SAP HANA Production & Planning (PP) overview

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1. What is Production Planning?

 Production Planning is the process of aligning demand with manufacturing

capacity to create production and procurement schedules for finished
products and component materials.
 SAP PP is an important module of SAP. It tracks and makes a record of the
manufacturing process flows, for example, the planned and actual costs. Also,
goods movements from the conversion of raw material to semi-finished goods.

2. Organization Structure in SAP PP

In any live Production Planning module, locations of manufacturing plants and
storage within the plants, should be available in the system.

Importance of Plant and storage locations in Production Planning-

 All Production master data is created at Plant level.

 Planning activities are also performed at Plant level.
 Production Confirmation process and related goods movement occur at
plant and storage location level.

3. Master Data in SAP PP

Master data is generally static for any company and is very rarely changed
depending on the requirement. There are 5 master data to be maintained in
Production Planning module.

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3.1 Material Master

The material master contain information on all the materials that a company
procures, produces, stores, and sells. It is a number uniquely identifies a material
master record, and hence a material.

Materials with the same basic attributes are grouped together and assigned to a
material type such as finished, raw material, etc.

It is used for the following purposes:

1. To purchase materials
2. For Goods Movement postings such as goods issue or receipt in inventory
management and also for physical inventory postings
3. In invoice verification for posting invoices
4. In sales and distribution for sales order fulfillment process
5. In production planning and control for material requirements planning,
scheduling, and production confirmation processes.

3.2 Bill of Material (BOM)

A bill of material is a complete, formally structured list of the components

together with the quantity required to produce the product or assembly.

BOM's are used in material requirement planning and product costing.

You can also create up to 99 alternative BOMs for a single product.

For Products having variants, you can create Super BOM, which has all possible
types of components used to manufacture different types of variants, and the
appropriate component is selected based on characteristic chosen in the sales
Order.

For example, Product Cycle can contain all types of frames (with different colors
and sizes) and desired frame is selected in production order based on color and
size chosen in the sales order.

3.3 Work Center

A Work Center is a machine or group of machines where production operations

are performed. Work centers are used in task list operations (Routings).

It contains the data for

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 Scheduling
 Capacity
 Costing

3.4 Routing

Routing is nothing but a sequence of operation performed at the Work Center. It

also specifies the machine time, labor time, etc. for the execution of operations.

It is also used for scheduling of operations and used in standard cost calculation of
the product.

3.5 Production version

The production version is a combination of BOM and Routing data for production.
It is a linkage between BOM & Routing and determines the manufacturing
process.

There can be multiple production versions as per different manufacturing process

to produce the product.

4. Production Planning Cycle

The Production Planning and Control consist of 2 obvious processes of Planning
and Execution.

4.1 Planning

Production planning is generally done from budgeted sales plan. Planning is based
on the Sales plan to meet the sales requirements as per the production cycle
times. Demand for the Product is entered through demand management in the
form of planned independent requirement (PIR). This data from demand
management becomes the input to Material requirement planning (MRP).MRP
checks for the availability of various raw materials used for production at different
stages using the master data such as Bill of material (BOM) and available current
plant stocks.

In case of material shortage, Purchase requisitions are created for materials which
are externally procured, and planned orders are created for in-house produced
materials.

These purchase requisitions and planned orders initiate the Procurement Cycle
and the Execution Cycle of Production respectively.

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As MRP works with infinite capacities, capacity leveling must be done in order to
avoid any capacity bottlenecks.

4.2 Execution

These Planned orders are converted to Production orders, and are scheduled as
per the production timings using master data such as routings.

Production Orders are released by the Production Supervisor on the shop floor,
and material availability checks can also be carried out to check if there are any
missing components.

Production is carried out based on the activities maintained in the Routing where
the master data like Work Center is mentioned against each operation in the
Routing.

