C_TS452_2022 Consumption-Based Planning

Consumption-Based Planning Detailed Explanation

The Consumption-Based Planning module in SAP S/4HANA is a critical component of inventory and supply chain management. It focuses on ensuring that materials are available when needed by automating material requirements planning (MRP) based on real-time demand and consumption. This module helps businesses maintain optimal inventory levels, minimizing both shortages and excess stock.

Overview: Purpose of Consumption-Based Planning

In SAP, Consumption-Based Planning (CBP) is designed to keep inventory at efficient levels without relying on complex production schedules. This approach calculates reorder points based on previous consumption patterns, triggering replenishment orders as stock falls below these levels. With CBP, companies can ensure materials are always available to meet operational demands while avoiding unnecessary stockpiling and the associated holding costs.

1. Demand-Driven Planning

• Definition: Demand-driven planning establishes reorder points by monitoring historical consumption rates and inventory levels. When stock for a material falls below its predefined reorder point, the system automatically triggers a replenishment order.

• Key Components:

  • Reorder Point: This is the minimum stock level that triggers a new order. SAP calculates it based on historical consumption rates and anticipated lead times, ensuring materials are ordered just in time to prevent stockouts.
  • Safety Stock: In cases where there is uncertainty or variability in demand, SAP allows companies to set a safety stock level. This reserve stock acts as a buffer to meet unexpected demand.
  • Lead Time: Lead time refers to the time it takes for an order to be fulfilled once it is placed. SAP takes this into account when calculating reorder points to ensure timely replenishment.

• Example: A company with regular material usage might set a reorder point based on average weekly consumption. When stock falls below this point, SAP generates a new order to ensure supplies don’t run out.

• Purpose: Demand-driven planning allows for responsive, efficient inventory management by anticipating and addressing material needs based on actual usage patterns.

2. MRP Execution

• Definition: MRP (Material Requirements Planning) execution is the process of calculating material demand and generating procurement proposals to fulfill those demands. In SAP S/4HANA, MRP can be run periodically or on-demand to adjust inventory based on fluctuating needs.

• Key Components:

  • MRP Strategies: SAP offers multiple strategies for MRP, such as consumption-based MRP (focused on past usage) and forecast-based MRP (predictive demand planning).
  • Planning Run: The planning run is a system process that calculates material needs across the organization, factoring in existing stock, outstanding orders, and upcoming requirements. This run can be scheduled to occur daily, weekly, or as often as needed.
  • Lot-Sizing Procedures: SAP provides options for specifying lot sizes (quantity to order at one time) based on cost and inventory strategies, ensuring efficient ordering practices.

• Example: A daily planning run may calculate how much of a certain raw material is needed for upcoming production batches, generating a procurement proposal if the calculated demand exceeds current stock levels.

• Purpose: MRP execution helps ensure seamless supply chain operations by forecasting material needs, automating replenishment, and preventing disruptions in production due to stock shortages.

Exam Objectives

For the SAP C_TS452_2022 exam, candidates should:

• Understand how to set up and manage demand-driven planning, including calculating reorder points and managing safety stocks.
• Execute MRP effectively, using SAP’s planning runs and lot-sizing procedures to ensure materials are available as needed for production or sales.

Consumption-Based Planning (Additional Content)

Consumption-Based Planning (CBP) in SAP S/4HANA is an inventory management strategy that ensures materials are replenished based on actual consumption patterns, reducing the risk of stockouts while optimizing inventory levels.

1. Types of Consumption-Based Planning

SAP S/4HANA offers three primary types of consumption-based planning, each suited for different material demand patterns and supply conditions.

1.1 Reorder Point Planning (MRP Type: V1/V2)

• Concept: The system automatically generates a purchase requisition (PR) or production order when inventory falls below a predefined reorder point.
• Use Case: Suitable for materials with stable demand and predictable lead times, such as maintenance spare parts and office supplies.
• Key Parameters:
  • Reorder Point (ROP): The inventory level at which the system triggers replenishment.
  • Safety Stock: Ensures a buffer in case of demand fluctuations.

Example:

• A company sets a reorder point of 500 units for printer ink.
• When stock falls to 490 units, SAP automatically triggers a PR for replenishment.

1.2 Forecast-Based Planning (MRP Type: VV)

• Concept: Uses historical consumption data and statistical forecasting models (e.g., moving average, trend analysis) to predict future demand.
• Use Case: Best for materials with seasonal or fluctuating demand, such as holiday merchandise or trendy products.
• Key Features:
  • Based on past consumption trends rather than just current stock levels.
  • Requires historical data for accurate demand prediction.

Example:

• A fashion retailer analyzes sales data for the past 12 months and forecasts demand for winter clothing to ensure timely procurement.

