as the cost per unit of all overheads in the supply chain effectively reduces.

SAP ERP Central Component (SAP ECC) offers different ways of doing rounding. However, such functions are usually meant for ordered and delivered quantities. In an integrated environment in which global Available-to-Promise (global ATP) in SAP SCM is used for confirming a sales order, or even if the ATP engine in SAP ECC is used for rounding, it is imperative to adapt the rounding strategy that provides this intervention at all stages of an order’s life cycle.

The rounding function can be configured at different levels of control such as ship-to, sold-to, shipping plant, shipping condition, sales organization, or even the material to be shipped. Global ATP offers advanced ways of rounding a confirmed quantity in a sales order at the time of the ATP check, thereby improving parameters in a sales order (e.g., for downstream activities such as transportation planning and distribution).

Note
There is light ATP functionality in SAP ECC, and very deep ATP functionality in global ATP in SAP SCM. Global ATP offers powerful rounding features in some of the latest releases.

Srinivas Krishnamoorthy

Srinivas Krishnamoorthy is a mechanical engineer from IIT Delhi. He holds a master’s of business administration degree from IIM Lucknow (India). He has more than 13 years of experience in supply chain planning applications and has executed several end-to-end Demand Planning, Supply Network Planning, and Global Available-to-Promise projects. He has contributed to the APO forum in SDN and has also written several blogs and papers on supply chain topics. 

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