C_TS410_2022 Design to Operate Processing

Design to Operate Processing Detailed Explanation

The Design to Operate (D2O) process in SAP S/4HANA focuses on managing the entire manufacturing lifecycle. It ensures that products are designed efficiently, produced on time, maintained effectively, and delivered to customers without delay.

This process connects five key areas:

1. Plan: Production planning based on demand forecasts and resource availability.
2. Design: Creation of Bill of Materials (BOM) and master data for manufacturing.
3. Manufacture: Execution of production orders to produce goods.
4. Operate: Managing ongoing operations, including equipment maintenance.
5. Deliver: Ensuring timely delivery of finished products to customers.

5.1 Production Planning (PP)

Objective of Production Planning

The main goal of Production Planning (PP) is to:

1. Ensure material availability to avoid production delays.
2. Optimize the use of resources, such as machines, labor, and materials.
3. Plan production efficiently to meet customer demand on time.

Key Activities in Production Planning

1. Demand Management

• Purpose: Demand management forecasts and creates demand for materials based on sales orders, production forecasts, or historical data.
• Types of Demand:
  • Planned Independent Requirements (PIR): Forecasted demand not directly tied to a specific sales order.
  • Customer Independent Requirements (CIR): Demand based on actual customer orders.

Example:
A company forecasts the production of 1,000 tables for the next month based on historical sales trends. PIR is used to initiate production planning.

2. Material Requirements Planning (MRP)

What is MRP?
Material Requirements Planning (MRP) is an automated process in SAP that calculates:

1. Material Requirements: Determines what materials are needed and when.
2. Capacity Requirements: Ensures machines, labor, and other resources are available.

Key Steps in MRP:

1. Determine Demand: MRP uses demand data (PIRs, CIRs) as input.
2. Check Stock: MRP checks current inventory levels for raw materials and finished products.
3. Create Procurement Proposals: MRP automatically generates:
   • Planned Orders: Internal requests to produce goods.
   • Purchase Requisitions: Requests to purchase raw materials.

Example of MRP Calculation:

• Demand: 100 units of Product A.
• Product A requires 2 units of Material X per unit.
• Total Requirement: 100 × 2 = 200 units of Material X.
• If current stock = 50 units, MRP generates a Purchase Requisition for 150 units.

Transaction Codes for MRP:

• MD01: Run MRP for all materials.
• MD02: Run MRP for a single material.

3. Capacity Planning

What is Capacity Planning?
Capacity planning ensures that resources—machines, labor, and tools—are sufficient to meet production demands.

Key Elements:

1. Work Centers: Locations where production activities occur (e.g., assembly line, machine shop).
2. Routing: Defines the sequence of operations performed on a product at specific work centers.
3. Capacity Utilization: Measures how much of a resource’s available capacity is being used.

Steps in Capacity Planning:

1. Calculate resource requirements using Routings and production quantities.
2. Compare required capacity with available capacity of machines and labor.
3. Adjust production schedules or resources to resolve any capacity overload.

Example:

• Work Center 1 can process 100 units/day.
• Production Demand: 150 units/day.
• Solution: Schedule overtime or add additional machines to meet the requirement.

Master Data for Production Planning

Master Data is critical for production planning as it ensures accurate calculation and scheduling.

1. Material Master

• Central repository for all material-related data.
• Includes information like:
  • Material Type: Raw material, finished product.
  • Unit of Measure: Pieces, kilograms, liters.
  • Procurement Type: Internal production or external purchase.

Transaction Code: MM01 (Create Material Master).

2. Bill of Materials (BOM)

• A BOM is a structured list of components (materials, assemblies) required to produce a finished product.
• It specifies the quantity and unit of measure for each component.

Example of BOM for a Table:

Component	Quantity	Unit of Measure
Wooden Plank	1	Piece
Wooden Legs	4	Pieces
Screws and Glue	10	Pieces

Transaction Code: CS01 (Create BOM).

3. Work Centers

• Work Centers are locations where production activities take place.
• Each work center stores data such as:
  • Machine Time: How long a machine runs for an operation.
  • Labor Time: Human resource hours required.
  • Capacity Data: Available capacity of the work center.

Example:
Work Center 1000 → Assembly Line 1 → Capacity: 8 hours/day, 2 machines.

Transaction Code: CR01 (Create Work Center).

4. Routing

• Routing defines the sequence of production operations required to produce a material.
• It links the BOM components to specific work centers.
• Routing includes:
  • Operations: Steps like cutting, assembling, and painting.
  • Work Center Assignment: Where each operation takes place.
  • Time Standards: How long each operation takes (setup time, machine time).