Once the production is completed, the Confirmations of orders are executed, and
goods movement for material consumptions & goods receipt are posted against
the Order. Hence, the Order gets the Delivered (DLV) status, and the material is
received into desired storage location.

Usually at the month end before doing order settlement, production order needs
to be set to technically completed status in order to calculate production
variances by the controlling personnel.

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5. Demand Management
The function of Demand Management is to estimate requirement quantities and
delivery dates for finished products and important assemblies. Demand
Management uses PIR (planned independent requirements) and customer
requirements.

Planning strategies must be defined for a product. It represents the methods of

production for planning and manufacturing. There are two methods by which we
can do this.

Make to Stock: Production of goods without having sales orders, i.e., stock is
produced independently of orders.

Make to Order: This strategy applies to the production of material for a specific
individual sales order or line item.

6. Material Requirement Planning (MRP)

MRP determines any shortages and creates the appropriate procurement
elements. It does net requirement calculation and generate planned orders for in-
house produced materials and purchase requisition for raw materials.

It does lead time scheduling and calculate production dates in planned orders.

It explodes the BOM and generates procurement proposals at each BOM levels.

7. Capacity Planning & Leveling

Capacity Planning is used to analyze the capacity overloads at work center and
shift the orders to avoid any capacity bottlenecks.

Capacity requirements are generated via MRP on Work Center and since MRP
works with infinite capacity and plans everything on work center without
considering any capacity constraints. It is required to level the capacity at the
work center.

Capacity can be leveled at each work center through planning table in order to
create constraint production plan.

8. Production Orders
The output of MRP will be "Planned Orders", which needs to be converted to
production orders for further execution of the process.

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The Production Order is firmed receipt element, which is not affected by MRP
run, unlike Planned Orders.

 Production Order is a document which specifies what material needs to be

produced and in what quantity. It also contains the BOM components and
routing operation data to be performed at the work center.
 Production Order is released for execution, and material availability checks
can be carried out which determines if there are any missing components.

9. Production Order Confirmation

When goods are produced physically at the shop floor, then production order
must be confirmed.

During confirmation, components materials can be consumed automatically via

back flush mechanism and Goods receipt of material can be performed
automatically via operation Control key in Routing.

However, instead of auto goods movement, manual Goods Issue and receipt can
be performed separately from confirmation.

Any failed goods movement due to a deficit of component stock can be

reprocessed manually.

Activity costs such as machine, labor, etc. will also be updated in the production
order during confirmation on an actual basis.

The order gets CNF (Confirmed) and DLV (Delivered) status after final
confirmation and final Goods receipt.

If confirmation is posted wrongly, then we can cancel the confirmation and post it
again with correct data.

10. Production Order Close

After the production order is delivered completely or we don't want to execute
the order further then Order should be technically completed.

After Order gets TECO status, it gets deleted from stock/requirement list and is no
longer considered in material requirement planning run. All dependent
reservations also get deleted from the system.

Next, we will look into each phase of SAP PP and learn how to operate SAP PP
module.

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What is Bill of Material (BOM) and its role?

A bill of material is a complete, formally structured list of the components that

make up a product or assembly. The list comprises of the material number of
each component, together with the quantity and unit of measure.

 BOM can be single level and multi-level. For example, finished material
would contain semi-finished materials as components which in turn
would contain raw materials as components in next level.

 There can be different alternative BOMs for a product depending upon

the lot sizes, validity dates, and different production methods.

 BOM is used in production planning for semi-finished and purchase

planning for raw materials.

 BOM's are also used in standard cost calculation for finished Product by
rolling up the cost from raw to semi-finish and then to finished Product.

 Material BOM can be made for material in PP module and equipment

BOM are used in Plant Maintenance module.

What is Work Centre and its role ?

Work center is an organization unit where manufacturing activities are

performed.

In other words, Work Centers are the master data which represent real
machines, Production Lines, Assembly Work Center, etc. Manufacturing
activity or Operations are carried out at Work Center.

