The interface between the Sales and Production departments is a
critical one. Very often the two departments work in silos. All strategies
discussed here, are at the crossroads between demand and supply. It is a goal
to be agile and fulfill every customers wish on time and on quantity, but it is
also important to minimize waste and enable smooth replenishment and
production. Proper use of the planning strategy helps achieving both goals.
A big problem, one that I encounter a lot, is that products are
not optimally set up for either one of these strategies. Either the wrong
assignment happens, or Production has a different idea than Sales, about what
the product assignment should be. Additionally there is the need to
periodically analyze the product portfolio because what’s MTO today might be
MTS tomorrow.
The ultimate achievement, one that both Production and Sales
strive for, is to have the right product at the right place in the right
quantity at the right time. Planning strategies are one of the most important
drivers to achieve exactly that.
Make To
Stock Planning
When your product is a commodity that can be sold out of a
catalog and is defined and specified through a master record, it can be
planned; if it is somewhat predictable. A steady consumption in the past helps
predicting the future, however, there may be events in the future which require
a more forward-looking planning process.
In any case, if you can somewhat predict what will happen, you
may consider a Make To Stock strategy. Even if it is hard to predict the
future, but the customer does not accept long delivery times, you might be
required to make some of your product to stock.
Making to stock means production without actual requirements.
The Sales Order does not drive the production program but the forecast does.
Incoming Sales Orders use existing inventory for the delivery which keeps the
customer lead time to a minimum.
Once your product is identified as a ‘Make To Stock’ the
availability check in the Sales Order must look for
inventory and not place additional load in the production program. If there is
no stock your service level degrades and the customer needs to wait for the
next receipt from production.
Disconnect between Sales and
Production #1: the
“customer is king” paradigm does not have any validity in an MTS scenario. If you
want to make the customer the king you need to make your product to that customer’s order.
Make To
Order Production
This strategy still is for standard products which have a
clearly defined specification. Other than MTS, there is absolutely no forecast
on products which are made to an order from a customer. You start production after the customer’s request comes in and not,
like with MTS, beforehand.
When you identify a product to be made to order, the
availability check in the Sales Order needs a lead time; the time it takes to
replenish or produce the product from soup to nuts. Therefore when a customer
requests the item, no freely available stock to fulfill the order can be found.
Everything is made from scratch and takes its time.
Disconnect between Sales and
Production #2: You
cannot plan for a 100% (or more!) utilization on the production line and allow
for the free flow of orders, which were set to MTO, into the production
schedule. All too often there is pressure to fully utilize the line; and that
can only be done with orders resulting from a forecast. If MTS fills the line
and MTO orders drop on top, they fall into backlog and the quoted lead time to
the customer is a farce.
Assemble
To Order or Finish To Order with placement of the Inventory/Order interface
This type of strategy allows for a placement of a stocking
point, the inventory/order interface, at the most effective spot in the product
structure. What this means is that you can decide at what point in the BoM,
material is kept in stock readily available for further processing. Therefore
upstream of the inventory/order interface we are making to stock and downstream
from it we are pulling to order.
This also means that downstream from the I/O interface we have
lead time to the customer whereas the availability check does not need to
consider time for the processes upstream from the I/O interface.
ATO provides flexibility, speed and helps reduce waste. Other
people would say its agile and lean at the same time.
Disconnect between Sales and Production
#3: Assembly
strategies have the capability to generate a production order to assemble the
finished product right out of the sales order. As this happens, the system can
also check on component availability and if there is a shortage, it can provide
a reasonable date for when the finished product can be delivered. If that date
is not fixed, and I have not seen a Sales person fix a date yet, production
scheduling is burdened with a demand for today… and tomorrow for tomorrow… and
so on and so forth. Please take a moment to think about what is done here: the
Sales Rep agrees a date with the Customer who would be quite happy to get the
product on that date in the future. However, that same Sales Rep tells the
Production people that the product needs to be available right away. Consider
how many orders there are and that this pressure pops up every day from now on
until the order is delivered, you can easily see that there is room for
improvement in the communication department.
Configure
To Order
When a standard product has variations in its specification, one
needs to answer the question whether to create a material master record number
for every variation or to make use of the variant Configurator. In case the VC
is used, an underlying structure will have to be build, which allows you to
configure a variation of one (configurable)
material number based on features and options. The underlying structure has
optional values and characteristics that have dependencies and
limitations. Be cautious to know that In the same way that there is a
line where it becomes more efficient to use options and characteristics to
build a spec, there is also a line where it becomes more feasible to use a
whole new project to build a complex product which has never been built before;
or in other words: to build the underlying structure with features and options
and dependencies becomes far too complex.
So there is an upper limit as well as a lower limit in
complexity where Configure To Order has its right to exist.
Configure To Order is a strategy that closely resembles MTO or
ATO for the finished product and components can be made to stock using a
forecast based on probability factors maintained for options and features.
Engineer
To Order
The Variant Configurator most always fails when that fine line
was crossed where ETO should have taken over! It is not the lack of
functionality and features of the VC which make it fail, it is mostly that the
VC is used for a structure where projects and work breakdown structures would
much better suit the handling of the complex product or structure in question.
Engineer To Order is used when complex structures are build. In
most cases these projects organize many tasks and follow a long timeline to
produce large, highly customized products to specific customer specifications.
The finished product, and also many components and subassemblies, have never
been built before and receive brand new product codes. Work Breakdown
Structures and Projects are used to structure and manage the procurement of
long lead-time purchased parts, the dependencies in production and procurement
and cost and timely delivery of the final product.
All of these strategies have many variations. What was discussed
above is just a generic description. A more detailed discussion is to be had
around SAP planning strategies where there are countless combinations and
opportunities.
…so here is a summary of my view on these strategies on a very
generic level.
MTS: standard product made to a forecast before any committed orders come in
MTO: standard products not held in inventory and
made after a
committed order comes in
ATO: standard product where some components are
held in stock and the finished product is finished after the order comes in
CTO: The standard product has variations; as
many as not to justify the creation of a part number for every variation but
not as many as to make the underlying structure too complex to handle
ETO: complex structures and customer specified
projects which were never built before and make it impossible to be handled
with standard variations
