Scmeu2012 villa productionoptimization

In This Session … OVERVIEW Purpose Production Optimization Versus Throughput Optimization — A Systematic Approach to Improving Production Effectiveness using TOC Author Pino Villa Independent Consultant 1

In This Session … OVERVIEW Discussion Point Features1 This session explores how the Theory of Constraints business philosophy can be applied Explore to the SAP Production Planning and Detailed Scheduled processes to better understand and optimize organizational throughput (on-time delivery). Understand how production throughput, which focuses on optimizing production2 effectiveness, differs from more cost-focused organizational throughput measures Understand (maximizing production capacity, batch-size).3 Learn how to leverage capabilities found in SAP Production Planning to apply the Theory of Learn Constraints to maximize production effectiveness, increase on-time product delivery, and reduce costly inventory levels.4 Hear best practices for introducing Theory of Constraints to your organization and learn Best Practice how to avoid common pitfalls you may encounter along the way.5 Come away from this session armed with the information you need to assess whether your Benefits organization will benefit from an enhanced focus on organizational throughput. 2

What We’ll Cover …• Manufacturing throughput• Theory of Constraints (TOC) methodology• Explanation of Drum, Buffer, Rope (DBR) technique• A Theory of Constraint case study• Applying the Theory of Constraint technique within SAP• Applying the Theory of Constraint technique within SAP PPDS• Wrap-up 3

Our Key Objective Throughput (Sales – Material Costs) is what is provided across the supply chainOEM Manufacturer Distributor Dealer Retail OVERVIEW In adopting the Theory of Constraint approach in managing throughput we try to:  Maximize Throughput  Reduce Inventory  Reduce Operating Costs By achieving the above we maximize productivity and profitability

Theory of Constraint (TOC) OVERVIEW Throughput is based on satisfying customer demand. In order to achieve this, all manufacturing sites have to plan, source raw materials and components, manufacture, and finally deliver. The processes are governed by: • Inputs, raw materials components, money, etc. • Mechanisms (resources such as facilities, people, machines, etc. • Constraints: company policy, equipment constraints (capacity) • Outputs, semi finished, finished product. THEORY OF CONSTRAINTS METHODOLYBy adopting the Theory of Constraint methodology/technique for the aboveprocesses, throughput objectives can be achieved.

Value Chain VALUE CHAINThe value chain is based on system (facilities, human resources, manufacturing resources and IT systems) capabilityand key constraints (Company policy, financial resources) to generate throughput.The fundamental consideration is to maximize throughput with available resources and constraints.

Maximize Throughput Using TOC TOC METHODOLYTOC Methodology is used to maximize throughput of the value chain.TOC is not just only a methodology (not file 13) but also a strategic management approach that the organization willapply.

Manufacturing Throughput PURPOSE The key benefit of applying this methodology is that it provides purpose with respect to a fundamental optimization project. The tangible benefits are measurable and impact the profitability of the organization The TOC focus should be part of the tactical layer of the organization while the DBR focus should be part of the operational level. TOC is not once off; it becomes a way of life. THEORY OF CONSTRAINTS METHODOLYThe TOC methodology is supported by Drum, Buffer and Rope(DBR) planning technique as well as buffer management in order toachieve TOC objectives.DBR is critical to ensure all is synchronized to the productioncapacity of the Constrained Manufacturing resource.

Realizing Real Business Benefits BACKGROUND TO MANUFACTURING SYSTEM IMPLEMENTATION Discussion Point Features1 There are many situations whereby real business benefits where not achieved because BUSINESS they were focused on IT. Extensive IT investment did not lead to bottom line benefit. BENEFITS Some IT departments have underestimated the complexity, resulting a in a poorly built2 solution. This is caused by both customer and partner; partner using low skilled resources. COMPLEXITY In many cases project is governed by old habits and old ways of working, which might not3 be ideal. This is a major problem with multi-national organizations where acquisitions HABITS played a big role in building up their current organization.4 There are ample cases studies documenting project failure, finger pointed at vendor. This PROJECT FAILURE normally is caused not so much by vendor but rather by poor project management by both customer and consulting partner. Sometimes vendor over sells business benefits leading to disappointments.5 In business we have many different methodologies for improvements, Business Process ACRONYMS Re-engineering (BPR), Business Process Modeling (BPM), SCOR, etc. But do they actually result in business benefit; is throughput and productivity increased? 9

Step 1: Identify the Constraint KEY POINTS WITH RESPECT TO THEORY OF CONSTRAINED OPTIMIZATION TECHNIQUEFind the one element of the manufacturing system which limits the systems ability to achieve its goal. In most manufacturing,identify what limits the system performance.Very important to consider that a process is governed by:I; Input; components/raw materialsC; Control; policy, methods, shift, set-up requirements; toolingM; Mechanism; the actual manufacturing machine that has a rated capacityO: Output; the manufactured item (semi or finished product)System constraints can be either physical or policy. Physical constraints are relatively easy to identify and relativelystraightforward to break. Policy constraints are usually more difficult to identify and break, but they normally result in a largerdegree of system improvement that the elimination of a physical constraint. IDENTIFY THE CONSTRAINT 11

Step 2: Decide How to Exploit the Constraint KEY POINTS WITH RESPECT TO THEORY OF CONSTRAINED OPTIMIZATION TECHNIQUEUnderstand how to exploit the constraint. That means squeezing the most out of the manufacturing constraint in order toattain maximum performance. Therefore consider all aspects around the process:•Policy and procedure•Tooling, set-up equipment, set-up matrix•Planning and execution system; ERP, APS, etc.This must be done without major system changes or capital improvements with the primary objective of eliminatinginefficiency from the constraint DECIDE HOW TO EXPLOIT THE CONSTRAINT 12