 Work Centers are used in task list (routing) operations and is copied to
production orders or process orders for the shop floor planning and
execution.

 Work Center data is used for

i. Scheduling

When a production order is created, the duration of an operation can be

calculated based on operating times in routing and formulas which are
entered in the Work Center.

ii. Costing

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The costs of an operation can be calculated in the production Order
based on the formulas which are entered in the Work Center. Work
Center is also linked to a cost center.

iii. Capacity Planning

The available capacity and formulas for calculating capacity

requirements are stored in the Work Center.

 Work Centers are used in routing operation data.

 Work Center is created for a manufacturing plant and is identified by a
code.
 Group of similar machines can also be created as a single Work Center.
For example, 5 similar machines can be created as 1 Work Center with a
number of capacities as 5.

What is Routing and its role ?

A routing is a description of which operations or list of activities has to be

carried out during the production and planning process.

It also tells what order or sequence the activities/operations needs to be

carried out at work centers or machines.

 There may be several alternative routings for a product. For example,

product can be manufactured on 2 manually operated machines
(drilling and grinding) and simultaneously manufactured on 1
automatic machine (which has both drilling and grinding functions).In
this case, Material has 2 alternative routings viz, automatic machine and
manual operated machine.

 Multiple materials can follow same routing group which means a group
of materials can have single routing.

 Routing is used in Production for scheduling and costing of operations

for finished and semi-finished materials.

 Routing's are also used in standard cost calculation for finished Product
by calculating operational cost of finished product.
 Before creating the routing, it is mandatory that Work Centre should be
available in the system

What is Production version and its role ?

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The production version is the link between a product BOM (Bill of Material)
and the process Routing. It determines which alternative BOM is used
together with which routing to produce a material or plan a material.

There may be different production versions based on the lot sizes and validity
dates.

For example, there may be different versions if you want to produce 1 – 100
liter of paint than 100 – 1000 liter of paint, as such the different composition
of BOM may be required in both cases.

 It comprises of the following data:

1. The assignment of routings to the production version

2. The assignment of the alternative BOM to the production version

 Production versions are used in material requirements planning (MRP),

production order creation, and product costing to select the most
suitable routing and the corresponding bill of material.

What is Demand Management (Planned Independent

Requirement -PIR)?

Planned Independent Requirements (PIR) are used to perform Demand

Management functions.

A Planned Independent Requirement contains one planned quantity and one

date for a material, or one planned quantity split over time according to dates.

 PIR version "00" has an active indicator, which specifies that

requirements would be considered in Material Requirement Planning
(MRP).
 If you want to maintain a number of versions of planned independent
requirements, but do not want to include all versions in the material
requirement planning run, you can set some versions to active and
others to inactive, which could be used for simulations in Long term
Planning.

 PIR's are associated with requirement type which is driven from

planning strategies in the material master, which determines methods
of planning – Make to Stock or Make to Order.

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 PIR's are displayed in stock requirement list so that Planner can see and
plan the production based on it.
 PIR's are generally used in Make to stock environment where business
wants to build the stock based on the forecast and not on sales orders.

Impact of Planning Strategies

 Planning strategies are broadly categorized into Make to Stock (MTS)

and Make to Order (MTO).

Make to Stock

 Make-to-stock production is implemented if you produce stock without

waiting for sales orders to arrive because you want to deliver your
customers immediately with materials from that stock later on. You
might even want to build stock without having sales orders, if you
predict that there might be customer demand in the near future.
 Make-to-stock strategies are usually associated with a lot-size key or a
rounding value. For example, you may want to produce the entire
amount for the whole month once in a month only, or you may want to
produce for the exact PIR quantity.
 In Planning Strategy 10, only PIR quantity is considered for MRP run
and sales orders are completely ignored. PIR is reduced when you
deliver the stock to the customer. PIR has requirement type LSF.
 In Planning Strategy 40, Max of 2 (PIR and sales orders) are considered
for MRP and PIR is reduced as soon as sales orders are entered. PIR has
requirement type VSF.