Example of Routing for a Table:

Operation	Work Center	Duration
Cutting	Cutting Station 1	1 hour
Assembling	Assembly Line 1	2 hours
Painting	Painting Station 2	30 minutes

Transaction Code: CA01 (Create Routing).

5.2 Production Order Management

Production Order Management is a key component of the Design to Operate process. It involves creating and managing production orders to execute the manufacturing of products. A production order serves as the central document to plan, schedule, execute, and monitor production activities in SAP S/4HANA.

Definition of Production Orders

A Production Order is a formal instruction to produce a specific quantity of a product within a defined time frame. It specifies:

1. The material to be produced (e.g., finished goods).
2. The quantity to be produced.
3. The Bill of Materials (BOM) and Routing to be used.
4. The work centers where operations will be performed.
5. Planned production dates (start and finish).

Production orders integrate master data (BOM, Routing, and Work Centers) with transactional data (material consumption, labor hours, etc.) to track production progress.

Key Steps in Production Order Management

The production order process follows a sequence of activities to ensure goods are manufactured efficiently. Let’s go step by step:

1. Creation of Production Orders

• Production orders can be created manually or automatically based on Material Requirements Planning (MRP) results.
• Each production order includes:
  • Material to be produced
  • Quantity
  • Start and finish dates
  • Routing (operations and work centers)

Transaction Codes:

• CO01: Create Production Order (Manual).
• MD04: MRP stock/requirements list (to review MRP proposals).

Example:

• Based on MRP, a planned order to produce 100 chairs is converted into a production order.

2. Scheduling of Production Orders

• Scheduling determines the planned start and finish dates for production based on:
  • Operation times defined in Routings.
  • Available capacity at Work Centers.

Types of Scheduling:

1. Basic Scheduling: Considers operation times but does not check resource availability.
2. Capacity Scheduling: Ensures work center resources (machines and labor) are available for production.

Example:

• Operation 1: Cutting (1 hour) → Operation 2: Assembly (2 hours) → Operation 3: Painting (30 minutes).
• The production order schedules these operations sequentially to finish in 3 hours and 30 minutes.

3. Material Staging

• Material Staging ensures that all raw materials and components needed for production are available at the right place and time.
• The Bill of Materials (BOM) attached to the production order defines the materials required.

Key Activities:

1. Check stock availability.
2. Reserve materials from inventory.
3. Issue materials to production (material consumption posting).

Transaction Codes:

• MB1A: Goods Issue for Production Order.
• CO27: Monitor missing parts for a production order.

Example:

• For producing 100 chairs, the following materials are staged:
  • Wooden Planks: 100 pieces.
  • Wooden Legs: 400 pieces.
  • Screws and Glue: 1,000 pieces.

4. Execution of Production

• During execution, the work centers perform the production steps defined in the Routing.
• Shop floor workers carry out operations like cutting, assembling, and painting.

Key Activities:

1. Perform operations at the work centers.
2. Record machine hours and labor time spent on each operation.
3. Consume materials and update inventory.

Transaction Codes:

• CO11N: Confirm Production Activities.

Example:

• A worker confirms that:
  • Operation 1 (Cutting): Took 2 hours.
  • Operation 2 (Assembly): Took 4 hours.

5. Confirmation of Production Order

• Confirmation records production progress and updates the system with:
  • Quantities produced.
  • Actual time spent on operations.
  • Materials consumed during production.

Types of Confirmations:

1. Partial Confirmation: For reporting progress in stages.
2. Final Confirmation: Marks the operation as complete.

Transaction Code: CO11N (Enter Confirmation).

Example:

• A confirmation is posted for Operation 1 (Cutting):
  • Output: 100 planks cut.
  • Time Spent: 2 hours.

6. Goods Receipt (GR) for Finished Goods

• After production is completed, the finished products are received into inventory.
• The system updates inventory levels and marks the production order as complete.

Transaction Code: MIGO (Goods Receipt for Production Order).

Accounting Impact:

• Debit: Finished Goods Inventory Account (Value of produced goods).
• Credit: Production Order Cost Account (Cost of production).

Example:

• After producing 100 chairs, the system posts:
  • Goods Receipt for 100 chairs into inventory.

