Integrated Distribution

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Integrated Distribution Production
Planning(DP/PP) EIN 5346 Logistics
Engineering Fall, 2015
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Integrated Distribution Planning
Production Planning (DP/PP) Theories
Concepts
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SCM Overview
SCM aims at managing and optimizing the
information flow and the material flow through a
network of suppliers, manufacturers,
distributors, and customers.
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SCM Overview
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SCM Overview

• Traditionally, distribution planning and
  production planning are carried out, independent
  of each other. Each seeks its own local optimum.
• In SCM, distribution planning and production
  planning decisions should be integrated to
  promote global optimum.
• This integrated distribution and production
  planning aims at
• Reducing costs for sourcing products and raw
  materials,
• Improving customer service,
• Dramatically reducing on-hand stocks, and
• Making better use of company resources.

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An Integrated DP/PP Problem
An integrated DP and PP problem Suppose a supply
chain system 1. Two distribution centers (XXW1
and XXW2) 2. Two plants (XX01 and XX02). 3. Two
finished products GIN and KORN. - GIN produced
in both plants XX01 and XX02, - KORN only
produced in plant XX02. 4. One semi-finished
good ALC - used by both finished products -
only produced in plant XX01 - can be sent from
the plant XX01 to XX02. 5. DC XXW1 supplied
from both plants XX01 to XX02 6. DC XXW2 supplied
only by XX02 (see the Figure 10.1) This is a
classical transportation problem.
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An Integrated DP/PP Problem
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An Integrated DP/PP Problem

• Some planning decisions include
• Determine the source for warehouse XXW1
• Procure GIN from XX01 or XX02, depending on the
  load in plants XX01 and XX02.
• Prioritize production for plant XX02
• Produce GIN for both warehouses XXW1 or XXW2,
  depending on whether XX01 has the capacity to
  supply additional quantities to XXW1.
• Produce GIN or KORN, depending on the product
  priorities.
• 3. Handle ALC
• to ship ALC to XX02 or process it in XX01,
  depending on the production costs, the market and
  the product priorities and the demand structure
  in XX02.
• 4. Balance loads for GIN between plants XX01 and
  XX02
• depending on the production costs, the lot size
  dependent production costs and the capacity
  extension costs and possibilities.
• 5. Make trade off
• To optimize the lot size that strikes a balance
  between set-up cost and storage cost, while
  improving sales flexibility.

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SNP Optimiser
Objective SNP optimiser is to plan the entire
supply chain (i.e., from distribution, production
to procurement) at optimal costs by modelling the
complete supply chain as linear equations and
solve them by linear programming (LP) or mixed
integer linear programming (MILP). The
difference between the two (LP and MILP) lies in
the consideration of discrete decisions, as lot
size intervals.
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SNP Optimiser

• Objective function
• Min Sproduct (D S) Penalty S Cost
  supplychain
• where
• D the total demand quantity
• S total supply quantity (which is product and
  location dependent).
• The supply chain costs contain cost for 1)
  production, 2) procurement, 3) transport, 4)
  storage and 5) handling.
• The penalties are cost for lateness, non-delivery
  and safety stock violation.

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SNP Optimiser
The constraints for the plants are PGIN-XX01lt
CGIN-XX01 PGIN-XX02 PKRON-XX02 lt
CGIN-KRON-XX02 PGIN-XX02 lt CGIN-XX02 PKRON-XX0
2 lt CKRON-XX02 PALC-XX01lt CALC-XX01 PGIN-XX01
PGIN-XX02 PKRON-XX02 lt BOM Ratio
PALC-XX01 Where P is the produced quantity,
C is the production capacity.
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SNP Optimiser
PGIN-XX01 PGIN-XX02 PKRON-XX02 lt BOM Ratio
PALC-XX01
1000 x 5 500 x 5 200 x 10 lt 9,500
1,000
500
200
1
1
1
5
5
10
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Costs for SNP Optimiser
1. Supply chain costs are maintained in the
master data for product, PDS, PPM, resource
capacity variant and transportation lane. 2.
Storage costs are calculated as stock quantity
multiplied by the number of time buckets (or in
addition, multiplied by the number of days per
bucket), according to the setting. 3. SNP
optimiser takes the production, transport,
storage and handling costs into account for
global optimization. The most critical issue in
using the SNP optimiser is the appropriate
maintenance of the costs. For example, if
storage costs are too high, it may result in no
production at all, because supply chain costs
exceed the penalties for non-delivery or
permanent transport
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Penalty for SNP Optimiser