Step 3: Subordinate Everything Else KEY POINTS WITH RESPECT TO THEORY OF CONSTRAINED OPTIMIZATION TECHNIQUETake the required steps to synchronize and align the performance of all other elements with the "exploited" constrainingelement. This may mean slowing down "faster" parts and speeding up "slower" ones. If your constraint is broken at this point,go back to Step 1 and start looking for the next constraint (next weakest link in the chain). If not, go on to Step 4.Fundamentally make effective management of the existing constraint the top priority. SUBORDINATE EVERYTHING ELSE TO THE DECISION IN STEP 2 13

Step 4: Elevate the Constraint KEY POINTS WITH RESPECT TO THEORY OF CONSTRAINED OPTIMIZATION TECHNIQUEIf the constraining element still remains the reason why the systems performance "tops out"; then “elevate" usually means doingsomething to increase the capacity of the constraining element. Obviously, if your constraining element is running at maximumefficiency (which it should be after Steps 2 & 3), the only way to improve overall system performance is to obtain more of theconstraining element. In a manufacturing environment, this may mean a capital investment in more equipment, or hiring morepeople, or increasing working shifts. ELEVATE THE CONSTRAINT 14

Repeat Steps 1-4: Manage Inertia KEY POINTS WITH RESPECT TO THEORY OF CONSTRAINED OPTIMIZATION TECHNIQUEThis is the "repeat Steps 1-4" step. But the warning about "inertia" is important. Its designed to discourage complacency,thinking that the environment doesnt ever change much over time. Always consider that throughput increase can create otherweaker links that previously were considered secondary. MANAGE INERTIA – GO BACK TO STEP 1 IF REQUIRED 15

Theory of Constraints: Summary Typical Process The TOC methodology allows us to understand how throughput is generated. TOC also provides a clear direction on how to maximize/exploit resources and to synchronize/subordinate everything around the critical resources. TOC provides clear direction on leveraging IT systems. TOC PROCESSIT System to supportabove process 16

Drum, Buffer, Rope (DBR) Technique SUBORDINATING EVERYTHING ELSE TO DECIDING HOW TO EXPLOIT THE CONSTRAINT When it comes to subordinating everything to a constraint, its bottlenecks. In a production environment, the plants constraint must be the driving factor in how it is managed. In production, the productivity of the constraint is the productivity of the entire plant. A proven approach to managing production through the constraint is known as "Drum-Buffer-Rope" and "Buffer Management." • Drum - The constraints, linked to market demand, is the drumbeat for the entire plant. • Buffer - Time/inventory that ensures that the constraint is protected from disturbances occurring in the system. • Rope - Material release is "tied" to the rate of the constraints. Drum, buffer, and rope provide the basis for building a production schedule that is highly immune to disruption, avoids creating excess inventory, and uses small batches to minimize overall lead time. But even with Drum-Buffer-Rope (DBR), occasional disruptions occur that require special attention. Buffer Management is used to mitigate and often prevent those disruptions. The DBR methodology is Theory of Constraints that will be used to maximize production throughput and inventory reduction based on the constraints (weakest link) being the Drum, the Buffer being the inventory needed for the constraint and the Rope the timing for releasing the buffer with the main aim of protecting the weakest link and thus maximizing overall effectiveness. 18

Drum, Buffer, Rope (DBR) Technique (cont.) DBR EXPLANATION Raw Material LEGEND CCR Capacity Constrained Resource Semi 1 Semi 2 Finished prod. WC 1 WC2 WC3 WC4 CCR Buffer Semi 2 ROPE Drum. The CCR resource (work-centre 3) Rope: The release of raw materials scheduled to 1 determines the schedule 3 start production at work-centre 1 based on the schedule determined by the Drum. 2 Buffer. Buffer to protect the CCR - Work-centre 3In TOC, Subordinate everything else to the CCR Work-centre. This means synchronize all planning activities toproduction rate (drum) of resource to ensure that the CCR does not stand ideal. The Buffer in front of the CCR will be thesafety margin. Therefore the planning and scheduling system must now satisfy the DBR requirements. 19

DBR Buffer Management Semi 2 DBR BUFFER MANAGEMENT Finished prod. LEGEND CCR Capacity Constrained Resource WC2 WC3 WC4 Buffer CCR Buffer With DBR, it is critical to protect the CCR with buffer. By Semi 2 doing what is supposed to be done in accordance with our CCR plan we protect the constraint and the system as a whole ROPE This buffer is needed so that CCR is not starved due to delays in production of input components. It strives to achieve the following: • Reliable due date performance • Effective exploitation of the constraint • Accurate system data for relevant role players. Buffer is introduced in front of CCR. This buffer is divided into 3 zones for expediting purposes. Red zone penetration was also included in KPI. The buffer zone helps to simplify exception management and it helps identify possible creeping CCR. The buffer zone concept was included in the monitor of CCR in SAP.

Overview PROJECT CONTEXT1 Organization running at maximum capacity 2 Poor on-time delivery, high back-order qty3 High level of Inventory 4 Extensive IT expenditure with limited success Company in auto industry component supplier, supplies all makes, from low cost to sports cars. The manufacturing process consists of 3 main stages: 3.Input Semi finished 1 4.Input Semi finished 2 5.Finished product Both input semi finished 1 and 2 can be used for multiple finished products (product families) The work centre for finished product takes from 6-8 hours of set-up. Batch runs can run over multiple days. Multiple work-centre (machines) for finished product are available. Possible number of product code 20000. Customer orders based on delivery schedule. 22