Make to Order

 You do not want to produce finished products until you receive a sales
order from the customer.
 PIR are not considered in MTO, and only sales orders are considered in
MRP.
 You produce sales order stock and can deliver to the specific customer
only unlike in MTS scenario.
 Planning strategy (20) is widely used for make to order process and
strategy 25 is used for MTO with variant where customer asks for
variants in products.

MRP (Material Requirement Planning)

The main function of MRP is to guarantee material availability on time.

MRP is required to procure or produce the required quantities on time for in-
house purpose or for fulfilling customer demand.
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The main objective is to plan the supply based on requirements and
considering the current stock in hand and meets the shortages.

MRP Process flow

 With MRP, inventory can be optimized via planning receipts according

to the needs so that surplus inventory could be avoided.
 Sales and distribution give concrete customer requirements from the
market.
 In Demand Management, sales are planned in advance via a sales
forecast. The sales forecast is entered in demand management in the
form of Planned Independent Requirement (PIR), i.e., the requirement
for the finished product.
 In order to cover these requirements, MRP does net requirement
calculation and plans procurement quantities and dates on which the
material needs to be procured or produced.
 If a material is produced in-house, the system explodes the BOM and
calculates the dependent requirements, that is, the quantity of
components required to produce the finished product.
 If a material shortage exists, planned orders are created at every BOM
level to fulfill the requirements and purchase requisitions are generated
for externally procured raw materials. You can also create planned
orders for externally procured materials which can be converted to
purchase requisition.
 MRP does lead time scheduling and calculates planned order dates
based on routing times. Basically, it does backward scheduling starting
from requirement date minus (GR processing times, in-house
production time, float time before production ) and calculates the
duration of planned orders.
 Production orders or Purchase orders are created after conversion of
planned orders and purchase requisition respectively.
 MRP type "PD" in material master MRP 1 view is essential to run the
MRP for the materials. If, you don't want to run MRP on the material
then MRP type "ND" can be maintained in the material master.

Master Production Schedule (MPS)

It is used specifically for critical materials usually high valued products where
you do not want changes in your production plan within planning time fence
in next MPS run, and production plan gets firmed automatically as soon as it
comes within planning time fence unlike MRP run.

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 A separate run occurs for the MPS items; they are not included in the
MRP run.

 Basically, it ensures the availability of the critical resources, which

should not hamper the production by maintaining the stock.

 Planning time fence (number of days starting from current date) is

useful in case of MPS scenario where one can save the procurement
proposals (planned orders) from undergoing any change since the last
MRP run.

 No automatic changes happen to the procurement proposals once they

enter in the planning time fence (PTF is maintained in material master).
So, all planned orders in planning time fence get automatically firmed
by the system.

 MRP type " P0" to "P3" in material master should be maintained to run
MPS for materials.

Long Term Planning (LTP)

Long term planning (Simulative MRP) is used to simulate the future demand
and supply situation in all BOM levels. The main function is to check the
capacity situation, material requirement and vendor ability to provide the
material in desired time.

This is not an actual run but a simulative run where actual planning situation
is not being affected, and we can see the capacity situation of the work centers
well ahead in time. If such information is available in advance, then we can
decide at an early date whether additional machines will be required to cope
with capacity bottlenecks.

 LTP (Long Term Planning) is nothing but MRP run in simulation version
to simulate the production plan for the future.

 It is possible to transfer the plan from simulative version to operative

version "00"(actual planning) if through simulation it is found that all
capacity and requirement can be fulfilled.

 The purchasing department can also utilize the outcome of long-term

planning. They use the information on the future requirement
quantities to estimate future purchase orders. This provides them with
an opportunity to negotiate delivery schedules and contracts with
vendors.

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 Vendors also have an advantage from long-term planning results as
they are sent a preview of future estimated purchase orders and
delivery schedules.