• 1. Penalty for delay and non-delivery are
  maintained in the product master, for three
  demand types, corresponding to the demand
  priorities (set in the optimiser profile per
  demand type)
• Type 1 customer demand,
• Type 5 corrected forecast demand, and
• Type 6 forecast demand.
• 2. Penalty costs for safety stock are defined
  with the number of stock-out days.

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Constraints for SNP Optimiser
Constraints for optimisation are demand,
capacities, material availability and the
production and stock transfer horizons. The
user may define a priority for each demand type.
The user may also set priority in the optimiser
profile.
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SNP Optimiser

• By setting these costs, penalties, and
  constraints, we can model for decisions such as
• Extend production capacity in a plant or procure
  from a different plant considering increased
  production and transport costs,
• Extend production capacity in a plant or procure
  externally
• Switch to a more expensive transport method to
  speed up the transportation,
• Switch to another source if a transport capacity
  is already consumed, and
• Produce and ship just in time to minimise storage
  costs.
• The more sourcing alternatives exists, the more
  complicated the planning problem becomes.

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Capable-to-Match (CTM)

• Capable-to-match (CTM) is an APO tool to perform
  DP/PP interactively. CTM is a heuristic
  approach it does not optimize.
• CTM planning is a first-come, first-serve
  heuristic as a result, shortages may occur to
  late comers.
• CTM approach usually applies when demand
  priorities (e.g. demand type, customer
  priorities, product priorities) exists
• There is no re-planning for the created orders
  for other demands.

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Capable-to-Match (CTM)

• CTM Procedure
• Prioritize demands and orders, and categorize
  supplies (production and/or stocks), according to
  the planning mode and the search strategy
• Load the master data and the transaction data
  (demands and orders) into CTM engine
• Run CTM to match demands with supplies in a
  location-by-location procedure.
• All supply categories and the production are
  taken into account for each location, according
  to the search strategy.

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CTM Categorisation and Search Strategy
The search strategy defines the sequence for
supplies to match demands. All the planning
steps defined in the search strategy the
matching of supplies and the production are
carried out location-by-location. The sequence
of the locations is determined by the priorities
(see Figure 10.12), where the location SOURCE1
has a higher priority than SOURCE2, so first all
the planning steps are performed for the location
SOURCE1. Production is only able to cover one
demand.
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Supply and Demand Matching Search Strategy
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Supply and Demand Matching Search Strategy
1
2
2
1
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CTM Planning
CTM takes into account, the transportation lane
priority, the location priority, and the product
priority and uses them to make decisions as
shown in Figure 10.14. The transportation lane
priority is used for sourcing decisions. The
location and product priorities become
significant when shortage occurs (in which the
demand with the highest priority is considered
first).
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Priorities for CTM
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Integrated Distribution Production
Planning SAP Implementation
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Maintain Distribution Definitions in SCM
System
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Define Transfer of SNP Orders in SCM System
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Lab 5 Exercises (Due date 12/12/2015)Questions
1 and 5 by team,

• Create transportation lanes in SCM system
• Create transportation lane from plant to DCs and
  assign materials
• Mass generate transportation lanes with start
  locations for plant and DCs and destination
  locations for customers
• Create transportation lane from MI to SD
• Assign materials to transportation lanes
• Assign materials for transportation lanes from
  plant to customers
• Assign materials for transportation lanes from
  DCs to customers
• Assign materials for transportation lane from
  MI to SD
• Create quota arrangement in SCM system
• Create inbound quota arrangement for vendor
  0000102000
• Create inbound quota arrangement for vendor
  0000108000
• Master Product settings
• Model Consistency check