Splitting Production Orders Optimally to Allocate Component Procurements

  • by Janev K. Veettil, Specialist Master, Deloitte Consulting, LLP
  • November 16, 2017
Most organizations would like to have alternate components determined during the creation of the production order and not while creating planned orders if the procurement lead time in days is not too long. Learn about a custom solution to allocate the quantity of alternate components while creating production orders.
Learning Objectives

Reading this article, you could find guidance to help you learn:

  • How usage probabilities in a bill of material (BOM) are maintained to support allocation of alternate items
  • Details of a rule to allocate the alternate items in production orders optimally
  • How a sample program works
Key Concept
The development of a custom program to split the alternate components among production orders enables a specific order to use an alternate item to meet total quantity requirements.

An SAP system’s standard approach for the quantity allocation of alternate components (substitutable components) in production orders is to create planned orders in a material requirements planning (MRP) run. The alternate components are allocated based on their usage probabilities maintained in bill of materials (BOM). This approach requires maintenance of production version master data as a prerequisite (even though organizations prefer to avoid any extra data maintenance.)

Most organizations like to have alternate components determined during the creation of the production order and not while creating planned orders if the lead time in days is not long. I describe a custom solution to accomplish the alternate components quantity allocation while creating production orders. By allocating alternate components optimally among multiple production orders, businesses should be able to procure alternate components from different vendors against real-time demand, ensure on-time delivery, and reduce cost.

Alternate components, by definition, are components that can be substituted for one another to build a product. They are listed in BOM master data with their expected percentage use. A typical business requirement is to use one of the alternate components to meet the full quantity requirement in a production order build and to use any other alternate components having the full quantity allocated in a separate production order during mass creation of production orders. You can achieve this objective with a simple enhancement that involves developing a rule set to split the components among multiple production orders leveraging the usage probabilities defined in the BOM. Because alternate components could be procured from different vendors, this rule set helps you to ensure on-time delivery of components and to allocate the cost of procurement optimally among vendors.

Business Requirements

By having multiple suppliers to procure the production order alternate items and split the component quantity proportionately among orders, an organization can reduce the risk of a component shortage, reduce cost, and maintain good relationships with different vendors.

Technically, this calls for the following considerations:

The system must consider the number of production orders being converted from planned orders in total. It needs to use a rule to split the total number of production orders proportionately based on the usage probabilities maintained among alternate items in a BOM as:

a. Allocate the full requirement quantity to one of the alternate components in production orders
b. Split the alternate items between production orders during mass creation of production orders
c. Use a rule to carry out the alternate items split in production orders to closely follow the use probability ratio maintained in a BOM

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. 

 

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