TOC Five-Step Analysis PROJECT CONTEXT The analysis was based on the five TOC steps, primarily Steps 1, 2 and 3. The TOC project also provided an opportunity to find out what was going on in production and related areas. Project team was made up of manufacturing (Industrial engineers) experts (external) as well as SAP functional and technical consultants. Project sponsor Financial Manager; critical to avoid hiding problems and internal politics. Project based on 3 major steps: 1. Analysis 2. Design and build 3. Implementation The deliverables for the analysis phase must be specific in order to allow quick and effective implementation. This was critical to avoid a paper exercise. 23

Brief Summary PLANNING & EXECUTION SYSTEM ANALYSIS Analysis Identification1 Current planning tool did not plan production based on resource capacity Current (finite scheduling). planning In certain situations, scheduling was done in the past. Set-up date not realistic, not updated regularly. Incoming open purchase order did not2 Raw material reflect realistic dates, resulting in incorrect supplies planning and poor expediting dates. In certain instances, raw materials were not consumed correctly.3 In certain cases, non-CCR resources were Non CCR overloaded due to poor planning. System overload data did not match reality. Shop floor data updated late (24 hours) resulting in a poor view of downstream semi finished production status. Note: During the analysis phase, there was a clear indication of paradigm constraint; locking the organization into poor performance due old established habits and lack of willingness to change. 24

Identification PLANNING & EXECUTION SYSTEM ANALYSIS Analysis Identification No stability in planning, order changed at4 last minute causing problems in semi- Production Order finished products planning. changes & status Recommendation to introduce frozen period to ensure planning stability. Too many open production orders, status not managed correctly. Due to high set-up (6-8 hours) manufacturing set5 large batch run resulting in high inventory. Change this rule based on minimum duration Batch size plus lot coverage. (i.e., average of next 8 weeks of demand) and not on historical data. Demand for semi finished product not planned correctly due to plant responsibility6 separate per product group, no common objective. Each department planned their Multi-level machines to maximum capacity without considering global objective. planning Department for semi finished planned to maximum capacity even without demand. This resulted in overstock of semi finished and in certain cases no stock for finished product where customer demand existed. 25

Shop Floor Data Collection PLANNING & EXECUTION SYSTEM ANALYSIS Analysis Identification Too many forms, in certain cases forms filled in by operators were illegible. Approved7 standardization of pre-printed forms with barcode with minimum data input. Also agreed to introduce simple entry screens with limited default data. Shop Floor Data Delay in input SFDC into system resulted in inaccurate data specifically around CCR. Collection 26

Summary SUMMARY OF KEY CONSIDERATIONThe analysis for the TOC steps identified a number of issues that covered:2. Company procedures3. Organization structure, responsibilities, and objectives4. Serious Production Planning and execution system weaknesses5. Poor shop floor controlThis is why a TOC project is not just an IT project. Identify the constraint: We identified the key manufacturing constraints, specifically how they where planned,1 its set-up effort (tooling etc.), how semi-finished components where planned. Exploit the constraint: In order to elevate the constraints, company agreed to change organization structure2 and responsibilities so that everything is focused around throughput. Departments to synchronize their planning based on CCR demand schedule. More effort to reduce set-up time of CCR and ensure accurate recording of set-up and tear-down. Set-up became a key KPI. Subordinate everything to constraining resource: Agreed to introduced DBR planning technique including3 buffer management within the SAP PP DS. Also agreed to introduce supermarket concept to some semi- finished products that where common to many subsequent semi-finished items. Elevate the constraint: In order to understand current CCR loading versus market demand, introduced SOP4 (in APO) with simulation facility in order to provide marketing and production a tool to understand how to address additional market demand or reduction. 27

DBR Planning and Execution Options SAP PLANNING AND EXECUTION OPTIONSIn order to achieve throughput objectives,SAP offers a number of planning andexecution solutions. The focus will beAll of these technically could be suitable, theselection depends on the complexity of the on Scenario A andmanufacturing processes and related Scenario Dsystem relationships.The following is available:OPTION AThis is based on planning and executionusing SAP ERP MRP, capacity leveling, andexecution.OPTION BPlanning in SAP ERP, scheduling in APOPPDS and execution in ERP.OPTION CPlanning run 1 and scheduling in APOPPDS , then in ERP planning (MRP) of otherrelated aliments (components, bulk,consumables) and execution in ERP.OPTION DPlanning and scheduling only in PPDS andexecution in ERP.OPTION EThis option utilizes CTM (Capable to match) in APO to plan for medium term horizon where planning is executed withcapacity constraints. This plan will create planned orders. These planned orders are then re-planned in short productionhorizons including capacity leveling and detailed scheduling. These orders will be firmed production orders. The plannedorder (CTM) and firmed production order will then be replicated into ERP which will form dependant demand for otherplanning.

DBR Planning and Detailed Scheduling DBR PLANNING AND DETAILED SCHEDULING Control Point Features This section focuses on the1 • Master Production Schedule Finished Product SAP parts in order to • Capacity leveling achieve TOC objectives and Finished Product • Order review and set-up optimization Planning apply the DBR planning • Multi-level ATP method. • Order release •Finished product input: • Planning of semi finished 1 on released production Semi Finished 22 orders of finished product (Drum) •Semi finished 2 input: Semi Semi Finished 1: • Review of results • Semi finished level 3 linkage finished 3 Level 2 (Raw materials ATP) •Semi finished 3 input: Raw materials3 • Semi finished 2 planning Semi Finished 2: • Buffer Level 3 • Raw materials planning 30

DBR Planning Process Deletion of firmed order CUSTOMER MPS for FIRM PERIOD ORDERS Finished Items MPS Process Review of Planned Orders planning results Creation of Production Orders DRUM Production Orders This is only relevant for finished products: Short term capacity Capacity leveling for the CCR work centre leveling Capacity Capacity SCHEDULED ORDER AND DEP.REQUIR Leveling Leveling Review CYCLE 4: MID-TERM PLAN INCLUDING PLANNED ORDERS Medium term capacity JOB OR MANUAL leveling EXECUTION OF PROGRAM 31