 Generally, Planned Independent Requirement (PIR) version can be

either active or inactive. For LTP planned independent version should be
inactive as it is a simulative version. Only active PIR version is being
taken for operative planning (MRP).

 Existing master data can be used for LTP. But to have a different master
data (BOM and Routing) for LTP is also possible.

 If you want to delete the Long term planning data, then you need to delete
the planning scenario and you can re-run whole cycle again with new
requirement again in another inactive version.

 Long term planning data can also be utilized to transfer routing activity
quantities to the respective cost centers. Controlling department can
calculate activity price calculation by dividing the cost center budget
value and activity quantity (calculated by LTP run) which is used for
standard cost calculation.

Capacity Requirement Planning

The main function of capacity planning is to check the load at Work Center
and do the capacity leveling i.e. balance the load at Work Center. It helps to
calculate the production capacity based on the requirement of the product
against the available capacity of the work center.

 MRP works with infinite capacity and creates planned orders at the
Work Center at the same time since it assumes that Work Center is
available all the time. So, it creates planned orders on the same date
based on the requirements despite capacity shortages. You can execute
those orders on that Work Center in the system which is not practically
feasible in the shop floor.

 The main objective of the capacity leveling includes leveling overloads

at Work Center and to achieve optimum utilization of Work Centers.

 MRP generated planned orders are converted to production orders

which determine which Work Center is to be used, and accordingly the
capacity requirements are generated on that Work Center.

 Capacity leveling at production order level is used for detailed

production planning purpose. This is done through planning table

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which is used to carry detailed planning of capacity requirements over
time in future.

 The capacity load needs to be checked at Work Center, and if it is

overloaded, then we need to shift the orders ahead to the same Work
Center or plan it in different Work Center to eliminate any capacity
constraints.

Goods Movement against Production Order

There are two types of goods movement against production order which
impacts the inventory of the material. These movements are done through
movement types in SAP.

 Goods Receipt (GR) against Order is executed with movement type 101
which is done when we produce the material. After goods receipt, the
system increases the stock of the material at the relevant storage
location.

 Goods Issue (GI) against Order is executed with movement type 261
which is done whenever we consume the component materials to
produce some other material. After goods issue, the system decreases
the inventory of the components at the relevant storage location.

Production Order

A production order defines which material is to be processed, at which

location, and at what time and how much quantity is required. It also defines
which components and sequence of operations are to be used and how the
order costs are to be settled.

 Planned orders are results of running MRP. Shortages of materials that

are set to internal procurement will create planned orders, which can
be converted into production orders. Production orders are "hard
copies"; they cannot be adjusted by an MRP run anymore.

 BOM and routing data of the materials are copied into the production
order which determines the list of components and operational data in
the order.

 Planned Costs also gets updated in the production order via component
price and routing activity price.

 You can run an availability check on production orders which

determines any missing components in the order so that you can bring
that missing component for the order execution at shop floor.
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 You can print the production order for shop floor which indicates the
list of components to be consumed and what kind of operations to be
performed in sequence at the work center.

 After you have physically produced the material, you can declare the
production through order confirmation which updates the activities
cost such as machine running price, labor price on the order.

 You can decide to automatically do the backflush (consumption) of

components during order confirmation according to the BOM. The
consumption will reduce the inventory of components and it is carried
out with movement type 261 in SAP.

 You can also post goods receipt of the material automatically during
order confirmation. Goods receipt would increase the inventory of the
material, and it is carried out with movement type 101 in SAP.

 After Order Confirmation, all the cost such as the cost of components
and activity cost will be debited on the order, and once you post goods
receipt, costs will be credited on the order.

 Once, production order is fully confirmed and delivered, or business has

decided not to execute that order, then it needs to be technically closed
which means order will no longer be considered in MRP run and will be
deleted from stock/requirement list. Order reservation on components
will also be deleted.

-: The End :-

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