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Product and Topic Expert
Product and Topic Expert
Two -Tier ERP has one of the most prevailing business cases which involves headquarters and subsidiary model to support meeting varying demand for the finished product as well as part spares from the customer side. Headquarters have manufacturing set up engaged in mass production of final products, for example, auto OEM's and subsidiaries run dedicated manufacturing set up to fulfill demand received for the sub-assemblies from the headquarters. When it comes to medium & long term planning, planners have to also take into consideration quantities the subsidiaries can manufacture and supply considering  'flexible constraints' available due to various types of resources encountered out of material and resource-specific limits at the subsidiary end. This helps in working out the feasible plan to supply the final product with ensuring minimal disruptions.  This model fits in and supports maintaining a quick and simple way of sharing the delivery schedules and also helps achieve lean inventory of parts as a consistent flow of supply is achieved from the subsidiary as a result of system-driven multilevel simulative planning with pMRP i.e. Predictive material and resource planning.

Two tier Process flow with pMRP and Scheduling agreements (Image source:own asset w/o external reference)

With this blog post we are going to walk through the scenario discussed above and the product features which would enable the planning business users to make use of both the processes of medium to long term supply chain planning and subsequent execution with scheduling agreement with simpler release documents in the form of FRC and JIT schedule lines with the opportunity to respond quickly to the changes in the plan quantity.

On the front of implementation of the demand plan, a purchasing scheduling agreement is created at the headquarters running SAP S/4HANA  on-premise system and a corresponding sales scheduling agreement is replicated in the subsidiary system running on SAP S/4HANA on Cloud system via Two-tier ERP system integration.

As a prerequisite required master data for pMRP process and scheduling agreement such as material is replicated in both the system. Material master with a required view including purchasing and MRP views with required settings for MRP to generate schedule lines, planning strategy for the final product as well as for sub-assembly, for example, ‘70’,  can be maintained in order to plan demand at the subassembly level for quantities BOM with subassembly as an externally procured component, routing and production versions form production master data. Source list, purchasing info record, BP for vendor master. Similarly, at the subsidiary system there are master data such as Business Partner for customer, Sales info record are maintained in addition to production execution master data. These masters are shared for simulative planning with pMRP.

Let’s look at the process in detail. Planning team at Headquarters initiates planning process through pMRP with entering demand for final product as well as for the key assembly. pMRP based simulations help to identify capacity load issues and solve them early in the planning stage. The result of pMRP simulations for the component representing the sub-assembly are shared through mail with excel output to the subsidiary. The subsidiary utilizes the same plan for carrying out pMRP simulations to arrives at a feasible plan which can be used to define exact constraint for the quantity it can supply for the given periodic intervals. The constraint quantity is shared with the headquarters and are updated. Subsequently required changes and fine


        Predictive MRP: Review component forecast and share with the subsidiary ((Image source:own asset w/o external reference)

On the execution side of the plan, the finalized plan released for the sub-assembly with an active version forms demand the MRP planning process to generate FRC schedule lines and subsequently JIT schedule lines against purchasing scheduling agreement. The same schedule lines are shared with the Subsidiary sales scheduling agreement through system integration built based on BTP platform between SAP S/4HANA on-premise and SAP S/4HANA Cloud.

Two-Tier system integration architecture (Image source: Set up instructions, SAP Best practice scope item: 3NR)

Forecast and JIT (Just-in-Time) delivery schedules are sent via EDI to update schedule lines within Sales scheduling agreement. These delivery schedules contain the delivery dates and quantities. The whole communication is based on cumulative quantities between headquarters and subsidiary.

Set-up instructions for integration scenario between on premise and Cloud system is available at the  Best practice scope item 3NR

The FRC-based schedule lines received at the subsidiary are used for planning resources such as materials and capacities. The JIT schedule lines initiated at the headquarters and received at the subsidiary are call-out instructions for the creation of delivery to fulfill the schedules. The shipping officer creates deliveries based on open quantities in the delivery outbound monitor.

After the completion of picking for the outbound delivery, the shipping officer posts the goods issue. This posting is the actual recording of the physical quantity that is being shipped to the customer.

Revenue is recognized with the goods issue posting, and the cost of goods sold is recorded in Financial Accounting. Advanced shipping notifications are sent via EDI to the headquarters system against which inbound delivery can be triggered. Goods receipts are posted at the headquarters. For the delivery posted with PGI, invoice can be created. An EDI invoice message is sent to the headquarters system.

The above two scenarios are represented with the SAP Best practice scope items Predictive Material and Resource Planning (‏4B5‏) and  Sales Scheduling Agreements (‏3NR‏)

Conclusion: This blog post is released to highlight the Two-tier ERP scenario which includes the two scenarios of material and resource planning with pMRP and sale quantity fulfillment with outline agreement-driven schedule lines. This headquarters and subsidiary-based scenario is explained in  this blog post to showcase its fitment in the Auto and IM & C manufacturing industry wherein the key KPIs are monitored related to Inventory turns, Utilization, Throughput etc.

The pMRP and Scheduling agreement-based solution support these requirements. Thanks for reading the blog post. Hope you have liked this blog post.

I look forward to reading your comment and am happy to answer questions related to this blog post.