DBR Planning Process (cont.) MATERIAL MASTER DATA: 1 - 2 ATTENTION POINTS1 Finished product MRP1 View: Transaction MM02 The MRP type must be M0, which plans only MPS items. Executing MPS plans only items identified as MPS. The opening period is set to 5 days in order to allow2 semi finished 2 lead time Verify the scheduling margin key in MRP2 View: Transaction MM02 and buffer. For slow moving items where there is no semi finished 3 buffer, select key with 10 days. The determination of the opening period is critical for confirming production Source: SAP 32

Buffer Management FINISHED PRODUCT PLANNING: BUFFER MANAGEMENT The time buffers are needed to protect the Master Schedule. This buffer is needed for any possible unexpected deviation to plan. The schedule of the CCR must be protected in order to maximize efficiency. BufferThis is the time bufferassigned to Finished product. MPSTherefore the end time of FINISHED GOODSSEMI-FINISHED 2 must be: MPS (MPS DRUM-BEAT)MPS Order start - Buffer MPSThe Semi Finished Input 2Schedule may havedeviations within the buffer INPUTzone without impacting theMPS plan critical to protecting Red zone buffer SEMI-FINISHED 2the MPS plan at the CCR penetration 33

Bill of Material BILL OF MATERIAL … ATTENTION POINTS Verify the buffer between Finished Product and Input Semi Finished 2:1 Transaction CS02 For the finished product, a buffer of 3 days is assigned against the input 2 semi finished product. This buffer is used to determine the date Semi finished 2 should be ready by.Source: SAP 34

Work Centre Data WORK CENTRE 1-3 ATTENTION POINTS Maintain Work-centre data : Transaction CR021 Scheduling and Capacity formulas are relevant only for work centres that require capacity loading. Work centres of minor importance do not require this information. Critical capacities require shift data and relevant calendar assigned. Efficiency needs to be assigned to capacity utilization field. Only work centres relevant to capacity leveling (CCR) require the finite scheduling flag set. Source: SAP 35

Work Centre Data (cont.) WORK CENTRE 2-3 ATTENTION POINTS Maintain Shift data. This is needed only if shift change occurs during2 the week. Shift detail must be inserted if the work centre has days whereby number of working hours differ, example Saturday and Sunday. Each shift has to have relevant efficiency. Source: SAP 36

Work Centre Data (cont.) WORK CENTRE 3-3 ATTENTION POINTS Maintain grouping rules, this is the number of days we will group3 orders for set-up optimization and is updated in classification The value of 5 days means that for this work centre order with same characteristics will be grouped together. If there is no value then no grouping Source: SAP 37

Routing ROUTING CURRENT PROPOSAL 1:2 ATTENTION POINTS Only one routing will be1 created. Verify the routing: Transaction CA02 The routing will be based on: Group counter number; the smallest number is the primary Usage 1 production Status 5 released The routing will contain2 primary work centre Verify the operations assigned to operation 0010 and alternate to 001X with control key GL07 (alternate work centre). Alternate work centre will be allocated to operation 001X where X is next number, this is critical to group alternate to primary Source: SAP 38

Routing (cont.) ROUTING 2-2 ATTENTION POINTS3 Verify the manufacturing grouping rules by viewing operation details: The setup groups category contains major grouping category; example MPS 1 to 3. The setup group key contains manufacturing characteristics such as tooling , material, etc.4 Verify the relationship of the above to the set-up matrix; transaction OPDA The setup matrix contains reduction rules with respect to setup where production orders are grouped according to same characteristics. The setup in the set-up matrix replaces the routing setup data. Source: SAP 39

Master Production Scheduling MASTER PRODUCTION SCHEDULING … ATTENTION POINTS1 Review status of material: MD04 Review current customer and production orders. Also review the exception messages generated by the system. Alternate view shows traffic lights which, in this case, indicate that orders need to be brought forward. Source: SAP 40

Executing MPS EXCUTING MASTER PRODUCTION SCHEDULING… ATTENTION POINTS1 Execute Master Production Schedule: Transaction MD40 Scheduling Parameter = 2 This means that dates will be determined based on routing data. To plan single material use transaction MD42 Select execute2 MPS generates log of material planned MPS has planned only Finished Products identified as MPS items Source: SAP 41

Verifying MPSVERIFICATION MASTER PRODUCTION SCHEDULING… ATTENTION POINTS1 Verify result of MPS planning for Finished Product: MD04 Planned Order for finished products created in the past as per MPS setting. This is critical for determining back-log priority. Planned order created as per lot size rule Source: SAP 42

Verifying MPS (cont.)VERIFICATION MASTER PRODUCTION SCHEDULING… ATTENTION POINTS2 Verify planned order details by selecting individual order Production dates are scheduled as per routing data. The opening date is based on start date minus 5 days as per scheduling margin key (working days).3 Select Detailed Scheduling folder Scheduling has been executed on work centre Z451 based on work centre scheduling data. Capacity Requirements also generated on work centre Source: SAP 43

Verifying MPS (cont.)VERIFICATION MASTER PRODUCTION SCHEDULING… ATTENTION POINTS4 Verify planned order details by selecting individual order In transaction MD04, from Environment, select capacity load to view capacity load on work- centre The capacity requirement versus available capacity determines the capacity load percentage. This view contains combined load, therefore all the products that were planned against this primary work centre. Source: SAP 44

Dynamic Order Fixing DYNAMIC ORDER FIXING Firm Drum Schedule NOT FIRMED FIRMED FIRMEDTODAY +5 FIRMING PERIOD 1 The opening date is date used by planner to firm orders 2 The opening date must allow for buffer time, semi finished 1 lead time 3 The opening date logic can be SKU specific to allow for semi-finished 1 lead-time 4 The planner will firm any planned order where the opening is ≤ today + 5 (flexible)