Key Transaction Codes for Production Order Management

Transaction Code	Purpose
CO01	Create Production Order
CO02	Modify Production Order
CO11N	Confirm Production Activities
MB1A	Post Goods Issue for Production
MIGO	Post Goods Receipt for Finished Goods
CO27	Monitor Missing Parts

Example of Production Order Management Process

Let’s follow a practical example for producing 100 tables:

1. Creation:

   • MRP identifies the need for 100 tables. A production order is created (Transaction CO01).

2. Scheduling:

   • The operations are scheduled:
     • Cutting: 2 hours
     • Assembling: 4 hours
     • Painting: 1 hour

3. Material Staging:

   • BOM components are staged:
     • Wooden Planks: 100 pieces
     • Wooden Legs: 400 pieces
     • Screws: 1,000 pieces

4. Execution:

   • Workers perform operations at work centers:
     • Cutting → Assembly → Painting.

5. Confirmation:

   • Confirm completion of operations (Transaction CO11N):
     • 100 tables are produced.

6. Goods Receipt:

   • Finished tables are received into inventory (Transaction MIGO).
   • Inventory increases by 100 tables.

Summary of Production Order Management

The production order process ensures that products are manufactured efficiently and accurately. We covered:

1. Key Steps:
   • Creation, Scheduling, Material Staging, Execution, Confirmation, and Goods Receipt.
2. Master Data: BOM, Work Centers, and Routing.
3. Transaction Codes: Key tools to manage production orders.

5.3 Integration of Production with Other Modules

In SAP S/4HANA, Production Planning (PP) and Production Order Management integrate seamlessly with other modules to ensure smooth manufacturing processes and provide accurate data across the system. These integrations enable better resource management, financial tracking, and operational efficiency.

Key Modules Integrated with Production

1. Material Management (MM)

Objective: Ensure the availability of raw materials and components required for production.

How Production Integrates with MM:

1. Material Requirements Planning (MRP)

   • MRP checks material availability in inventory.
   • If stock is insufficient, MRP generates Purchase Requisitions or Planned Orders to procure materials.

2. Goods Issue

   • During production execution, raw materials are issued from inventory to the production order.
   • This step reduces stock levels in the inventory.

3. Goods Receipt

   • After production, finished goods are received into inventory. The inventory levels are updated automatically.

Key Scenarios:

1. Material Shortage:

   • If production requires 100 units of Material X and only 50 are available, MRP generates a Purchase Requisition to procure the remaining 50 units.

2. Goods Issue Posting:

   • When raw materials are consumed during production, the system posts a Goods Issue to reduce inventory.

   Transaction Code:

   • MB1A (Manual Goods Issue).

3. Goods Receipt Posting:

   • Once production is completed, finished products are received into inventory.

   Transaction Code:

   • MIGO (Goods Receipt).

2. Finance (FI) and Controlling (CO)

Objective: Track production costs, analyze variances, and ensure accurate financial reporting.

How Production Integrates with FI/CO:

1. Cost Tracking

   • Production costs include:
     • Material Costs: Cost of raw materials consumed.
     • Labor Costs: Time spent by workers on production activities.
     • Overhead Costs: Machine usage, utilities, and indirect expenses.
   • These costs are recorded in Cost Centers and Production Orders.

2. Cost Settlement

   • After production is completed, costs are settled from the production order to the respective cost centers, profit centers, or finished goods accounts.
   • This ensures accurate financial reporting.

3. Variance Analysis

   • The system compares planned costs with actual costs to calculate variances.
   • Variances may result from:
     • Material price changes
     • Excess labor hours
     • Inefficient resource usage

Example of Cost Integration:

1. Planned Costs:

   • Material Cost: $500
   • Labor Cost: $200
   • Overhead Cost: $100
   • Total Planned Cost: $800

2. Actual Costs:

   • Material Cost: $520
   • Labor Cost: $250
   • Overhead Cost: $120
   • Total Actual Cost: $890

3. Variance:

   • $890 - $800 = $90 Overrun

Transaction Codes:

• CO88: Settle Production Order Costs.
• KSB1: Display Cost Center Line Items.

3. Plant Maintenance (PM)

Objective: Ensure the availability and reliability of production equipment.

How Production Integrates with PM:

1. Equipment Maintenance

   • Machines and equipment used in production are managed through the Plant Maintenance module.
   • PM tracks:
     • Preventive maintenance schedules
     • Corrective maintenance work orders

2. Downtime Monitoring

   • If a machine breaks down, the production schedule is affected. PM records the equipment downtime, and production orders can be rescheduled.

3. Resource Planning

   • Production planning takes machine availability into account. If maintenance is scheduled, MRP adjusts production timelines accordingly.

