How to Achieve Optimal Inventory Levels with SAP Integrated Business Planning for Inventory

  • by Anjali Butley, Solution Architect, SAP SCM and SAP Integrated Business Planning
  • August 16, 2017
Learn how to achieve optimal inventory levels for raw materials, work in process, and finished products across the supply chain with SAP Integrated Business Planning.
Learning Objectives

Reading this article, you will learn how to:

  • Model planning objects, master data, and transaction data for SAP Integrated Business Planning using a unified planning area of SAP Integrated Business Planning. It is a business process that is executed as a part of sales and operations planning (S&OP). An SAP standard planning area that covers all end-to-end integrated business planning processes is required.
  • Maintain inventory-related planning operators, which are algorithms for inventory optimization
  • How to execute and run an inventory optimization business process while having a review process of inventory as a part of an S&OP process
  • Analyze inventory levels with various key figures and key performance indicators (KPIs)
Key Concept
The unified planning area, SAP Integrated Business Planning’s standard planning area, provides end-to-end business processes related to all the technical details of a planning area in SAP Integrated Business Planning.

Effective inventory management of various inventory types, including finished goods, work in process (WIP), raw materials, and partners’ (suppliers’) inventories leads to core supply chain management optimization. Today, most of the companies facing challenges for inventory optimization want to review and improve on it by having it be a part of the sales and operations planning (S&OP) process. Now the S&OP will have inventory review as an additional process step.

The S&OP process generally starts with a demand review followed by a supply review and pre-S&OP review, and ends with an executive review. From the organization’s strategic plan, one of the requirements is including an inventory review business process step in the S&OP process. Now the S&OP with inventory review process has the following sequence, shown in Figure 1:

  • Demand review: Demand planners from various regions review global demand and reach a consensus on a demand plan.
  • Inventory review: Inventory planners review the inventory plan and reach consensus on an optimized inventory plan.
  • Supply review: Supply planners review the supply plan and reach consensus on a final supply plan.
  • Pre-S&OP review: Demand planners, inventory planners, and supply planners come together for review and work on balancing demand, inventory levels, and supply. They prepare the S&OP plan.
  • Executive review: S&OP executives review the S&OP plan along with inventory levels and finalize it.

Figure 1
S&OP process with inventory review

The major challenges for inventory optimization are:

  • Lack of visibility and control
  • Multi-channel go-to-market strategies
  • Shorter product life cycles

SAP Integrated Business Planning enables an organization to overcome the key supply chain challenge of how to effectively handle optimal inventory levels for finished products and raw materials. The business process of S&OP along with inventory, which is also referred to as sales, inventory, and operations planning (SiOP), helps an organization overcome the challenge of inventory levels.

SAP Integrated Business Planning is an SAP HANA- and cloud-based business suite. It has a set of various applications based on supply chain business processes. For example, the SAP Integrated Business Planning for demand application is used for demand planning business processes; SAP Integrated Business Planning for inventory is used for inventory planning; the SAP Integrated Business Planning for sales and operations planning application is used for S&OP planning; and the SAP Integrated Business Planning for response and supply application is used for supply and response allocation business processes. SAP Integrated Business Planning also includes the SAP Supply Chain Control Tower, which is used for business performance management and key performance indicator (KPI) monitoring. These applications can integrated with each other.

Supply chain planning processes in SAP Integrated Business Planning are performed through planning models. A planning model is a structure of master data, transaction data, and related calculations—algorithms to manage and optimize a supply chain network. The entities of planning models are attribute, time profile, master data type, planning area, planning level, key figure, key figure calculation logic, planning operators (algorithms), version, scenario, reason code, global configuration parameters, and snapshot configuration.

SAP has provided standard planning models for each application that can be later copied and modified in accordance with an organization’s business requirements. SAP has provided one unified, standard planning model for end-to-end integrated planning processes that covers demand planning, inventory planning, response and supply, S&OP, and a control tower.

I cover the steps for setting up the business solution to get the maximum results using a unified planning model to avoid using multiple planning applications and then integrating them with each other. In my case, I would have been required to use two applications, such as SAP Integrated Business Planning for sales and operations and SAP Integrated Business Planning for inventory. Instead, I use a copy of a unified planning model of SAP Integrated Business Planning that has a unified planning area (SAPIBP1). SAP has recommended using an integrated planning area when implementing multiple applications to allow integrated planning.

The advantage of using a unified planning area is to allow work on integrated planning processes such as:

  • Demand planning
  • Demand sensing
  • Inventory optimization
  • Supply planning
  • S&OP
  • Supply chain performance monitoring

For my example, I use two processes: inventory optimization and S&OP.

Anjali Butley

Anjali Butley has more than 20 years of strong functional, business, and IT experience with domain expertise in supply chain planning and logistics.

She is a business analyst with more than 18 years of SAP experience in design and development of integrated supply chain solutions for large-scale enterprises. Her expertise includes process modeling, business process analysis, application implementations, production support, and presales across multiple client engagements in the SCM domain.

She has executed various types of SAP projects, such as implementation, global rollouts, enhancement, production support, business consulting, and program and project management in multicultural environments worldwide. Her industry exposure includes areas across major industry verticals, including IT consulting, consumer, high technology, life sciences, pharmacetutical, and discrete manufacturing.

She is always interested in exploring new SAP SCM applications and products and sharing her learning experiences with the SCM worldwide community.

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