Order Fixing ORDER FIXING: WIDE STRIP BUFFERHOW TO MANAGE ORDER FIXING CONSIDERING THE LEAD TIME OF SEMI FINSIHED AND ENSURINGREALISTIC PLANNING DATA FOR FINISHED PRODUCT The Semi Finished 1 lead-time must be included in the opening period for firming. Semi finished 2 is excluded for where there is Kanban. Opening period logic is per material or can be assigned to MRP group OPENING PERIOD

Converting Planned Orders to Production Orders CONVERSION OF PLANNED ORDERS TO PRODUCTION ORDERS… ATTENTION POINTS1 Planned orders are converted to production orders, transaction CO41 Critical to select finished products according to opening date criteria. It is critical that Finished Products are firmed up to allow production of Semi Finished 1 and for where there is no Semi Finished 2 buffer (Kanban, supermarket) The opening date should be today plus 5 days List of orders that planner should convert to Production order are proposed Source: SAP 47

Converting Planned Orders to Production Orders (cont.) CONVERSION OF PLANNED ORDER TO PRODUCTION ORDERS… ATTENTION POINTS2 Selection of routing User must select relevant routing. NOTE: this is only relevant if alternate routings are managed3 View Production Orders Production orders are now created for planned orders that fall within planning horizon of 5-7 days Source: SAP 48

Capacity Planning Overview CAPACITY PLANNING OVERVIEW… Control Point Features • The purpose of Capacity Planning is to schedule orders as per defined sequence1 within capacity constraints of a work centre. (Technical name is Dispatching). Purpose • To carry-out set-up optimization for orders that have same characteristics • To update orders once scheduled with relevant start and end date • Allows user to modify production orders; priority, production version2 • Consists of: • A work centre view Structure • Scheduled order (dispatched) • Orders to be scheduled3 • Capacity planning is controlled by profiles. Control • Each profile determines how capacity should be scheduled, how orders are viewed elements and information provided • Consists of a scheduling strategy that determines how orders are scheduled4 • Has links to: Links • Production order header • Production operation • Work centre data Source: SAP 49

Capacity Planning EXPLANATION OF CAPACITY PLANNING 1 Work centre view and scheduled production orders 2 Material / Production orders view showing order dispatched 3 Production orders to be dispatchedSource: SAP 50

Viewing Capacity Load VIEW OF CAPACITY LOAD ATTENTION POINTS1 View the capacity load This shows percentage load. Overload is shown in red. Source: SAP 51

Viewing Capacity Load (cont.) VIEW OF CAPACITY LOAD ATTENTION POINTS2 View the details of the loading capacity details for period Selecting the individual row shows the actual production orders. It is possible to show graphic view of load and available capacity. Source: SAP 52

Capacity Leveling CAPACITY LEVELING: MPS CYCLE ATTENTION POINTS1 Execute capacity leveling to check back-log and re-schedule where required. Transaction CM25, select Profile A_XX. View Change time profile to see dates used Capacity leveling considers orders in the last 30 days. This is critical to show back log. Source: SAP 53

Capacity Leveling (cont.) CAPACITY LEVELING: MPS CYCLE ATTENTION POINTS First action is to prioritize any backlog production orders, this way system2 Select orders to determine will schedule these first and will ignore grouping rules. if really in backlog (could Select row production order. be delay in updating system). It is critical that real back-log orders are rescheduled to ensure correct loading of work- centre. Orders in back-log are prioritized by assigning priority Then select The table shows key sequencing data: Priority Group category Group Key Latest Start date Source: SAP 54

Capacity Leveling (cont.) CAPACITY LEVELING MPS CYCLE ATTENTION POINTS3 View Planning results with transaction MD04 Production orders rescheduled. Orders are not scheduled in the past. The std SAP message will provide relevant messages to user4 Re-check load on work centre, transaction CM01 No overload with respect to capacity Source: SAP 55

Capacity Leveling (cont.) CAPACITY LEVELING: MPS CYCLE ATTENTION POINTS5 View the GANTT chart details The GANTT chart at work centre view provides the following data: Production Order number Material description Set-up in blue Execution time in red The order view shows as same GANTT as work centre view, but detailed by order number Source: SAP 56

Capacity Leveling (cont.) CAPACITY LEVELING: MPS CYCLE ATTENTION POINTS6 View the impact of changing production order The system automatically re-schedules order according to set-up time and execution time defined in routing for alternate capacity It will automatically change the group category and group key with what was defined in alternate routing. Note: Just changing the work centre does not re- determine operation data such as set-up, execution, and grouping Source: SAP 57

Capacity Leveling (cont.) CAPACITY LEVELING: SET-UP OPTIMIZATION ATTENTION POINTS1 Carry-out set-up optimization. Transaction CM25 select Profile A_BUMAN03. Select orders Note the set-up group category and set-up key. These two conditions are used for optimization. Source: SAP 58

Capacity Leveling (cont.) CAPACITY LEVELING: SET-UP OPTIMIZATION ATTENTION POINTS2 Carry-out optimization by selecting from menu The system will automatically replace set- up time as per matrix Save3 Re-enter with same profile to display result The set-up optimization considers the set-up group category and Set-up group key Source: SAP 59

Capacity Leveling (cont.) CAPACITY LEVELING: SET-UP OPTIMIZATION ATTENTION POINTS4 View the GANTT chart details These production orders have their set-up reduced as per matrix.5 View operation details Operation data automatically updated. Production orders modified automatically Source: SAP 60