Example of PM Integration:

• Scenario: A critical machine used for cutting operations needs maintenance for 2 days.
  • PM creates a Maintenance Order for the machine.
  • Production Planning adjusts the schedule to ensure minimal disruption.
  • The downtime is tracked, and maintenance costs are recorded.

Summary of Integration

Integrated Module	Purpose	Key Activities
Material Management (MM)	Ensure material availability	MRP, Goods Issue for production, Goods Receipt for finished goods
Finance (FI/CO)	Track and settle production costs	Cost posting, cost settlement, variance analysis
Plant Maintenance (PM)	Maintain production equipment	Preventive/corrective maintenance, downtime monitoring

End-to-End Example: Design to Operate Process

Let’s summarize the full Design to Operate process for producing a finished product, such as a Table:

1. Plan:

   • MRP determines the need for 100 tables based on sales orders.
   • A production order is created for the tables.

2. Design:

   • BOM defines the components (wooden planks, legs, screws).
   • Routing defines the production steps:
     • Operation 1: Cutting → Work Center A
     • Operation 2: Assembling → Work Center B

3. Manufacture:

   • Workers execute the production order.
   • Materials are consumed, and activities are confirmed.

4. Operate:

   • Machines are maintained to ensure smooth production.
   • Downtime is tracked, and repairs are scheduled as needed.

5. Deliver:

   • Finished tables are received into inventory and delivered to customers.

Example Accounting Impact:

• Raw Material Consumption:
  • Debit: Production Order → Material Costs.
  • Credit: Raw Material Inventory.
• Finished Goods Receipt:
  • Debit: Finished Goods Inventory.
  • Credit: Production Order Costs.

Conclusion of Design to Operate Process

The Design to Operate process connects the entire manufacturing lifecycle, from planning and design to production, operations, and delivery. The integration with modules like MM, FI/CO, and PM ensures efficiency, cost control, and seamless execution.

Design to Operate Processing (Additional Content)

1. Production Order Statuses (Optional Advanced Learning)

In SAP Production Planning (PP), a Production Order passes through several system statuses that define its processing stage and determine what actions are allowed or restricted at each point.

Key Production Order Statuses:

Status Code	Description	Purpose
CRTD	Created	The order is created but not yet released. No execution activities are allowed.
REL	Released	The order is released for execution. Components can be issued and confirmations can begin.
CNF	Confirmed	All operations or key ones have been confirmed (partial or final).
TECO	Technically Completed	Order is complete from an execution point of view. No further confirmations or issues allowed, but settlement is still possible.
CLSD	Closed	Financial and logistical processing is fully completed. No further postings allowed.

Example Workflow:

1. CRTD → The order is created via CO01, but not yet processed.
2. REL → The planner releases the order, enabling goods issue (MB1A) and activity confirmation (CO11N).
3. CNF → All production steps are confirmed.
4. TECO → The planner sets the order as technically completed.
5. CLSD → The finance team closes the order after final settlement (CO88).

Importance of Status Control:

• Controls allowed transactions (e.g., can’t post goods issue if order is not REL).
• Prevents unauthorized changes.
• Ensures accurate reporting and clean data for finance and logistics.

2. Planning Strategy Overview

A Planning Strategy in SAP defines how the system plans production and manages demand in Make-to-Stock (MTS) or Make-to-Order (MTO) scenarios.

Common Planning Strategies:

Strategy	Description	Use Case
Make to Stock (MTS) – Strategy 10	Products are produced in advance based on forecast (PIR – Planned Independent Requirements).	Mass production industries (e.g., consumer goods).
Make to Order (MTO) – Strategy 20	Products are only produced after a sales order is received.	Customized or high-value items (e.g., machinery).
Engineer to Order (ETO) – Strategy 82	Product is designed and manufactured based on project-specific requirements.	Capital projects, construction, or R&D.

Impact on MRP (Material Requirements Planning):

• MTS: PIRs are considered during MRP run; stock is built in anticipation of sales.
• MTO: Sales Orders trigger demand; MRP does not plan unless sales order exists.
• ETO: Often integrates with Project Systems (PS) and uses Network Orders.

Why Planning Strategies Matter:

• They affect:
  • Stock holding patterns
  • Lead times
  • Customer delivery commitments
  • System behavior in MRP and production order creation

Configuration Reference:

• Planning Strategy is defined in Material Master under the MRP 3 view.
  • Field: Strategy Group
  • Example: 10 (MTS), 20 (MTO), 82 (ETO)