Introduction
In PP/DS we have been introduced with a Production Planning Optimization (PPO) functionality for a while. In this blog we will try to understand what PPO is, and step by step proceed until we feel comfortable to implement it.
Actually, people who worked with APO-SNP in the past, or currently working with IBP-S&OP or IBP-R&S are familiar with this concept.
We will start with defining and addressing it, then investigating the nature of optimization, then emphasizing restrictions, then modeling, and finally testing.
What is PPO?
PPO is a planning tool; that can consider component availability and resource capacities at once, for all relevant bill of material (BOM) levels at once, trying to fulfill any requirement on-time, as well as determining stock keeping materials and locations; resulting in consistent and feasible production/distribution/procurement plan.
Difference from Material Requirements Planning (MRP)
Constrained Planning
PPO is a constrained planning tool. Constraints may be due to lead times or capacities. Therefore, some requirements may not be fulfilled.
On the other hand, MRP always fulfills requirements.
Bucket-Oriented Planning
In order to compare available capacities with capacity requirements, PPO uses buckets. So unlike MRP or other PP/DS tools; it does not work in a time-continuous manner, but in defined buckets.
PDS Selection
Since PPO takes production capacities into account, when at least one of the finite resources of a PDS for a product is %100 loaded, it can switch to other PDS with available capacity. If PPO cannot find any PDS with available capacity within the required bucket, it tries for earlier buckets, if it still fails then later buckets.
On the other hand, MRP always select the preferred (most prior or first) PDS as long as it is valid (in terms of date and lot size) and as long as its lead time is small enough to cover requirement date, always on-time.
Component Availability
If a component cannot be planned accordingly, then an upstream receipt is not created either.
For instance, if there is a requirement on a finished good, and free capacity for it; but no capacity for semi-finished good or no time to deliver raw material; then no order is created for finished good as well.
On the other hand, in MRP, regardless from component and/or resource availability, upstream receipts are always created. A planner must evaluate MRP results and take action accordingly based on exceptions (e.g. delays) afterwards.
Priority Logic
Conventionally "prior" means "first" in PP/DS. But that is not the case for PPO. In PPO, "prior" means "last to move from bucket" or "last to be unfulfilled".
When a bucket has overloaded capacity and some orders need to move from the required bucket, prior materials are last to move. PPO tries to fulfill the requirements of prior materials on-time, as much as possible. Less prior materials are built up or delayed first, if necessary (of course they tend to be on-time as well).
Cost-Based Calculation
On top of master data, defining constraints, procurement options, and relations; PPO is modeled via costs and penalties to process existing transactional data and create receipts (as planned orders, stock transfer requisitions, and/or purchase requisitions).
"Priorities" mentioned above, are defined by costs and penalties. Higher the cost/penalty higher the priority.
Unlike MRP, PPO is not a heuristic; so, it does not have a specific sequence of tasks carried out defined by ABAP codes. It is an operational research tool, that builds a highly complex simplex method, running linear programming. That means it does not process something first then does the next thing, but all results are output of a huge single calculation. In doing so, for example, if "non-delivery penalty" is 0 (zero), then PPO may not create any receipt.
Or let's say a semi-finished product is overproduced or a raw material is over procured (probably due to defined lot sizes), then some stock will be left on hand for that component. If the stock cost is relatively higher than upstream stock cost + upstream production cost, then finished good receipts will be created as long as there is enough capacity, even though there is no requirement for it, just to consume the component and not to keep it in stock.
Make-Buy Decision
In MRP, "procurement type" of a product determines whether it is produced or transferred or purchased, and it is a rigid rule. Even if quota arrangement is defined, MRP distributes the quantities according to quota definition. MRP does not consider all options, other than certain rules given.
However, based on constraints and source of supply costs, PPO can select from several source of supplies.
When to Use PPO?
All above mentioned way of working indicates that PPO is not easy to evaluate. It can never be verified (since it processes beyond human calculation and considers beyond human recognition) but can just be evaluated to be meaningful or not. So, it should be utilized if it is really required. Then how can we be sure that we can benefit from it? At this point there are some arguments to consider:
- PPO does not replace MRP. PPO is a short and mid-term planning tool. After PPO horizon, MRP is still required. In order to segregate PPO and MRP, I recommend using fixing intervals on relevant resources.
- PPO is bucket oriented, so it is suitable for periodical plans.
- PPO creates planned orders for each bucket separately, each of which does not exceed bucket duration. If the company has production/process orders that last longer than PPO buckets, this behavior will be an argument to consider.
- When setup matrices are involved; in other words, if planned orders to be created include setup group/key, PPO creates them as deallocated. Thus, no dynamic setup duration is calculated. Therefore, after scheduling of PPO results in short term, when actual setup durations are determined, the capacity consumption may change, which may lead longer production plans than expected. So, define setup matrices only when it is required, avoid it as much as possible. When setup matrix is required and setup duration can be approximated, I recommend defining setup matrices based on setup costs; and define average, fixed setup durations in PDSs.
- As for all optimization problems, the results are not totally good or totally bad, but it has a quality. The output quality depends on complexity of the problem solved, so input scope. Therefore, keep the horizon and product/resource scope as less as possible to get better results. From purely performance point of view, there are workaround solutions to consider before descoping, please refer to 2965860 - Info on Performance of the Production Planning Optimizer - SAP for Me.
- PPO has restrictions to apply. For example, it does not support below conditions:
- PPO is an advanced tool, since it requires many restrictions and recommendations to apply. So, it requires an advanced level master data team and production planning team. For examples to consider, please refer to 3088785 - Production Planning Optimizer:FAQ - SAP for Me.
- If the bottleneck of a factory is a specific BOM level, then constraining the output of MRP by Detailed Scheduling (DS) would be a better choice; since planned orders created by MRP can be scheduled by DS functions and capacities can be planned especially by DS Planning Board in SAP GUI or Advanced Scheduling Board in SAP Fiori, then other BOM levels can be synchronized by heuristics. On the other hand, if bottleneck is unclear or spreads along factory on separate operations belonging separate BOM levels, or if there are long-lead time raw materials frequently raise delays; then PPO may be a better choice, because synchronizing several bottleneck levels and raw materials is a tough task by scheduling and iterative heuristics.
- In some industries, production plans not only depend on customer requirements or forecasts, but also have to use up excess raw material or semi-finished stocks on hand. For example, in dairy industry, raw milk stocks on hand determine production plans, because entire raw material stocks and purchase orders must be consumed by production. In other words, if the planning process subjects to push production, then PPO may be a better choice, even inevitable in some cases.
- PPO is meant to be used for constrained and consistent production/procurement planning, even distribution planning for simple supply networks. SAP addresses IBP for distribution planning of entire supply network. Therefore, PPO is not designed to perform deployment. On the other hand, with advanced customization and a few coding changes; the current optimization engine can be enabled to support deployment process. For using PPO as deployment please refer to 3259560 - Deployment / Distribution Planning with the Production Planning Optimizer (PPO) - SAP for ... which may require SAP Consulting involvement.
There has already been a lot to digest. We should conclude this blog now. Then we can continue with cost modeling, customizing, master data settings, PPO execution and result evaluation in later blogs; which I will share links below. Take care.