1.3 Time-Phased Planning (MRP Type: R1/R2)

• Concept: Instead of triggering orders based on stock levels, this method executes planning at fixed time intervals (e.g., every Monday).
• Use Case: Ideal for materials supplied at regular intervals or under contract agreements, such as monthly vendor shipments.
• Key Features:
  • The system ignores current stock levels and initiates procurement based on a predefined schedule.
  • Reduces frequent recalculations and is often used in supplier-managed inventory (SMI).

Example:

• A company receives monthly shipments of raw materials from a supplier, triggering an MRP run every 1st of the month.

2. Safety Stock Calculation

Safety stock acts as a buffer to absorb demand fluctuations or supply chain delays. SAP supports both basic and dynamic safety stock calculations.

2.1 Basic Safety Stock Formula

Basic Safety Stock = (Average Daily Demand) × (Expected Lead Time in Days)

Example:

• If average daily demand = 50 units and lead time = 5 days, then
  Safety Stock = 50 × 5 = 250 units.

2.2 Dynamic Safety Stock Formula

Dynamic Safety Stock = (Highest Daily Demand) × (Maximum Lead Time in Days)

Example:

• If highest daily demand = 100 units and longest lead time = 7 days, then
  Safety Stock = 100 × 7 = 700 units.

2.3 When to Use Each Method

Stock Type	Use Case
Basic Safety Stock	For stable demand materials, e.g., office supplies.
Dynamic Safety Stock	For materials with fluctuating demand, e.g., electronics.

3. Types of MRP Runs

SAP supports three different MRP execution types, depending on planning needs and system performance.

3.1 Regenerative Planning (MRP Type: NEUPL)

• Concept: Recalculates material requirements for all materials in the system, even if they have not changed.
• Use Case: Used when large system updates or significant changes occur in material planning.
• Disadvantage: Time-consuming, affecting system performance.

3.2 Net Change Planning (MRP Type: NETCH)

• Concept: Only recalculates materials with changes (e.g., new demand, stock movement).
• Use Case: Daily or weekly MRP runs in dynamic production environments.
• Advantage: Faster than regenerative planning, reducing system load.

3.3 Net Change in Planning Horizon (MRP Type: NETPL)

• Concept: Limits recalculation to a specific time period (e.g., the next 30 days).
• Use Case: Best for short-term production planning to adjust immediate requirements.

Example:

• A company wants to plan for the next 15 days instead of recalculating requirements for the entire year.

4. Lot Sizing Strategies

Lot sizing determines how much inventory is ordered or produced when replenishment is triggered.

4.1 Fixed Lot Size (EX)

• Concept: Orders a predefined fixed quantity regardless of actual demand.
• Use Case: Suitable for low-cost, frequently used materials.

Example:

• A company always orders 500 units of screws to minimize order processing time.

4.2 Economic Order Quantity (EOQ)

• Concept: Uses cost optimization models to calculate the most economical order size.
• Use Case: Best for materials with high carrying costs or fluctuating demand.

Example:

• A company calculates the optimal order size for packaging materials to minimize holding and ordering costs.

4.3 Lot-for-Lot (LFL)

• Concept: Orders exactly what is required for the current period—no excess inventory.
• Use Case: Ideal for expensive, slow-moving materials like aircraft components.

Example:

• A factory only orders 10 customized engine parts for an upcoming production batch, avoiding unnecessary stock.

5. Key SAP Transactions for Consumption-Based Planning

Transaction Code	Description
MD01	Run MRP for all materials (Regenerative Planning).
MD02	Run MRP for a single material.
MD04	Display Material Stock/Requirements List.
MD07	Monitor MRP list and batch planning runs.

Example:

• A company runs MD04 to check current stock levels and upcoming demand before running MRP.

Conclusion

Consumption-Based Planning in SAP ensures efficient material replenishment by leveraging different planning types, safety stock calculations, and lot sizing strategies. The key takeaways include:

1. Types of Consumption-Based Planning:

• Reorder Point Planning (Stable demand).
• Forecast-Based Planning (Seasonal demand).
• Time-Phased Planning (Scheduled procurement).

2. Safety Stock Calculation:

• Basic vs. Dynamic Safety Stock for demand fluctuations.

3. MRP Execution Types:

• Regenerative (NEUPL) – All materials.
• Net Change (NETCH) – Only changed materials.
• Net Change in Horizon (NETPL) – Short-term recalculations.

4. Lot Sizing Strategies:

• Fixed Lot Size (EX) – Standard quantity.
• EOQ – Cost-optimized order size.
• Lot-for-Lot (LFL) – Order exactly as needed.