Supply Variability in EIS

Supply Variability Factors From a standard order, we deal with Lead Time Uncertainty Reliability Yield Schedule Attainment Problems Quantity Issues REJECTED 2014 SAP AG or an SAP affiliate company. All rights reserved. 2

Should Lead Time Impact Target Safety Stock? Order placed in current period 1 arrives at start of period 3 The next shipment doesn t arrive until the start of period 4 Period 3 is Most-at-Risk of stocking out Exposure period = PBR + LT Most-at-Risk periods = PBR +LT 1 (+ corresponding review period) PS PS PS PS CS CS CS CS R R R R 2014 SAP AG or an SAP affiliate company. All rights reserved. 3

Lead Time Variability Safety stock are often required to hedge against uncertainty in delivery and manufacturing lead times Lead time variability (standard deviation around the mean) Should capture variations in lead times due to natural, external forces Should not include the effects of expediting and advance order placements (we don t plan to expedite) Should not include effects of upstream material unavailability (that s a different measurement) Algorithm handling Lead Time Variability is based on internal research and is proprietary to SAP 2014 SAP AG or an SAP affiliate company. All rights reserved. 4

Lead Time Variability Example NSP = 95% LT ~ N(Mean, Std Dev) D =100 +/- 50 S C Case 1: No Lead Time Variability Case 2: Lead Time Uncertainty Modeled as Worst Case Case 3: Moderate Lead Time Variability LT Mean 1 2 1 LT Std Dev. 0 0 0.33 LT Dist. 1 2 1 Cycle Stock 100 100 100 Pipeline Stock 100 200 100 Safety Stock 116 142 137 TIP 316 442 337 2014 SAP AG or an SAP affiliate company. All rights reserved. 5

LT Standard Deviation LT Standard Deviation: Inserting a number in the LT Standard Deviation field means SAP SIM will take into account LT variability in the calculation of safety stock. SAP then assumes a shipment may arrive late about half the time, and LT Std Dev shows the system how late the shipment may arrive, and at what probability. The higher the LT Std Dev, the later the shipment may arrive. This potential late shipment is then combined with the other uncertainties in the supply chain, and used to calculate safety stock. LT uncertainty also adds to the potential Exposure in the supply chain. This field accepts nonzero values, and they don t have to be integers. Area less than LT is Ignored, as we do not keep SS against shipments arriving early Area less than LT is Ignored, as we do not keep SS against shipments arriving early LT = 2, LT Std Dev=1 2 3 4 5 6 weeks LT = 2, LT Std Dev= 0.5 2 2.5 3 3.5 weeks 2014 SAP AG or an SAP affiliate company. All rights reserved. 6

Supply Quantity Considerations - Reliability From an standard order, we deal with Lead Time Uncertainty Reliability Yield Schedule Attainment Problems REJECTED Reliability Defines the probability that a delivery will be completed within the lead time. If delivery cannot be completed within the lead time, then it is assumed to be completed within two lead times. Use Case: Some orders fail perhaps because the truck does not arrive; perhaps because of a process failure. 2014 SAP AG or an SAP affiliate company. All rights reserved. 7

Supply Quantity Considerations - Yield From an standard order, we deal with Lead Time Uncertainty Reliability Yield Schedule Attainment Problems Yield The proportion of a shipment or order that is expected to arrive. It may be less than 1 because of shipping losses or process inefficiencies. No variability is assumed in the yield input. Example: If a process has an 80% yield (yield loss 20%), 80 usable units are obtained for every 100 units. Yield is applied on the path between nodes and is considered for raw material requirements based on BOM. 2014 SAP AG or an SAP affiliate company. All rights reserved. 8

Supply Quantity Considerations Schedule Attainment From an standard order, we deal with Lead Time Uncertainty Reliability Yield Schedule Attainment Problems Schedule Attainment Schedule Attainment / Adherence is modeled as a stochastic input with a Loss Percentage and CV. Schedule Attainment Percentage represents what s left after the mean percent loss due to inability to produce or order the scheduled quantity. Schedule attainment CV defines the coefficient of variation of the loss percentage. 2014 SAP AG or an SAP affiliate company. All rights reserved. 9

Schedule Attainment Schedule Attainment / Adherence is modeled as a stochastic input Has variability around the mean quantity percentage Quantity Percentage Mean 1- the average percentage loss in quantity produced / ordered compared to scheduled production / order quantity Quantity Loss Percentage Coefficient of Variation Measure of variability around the Percentage Mean Standard deviation = Mean * CV SA = 90% +/- 3% PBR = 1 SL = 95% NSP S A C LT = 1 Demand = 100 +/- 50 2014 SAP AG or an SAP affiliate company. All rights reserved. 10

Schedule Attainment Example S SA ~ N(Mean, Std Dev) LT = 1 PBR=1 95% D =100 +/- 50 C Case 1: No Schedule Attainment Loss Case 2: Schedule Attainment Uncertainty Modeled as Worst Case Case 3: Moderate Schedule Attainment Variability SA Mean 0 80% 90% SA Std Dev. 0 0 3.3% SA Dist. 0 20 10 TIP 316 336 326 Safety Stock 116 136 126 2014 SAP AG or an SAP affiliate company. All rights reserved. 11

Incorporating Variability and Uncertainty (summary) Forecast error variability - Should capture error and bias around forecasts - Should reflect demand classification (frequent seller, intermittent, etc.) other characteristics Service variability - Should capture less-than-perfect service from internal replenishment points Lead time variability - Should capture variations in lead times due to natural, external forces - Should not include the effects of expediting and advance order placements - Should not include effects of upstream material unavailability Supply quantity variability - Should capture variations in received quantities due to natural, external forces - Can also account for chronic over- or under-production Supply Quantity Variability Service Variability Lead Time Variability Forecast Error Variability S DEPOT DC C 2014 SAP AG or an SAP affiliate company. All rights reserved. 12

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