Modifying the Order MODIFICATION TO ORDER ATTENTION POINTS1 On a regular basis, the planner will have to re-plan order specifically for back- log or priorities. Assign priority to backlog orders. STEP 1: Verify scheduling Transaction CM25 Profile A_BUMAN04 (Order view) Planning must be aligned with current date; therefore, all orders in back-log must be rescheduled accordingly. Therefore user must: Change priority of backlog order operation to 1 in sequence number field De-allocate orders Select row and click orders Once we have done this and we re-schedule, it will sort in capacity leveling according to: 1 Sequence Number Click on 2 Group Category 3 Group Key Insert value 2 in 4 Start Date priority Source: SAP 61

Modifying the Order (cont.) MODIFICATION TO ORDER ATTENTION POINTS2 Carry-out rescheduling of orders. STEP 2: Verify scheduling Transaction CM25 Profile A_BUMAN04 (Order view) The user manually dispatches the order by using drag and drop functionality. The order will be dispatched exactly as requested by planner. Source: SAP 62

Modifying the Order (cont.) MODIFICATION TO ORDER ATTENTION POINTS3 Manual Maintenance of Production Order. Transaction CO02, change production order Changes to order dates can be carried-out only if order is de-allocated. Qty changes require rescheduling as well as manual dates changes. The re-scheduling will then require capacity leveling Select menu ‘Functions’ Change Scheduling to forwards and then insert new Start date Then select re- schedule Source: SAP 63

The Role of the DrumThe scheduling of the Drumbased on CCR accuratelydetermines the start and finishtime. The start date minus the BUFFERbuffer determines the end time inwhich preceding semi finished 1must be finished. The buffer islike a shock absorber. START TIMEThe CCR determines the Drum. END TIMEIn this case, the CCR isresponsible for finished product.The scheduling of the CCR exactstart and finish time, includingset-up, determines thedependant demand on the semifinished 1 and relatedcomponents. The semi-finished 1is planned to include a buffer toprotect the CCR.The Drum also provides releasedate (ROPE) for the rawmaterials. 64

Finished Strip Linkage SEMI FINISHED 2 LINKAGE ATTENTION POINTS1 MPS on Finished product only creates Dependant Requirements. Use transaction MD04 to show status on Semi Finished 1 MPS on the Finished product has only generated dependant demand and has not executed any planning on semi finished 1. MPR will be generated continuously re-creating planned orders as per requirements. Demand is classified as follows: 1 OrdRes is based on FP Production Order 2 DepReq is based on FP planned orders Source: SAP 65

Semi-Finished 1 Missing Parts List SEMI FINSIHED 1 MISSING PARTS LIST ATTENTION POINTS1 Review Missing Parts List; Transaction CO24 Updated automatically when releasing Production Order of Semi finished 1. The Requirement qty is based on the production order demand. Committed qty is what is currently available or planned (production Orders) to satisfy demand. The missing parts info system is updated every time ATP is executed Source: SAP 66

Semi-Finished 1 Missing Parts List (cont.) SEMI FINSIHED 1 MISSING PARTS LIST ATTENTION POINTS2 Review Production Order The production order for the Finished Product contains the details of the Semi finished 1. Reservation is assigned to Semi finished 1. Reservation is only relevant for Production Orders created for Semi finished 1. Committed qty is zero. This is based on ATP check. Source: SAP 67

Semi-Finished 1 Missing Parts List (cont.) SEMI FINISHED 1 MISSING PARTS LIST ATTENTION POINTS3 ATP Check The confirmed qty is available to satisfy the order. The confirmed qty is based on production orders created for Semi Finished 1. In this example, there is nothing confirmed to satisfy demand. The check rule considers only Production Orders. Source: SAP 68

Semi-Finished 1 MRP SEMI FINISHED 1 MRP ATTENTION POINTS1 Verify Semi Finished 1 Status, Transaction MD04. The Semi Finished 1 should have grouping rules . Example group 3 days demand. Source: SAP 69

Semi-Finished 1 MRP (cont.) SEMI FINISHED 1 MRP ATTENTION POINTS2 Review Master Data, Transaction MM02. Lot size rule and minimum lot qty. Groups 3 days demand for Finished products. Lead-time. Scheduling Margin Key has opening period of 2 days. Source: SAP 70

Semi-Finished 1 MRP (cont.) Semi SEMI FINISHED 1 MRP ATTENTION POINTS3 Execute MRP, Transaction MD02. Orders will be created as per material master lead time. No capacity load generated. Planned Orders created in the past. Source: SAP 71

Semi-Finished 1 MRP (cont.) SEMI FINISHED 1 MRP ATTENTION POINTS4 Convert production Order single Order from MD04. Start and end as per lead time (working days as per plant calendar). Production Order is not allowed to be created in the past. This is critical for a realistic ATP for the Finished Product. Source: SAP 72

Creating Production Order for Semi-Finished 1PRODUCTION ORDER CREATION FOR SEMI FINISHED 1 ATTENTION POINTS1 Convert planned Order to Production Orders, Transaction CO41 . Firm up one week’s orders. All planned orders within selected period are converted. Source: SAP 73

Refresh Semi-Finished 1 Product Status REFRESH OF SEMI FINISHED 1 PRODUCT STATUS ATTENTION POINTS1 Run ATP, transaction COMAC. The finished Strip should have grouping rules. Example group 3 days demand. Finished product order is confirmed with planned production orders. Source: SAP 74

Refresh Semi-Finished 1 Product Status (cont.) REFRESH OF SEMI FINISHED 1 PRODUCT STATUS ATTENTION POINTS2 Re-check Missing parts list, Transaction CO24. Before Reservation is gone from list indicating that Finished Product production order can be satisfied with order. Source: SAP 75

