Better Manage Shortages by Integrating Allocation Planning with Supply Planning

  • by Ranjan Sinha, Senior Managing Consultant, IBM
  • April 1, 2006
If you do not link product allocation to supply data properly, the two can fall out of sync quickly. This requires more manual intervention by planners and leads to problems such as shipping to the wrong customers and artificial shortages. Learn how to avoid this pitfall.
Key Concept
When they have to make decisions about how to distribute and sell products that are in short supply, businesses restrict the supply based on criteria such as distribution channels, geographical regions, customer groups, or priorities by individual customer. How they assign supply according to the defined criteria falls into the realm of product allocation planning. In Advanced Planning and Optimization (APO), this is done via the Allocation Planning tool in Demand Planning (DP). Since how the product is allocated varies based on different business scenarios, the characteristics you configure for the planning object (structure) also vary greatly. DP supports the forecasting and demand planning process, in that it allows you to select the planning characteristics and information important for the planning process.
When a product is in short supply, you usually want to make sure each customer gets a proportionate share and that the entire inventory doesn’t go to one customer who places a large order first. This happens often when a new product becomes very popular. In such a case, demand shoots extremely high very quickly and you want to distribute the product as widely as possible. In another scenario, a product could be in short supply because of material or capacity constraints. Product Allocation Planning addresses these situations by restricting the first-in first-out (FIFO) method of order confirmation in R/3 Sales and Distribution (SD). The first single customer order can be confirmed, leaving the other customers’ orders with no available quantity. Allocation Planning addresses the problem by restricting the allocation to specific customers or other criteria such as customer groups or regions. The restriction criteria are flexible to your company’s needs.

When integrated with R/3 or a mySAP ERP environment (from Advanced Planning and Optimization [APO] 3.0 onwards), the Allocation Planning function in Demand Planning (DP) acts directly when sales orders are created or changed, and when the GATP function is performed for the allocated products. The confirmations in the sales orders are based on what the allocations are for the criteria that you preset in Allocation Planning. In this article, I’ll show you how the Allocation Planning tool is integrated with the GATP function.

Ranjan Sinha

Ranjan Sinha is a senior managing consultant at IBM. He has vast experience implementing SAP APO functionality in various industries, including electronic and chemical.

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