Outsourcing Operations? How to Design an Undisrupted Supply Plan in SAP APO

  • by Manish Thukral, Principal Consultant, Infosys Technologies
  • October 20, 2014
See how a manufacturing company created a new third-party logistics (3PL) code to represent a third-party logistics service provider. By incorporating 3PL into supply chain planning, the manufacturing company could plan against changing demand and supply position at 3PL and replenish the 3PL site to achieve the desired customer service level.
Learning Objectives

By reading this article, you will learn how to:

  • Net the inventory in transit from an in-house distribution center (DC) to third-party logistics (3PL) as well as inventory at 3PL before sending the demand signal to the supply sites
  • Provide short-term and long-term visibility to the supply sites of the shipment destination during transition of operations
  • Ensure production plans at supply sites are not disrupted during the transition period
  • Provide flexibility to deployment either in a house DC or 3PL
Key Concept

A purchase information record is a master data record in an SAP system that establishes the relationship between material code and the supplying vendor. A special procurement key is a master data record in an SAP system that establishes the link between two plants or two distribution centers for stock transfer processing between the linked locations.

The pharmaceutical industry has become extremely competitive due to the rise of the generic drug market. This market also has become complex due to global supply chains. The rising costs of research and development and the declining profit margin of generic drugs makers have led some specialty branded drug-making companies to improve their bottom line by looking at opportunities to optimize their operational costs. One such opportunity is to outsource noncore supply chain operations such as the in-house distribution center to third parties. However, outsourcing of in-house distribution center (IHDC) operations to a third-party logistics (3PL) service provider requires a design change in ERP and SCM systems. The change can vary in each case as the system landscapes of companies vary.


I describe a scenario in which, because of a design and business requirement, a new code 3PL was created to represent a third-party logistics service provider. The existing code IHDC, representing the in-house distribution center, was removed from planning in the manufacturer’s ERP system. The code 3PL in the manufacturer’s ERP system represented all operational transactions, such as sales order, purchase order, and inventory movements, at the third-party logistics service provider’s warehouse. The third party’s ERP system was integrated with the manufacturer’s ERP system via electronic data interchange (EDI) to send and receive the transactional data (Figure 1).

Figure 1
The integrated system landscape


From an SAP Advanced Planning and Optimization (APO) perspective, the new 3PL code replaced the old IHDC code in the complex supply networks and was integrated in APO using the core interface (CIF). In this document, APO screenprints of one supply chain (from the North America supply site NA to the Canadian national IHDC) are provided for understanding. To imagine the complexity, master data is also provided for two other supply chains where the supply site is in Asia/Pacific and in the Europe, Middle East, and Africa (EMEA) regions supplying into the Canadian national IHDC.

Manish Thukral

Manish Thukral is is a certified SAP SCM consultant with more than 10 years of hands-on experience in the SAP Supply Chain Management (SCM), SAP Advanced Planning and Optimization (SAP APO), and SAP Integrated Business Planning suite of products, such as SAP APO Demand Planning (DP), SAP APO Supply Network Planning (SNP), Core Interface (CIF), Global Available to Promise (GATP), SAP Integrated Business Planning for demand, SAP Integrated Business Planning  for supply, SAP Integrated Business Planning for  sales and operations planning, and SAP Integrated Business Planning Supply Chain Control Tower. He has experience with multiple full life-cycle implementations and multiple projects.

Manish also is an APICS certified consultant with experience in functional areas of production planning, warehouse management, inventory management, demand planning, supply planning, sales and operations planning, and available-to-promise spanning across apparel, consumer packaged goods (CPG), fast-moving consumer goods (FMCG), and pharmaceutical industry sectors.


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