Refresh Semi-Finished 1 Product Status (cont.) REFRESH OF SEMI FINISHED 1 PRODUCT STATUS ATTENTION POINTS3 Recheck process chain with transaction CM25. This confirms that Finished product production order is protected in terms of Fished Strip planning. Zero delay is expected Receipt qty exceeds demand Source: SAP This concludes the planning of the Drum and how the Drum scheduling requirements are transferred to Semi- Finished 1 with the required buffer. 76

Master Data Objects: Product Master MASTER DATA OBJECTS1 Product master The product master is replicated to PPDS using the CIF. PPDS enables you to assign unique heuristic. A custom heuristic could be created to replicate the MPS logic, so that finished products are planned first on CCR and the sub- components are planned accordingly.2 Work-centre; Resources Work centres are replicated to PPDS as resources. From a production perspective they will be time-continuous. CCR resource will be flagged as bottleneck resource. Source: SAP

Master Data Objects: Work Center (cont.) MASTER DATA OBJECTS2 Work centre; Resources The following resource types will be replicated: • Single activity resource; therefore only one production order may generate requirements. • Multi-mixed resource; multiple production order may generate requirements. • Mixed resources; these resources can be used in both PPDS and SNP. Using SNP is critical to get a medium term view for production specifically to determine if the CCR capacity is absorbing expected demand; if current shift policy has to be changed. SNP also enables you to carry out simulation in different versions and models. Critical considerations regarding scheduling and capacity: • CCR that determines the throughput of the manufacturing plant will be flagged as bottleneck resource. • Secondary critical resource can be flagged as Finite leveling. • The finiteness level is critical to group resources together. This grouping can be run in a separate heuristic step. • The resources that have specific finiteness level can have unique strategy profile. This is critical for DBR when it comes to synchronizing with the CCR resource. Note: resources that are not flagged as finite are planned infinitely. The alert monitor will provide overload for these resources. Critical for Buffer Management. Source: SAP

Master Data Objects: Work Center (cont.) MASTER DATA OBJECTS2 Work-centre; Resources Critical consideration for the resource that have finiteness specific setting • Scheduling model • Planning direction The above is critical to have a streamlined scheduling on resources. Work-centre; CCR Resources The CCR resource flagged as bottleneck resources are scheduled using mid-point scheduling. A second step plans the remaining resources that have their unique scheduling mode and planning direction. Source: SAP

Master Data Objects: Routing MASTER DATA OBJECTS3 Routing; PPM /PDS Routings are replicated as either PPM or PDS. For a DBR project consider the following: • Change management: In PPM there is no change mgt. Changes take effect immediately. • Modification in the PPDS system. PDS do not allow changes, therefore all changes have to be managed in routing in ECC and replicated. From a DBR project perspective, PPM provides the most flexibility. Note: PPM/PDS are not needed if planning option is plan with MRP in ERP and scheduling in PPDS Source: SAP

Master Data Objects: Setup Matrix MASTER DATA OBJECTS4 Setup Matrix For CCR where setup plays an important role, the sequence dependant setup and setup costs are fundamental in reducing setup time. Reducing setup is fundamental in elevating CCR output. The setup matrix will be used with the PPDS optimizer. The purpose of the optimizer is to determine ideal sequence dependant operation taking into consideration cost, penalty, delay, etc. Therefore, optimization with reason. Source: SAP

Planning Considerations PLANNING CONSIDERATION In order to introduce DBR planning technique in PPDS the following aspects are to be considered:1 Master data, Resource types need to be replicated correctly (single, multi, mixed). resource, Resources (CCR) that impact throughput need to be correctly indentified. Related secondary resources that can creep to CCR need also to be identified with assigned product and finiteness level. PPM PPM (routing) needs to be accurate ; execution times and setup time must be accurate. Setup matrix to be included where set-up plays a big role in CCR.2 Important to define relevant heuristics and strategy profile for detail scheduling in order to ensure an accurate and realistic production plan that tries to achieve maximum Heuristics and throughput on the CCR.strategy profiles Set up an ideal planning cycle that plans the Drum at the CCR by means of finite3 Planning planning, include planning steps to synchronize related planning sub-assembly and components to satisfy the Drum schedule. Monitor alerts regarding resource loading on Cycle non CCR. Set up buffer parameters; this can be set up by product family; use material group; grouping4 Buffer such as components, semi-finished, and finished in grouping. In each group, define buffer parameters. management 83

Planning Sequence Steps PLANNING SEQUENCE STEPS 1 Stage Numbering SAP_PP_020 Algorithm: To determine low level code SAP_MRP_001 2 Material Requirement Infinite planning; planning object PRODUCT Planning; product Heuristic; finished, sub- assemble and components SAP001 Function; Optimization of CCR resources in Detailed Scheduling Source: SAP 3 Optimization of CCR Planning Board. Defines the Drum for CCR 4 Propagation & delays of Re-plan based on components; re-schedule confirmed Drum bottom up. 5 Review overloads DetailedIn APO PPDS, it is easy to construct the Scheduling Planning Board onautomatic production planning process with non CCR, review buffer several steps. The individual steps are penetrationsimply specified in the planning run.

DBR Considerations IMPORTANT CONSIDERATION FOR DBR A key consideration with respect to DBR is to ensure stability in planning. The firming based on time frame allows stability within the frame. Any changes will be propagated to outside the firming horizon. A further critical consideration is the use of the conversion rule which is used to convert planned orders to production orders. Custom logic can be defined to determine relevant checks and priorities to ensure that there will be no disruptions and maximum output will be achieved from CCR.Source: SAP

DBR Planning: Heuristic DBR PLANNING: HEURISTIC After STEP 2 Planning Heuristic, the planning board will show capacity requirement and overloads. The alerts can include any buffer (yellow or red zone) penetration. The alert with respect to buffer penetration will be a custom build.Source: SAP

DBR Planning Step 3: Optimization at CCR DBR PLANNING STEP 3 OPTIMIZATION AT CCR Prior to running the optimizer, a number of reports are available to show situation on CCR and specifically the demand on CCR. Note: This is also suitable for running what-if simulation on different planning versions. Optimizer profile. The optimizer works on costs. This means that the objective is to minimize overall production costs. This cost reduction is achieved by objective function which is made up of weighing factors such as set-up costs and delay costs. This is fundamental to the set- up optimization. Source: SAP

DBR Planning: CCR Review (cont.) DBR PLANNING CCR REVIEWCCR Review. Source: SAPThe CCR planning is now optimized including set-up optimization. Based on this, planning is then executed for the re-scheduled CCR, components, and sub-assembly to meet the Drum schedule. This planning run will also generate alertsand could cause problems with meeting the Drum schedule (specifically late delivery of components). The conversionrule program can be used to convert feasible product to production orders.

Buffer Management BUFFER MANAGEMENT ATTENTION POINTSBuffer zone used for monitoring. Buffer management’s role is to keep track of the production flow process of those components that feed the CCR, in this case the Finished product. Buffer is split equally into 3 zones. Using the Drum release date, the Rope, we can expect to determine penetration in the relevant buffer zone. Shop floor execution will then provide actual data. Rope families are set up to contain relevant zones. These rope families can be by product group. This then allows alert monitor to include buffer situation by product group. Rope families simplify data management.

Buffer Management (cont.) BUFFER MANAGEMENT ATTENTION POINTS Alert monitor has BAdI available to build own logic around buffer management so that the alert monitor provides an entry point to manage all situations. Consistent penetration in the red zone indicates that a further bottleneck is emerging. It is critical that buffer monitor provides different views, by component, production order, and work centre. Useful to have a KPI that indicates buffer penetration by area. Source: SAP Buffer management should also store reason for buffer penetration. This is critical to understand the problems around meeting DBR and causes. Reason could be equipment failure, late supply, labor shortage, late release. Having this info at product, order, and resource summarized at Rope family level.

Buffer Management (cont.) BUFFER MANAGEMENT ATTENTION POINTS Multi-level buffer management is needed to show dependencies to CCR (Drum) with their corresponding buffer penetration and reason codes. This information is obtained from the manufacturing execution system that shows actual released date and quantity. Shop floor control is critical to provide realistic feedback. 91

ERP vs. PPDS ERP VERSUS PPDS ERP PPDSSuitable for simple manufacturing situations Suitable for complex manufacturing situationsSimulations not possible Ability to run simulationsBasic planning board and planning table Optimization using cost objective functionsBasic MD04 Enhanced planning board and planning table Medium term planning using bucket CTM Enhanced product view Process chains to define steps in planning sequence automatically.NOTE: Buffer management and monitoring is technically not available in either system.

Summary SUMMARY Key Consideration1 The Theory of Constraint is a focused technique to optimize production and supply Focused chain. Its main focus is throughput, inventory, and on-time delivery. Technique Its scope is not just limited to IT planning, but covers all aspects of generating2 Scope throughput; resources, policy, and systems.3 In order for a project to succeed, highest level of sponsorship of the project is Success recommended; Finance Director or Managing Director. Management must be above manufacturing, IT.4 Trying to achieve TOC objectives from only an IT perspective will not achieve Not an IT project desired objectives. A TOC project must not be just a paper exercise; it must have required level of5 detail that can be used to implement the change. This is why TOC project must also Depth analyze in detail the usage of planning and scheduling system. It must not just say, “implement DBR,” but rather how. It is also critical to ensure KPIs are oriented in measuring the effectiveness through time.6 SAP ERP production planning and SAP SCM (APO) PPDS have the necessary SAP and DBR tools to satisfy DBR complexity. Buffer management needs to be built with the supplied alert monitor framework. 94

CTP in SCM SAP PERSPECTIVE : ADDITIONALOn time delivery also means that when orders are created, feasible delivery data is provided to customer. This meansthat orders that require delivery within a short term firm horizon are planned, taking into consideration availablecapacity. This is possible with CTP solution available in the SCM platform. System simulates the optimizer to schedule order within available capacity. The scheduled order plus GR date is then confirmed to sales order. This process will use same profile as the normal DBR profile on CCR resource. Source: SAP

Additional Resources• http://sapscminfo.blogspot.com  Speaker’s blog including various topics related to production, TOC, and Supply Chain• IDEFØ process methodology  www.idef.com/IDEF0.htm• Production Planning and Control (PP)  http://help.sap.com/erp2005_ehp_06/helpdata/en/ba/df293581dc 1f79e10000009b38f889/frameset.htm• Supply Chain Operations Reference (SCOR) Model  http://supply-chain.org/bookstore/scor-10-overview• James Cox III and John Schleier, Theory of Constraints Handbook, (McGraw-Hill Professional, 2010).• Goldratt-TOC  www.goldratt-toc.com/index.html 96

7 Key Points to Take Home• TOC aims at maximizing throughput, on-time delivery, and reduction in inventory• A TOC focused organization ensures maximum throughput with respect to its available manufacturing resources• TOC provides purpose with respect to a optimization project (Business Process Modeling project)• TOC is not just an IT project• To achieve TOC objective, top level project sponsorship is required• SAP re-alignment can result in real tangible bottom line benefits• SAP tool set can easily be adapted to accommodate the TOC methodology and DBR planning technique 97

DisclaimerSAP, R/3, mySAP, mySAP.com, SAP NetWeaver®, Duet®, PartnerEdge, and other SAP products and services mentioned herein as well as theirrespective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other productand service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled bySAP. 98

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