SPPLAN – Service Parts Planning

Setting Global Service Levels

One of the most important areas of functionality in several service parts planning applications is the ability to perform “global” service level planning. Global service level planning allows the planner to set the same or different service levels for the locations in the network that results in an overall service or availability level for their supply chain network.

Service Parts Software Providers are Leaders in This Area

When researching for this article we performed Internet searches for “service level planning” and Click Commerce, Servigistics, SAP, Oracle. We were surprised to find that this search only came up with any reliability with two vendors MCA and i2. Both i2 SCP and i2 SPP list “service level planning.” in their product attribute lists.

Service Level Planning and Inventory Optimization

Service level planning is also called inventory optimization. This is a confusing area because unfortunately the terms inventory optimization and inventory management are used interchangeably, which is actually false. See this quote for more details.

During 2003, more than one hundred SCM solution vendors started promoting “Inventory Optimization”, an application solution described by various analysts as a new frontier in Supply Chain Planning. Beyond the strong marketing message, though, a more careful analysis clearly indicates that only a few are providing some functionality that can be called “Inventory Optimization”. The ability to automatically determine the correct stock levels for multiple SKUs in multiple locations, in such a way that fulfills a global service level target and simultaneously optimizes a desired objective function is a very complex task, and requires a sophisticated technology that no more than half a dozen vendors provide. – Recent Trends in Optimization – Tools Goup

A more careful analysis, though, has shown a very interesting, if not disappointing, picture of what really happened. In fact, more than 90% of these vendors haven’t actually added any new functionality at all in this area (neither as “inventory planning”, nor as “inventory management”). Most of them have simply renamed the already existing functions they used to call “inventory management” as “inventory optimization”. Many ERP/SCM suites don’t even use the word “inventory management” any more, inappropriately substituting “inventory optimization.– Recent Trends in Optimization – Tools Group

SAP and Service Level Planning

Being familiar with SAP, we were confident this capability was nowhere in the product. However, after performing research our views changed somewhat. The rundown of SAP with regards to service level planning is as follows:

SAP xApp: SmartOps

SmartOps states that it performs both inventory optimization and multi-echelon inventory optimization. However, we are unsure as to the status of this xApp, furthermore, the xApp concept may be going away as it never really was much more than a sales technique where the smaller vendor received the halo effect of being associated with SAP, while SAP received 40% of the xApp’s license revenue if sold into an SAP account.

SAP ERP

Service level planning at the part level exists on the material master where safety stock can be calculated dynamically. This is a part specific level of availability and does not extend to a broader view of the overall part database service level.

SAP SCM

Implicit Methods

• Capable to Match (CTM) can prioritize requests such that some customers get inventory allocated vs. lower priority customers.
• In Production Planning and Detailed Scheduling (PP/DS), reservations can be defined on the capacity of resources and they can be made on the basis of profitability and service level agreements.
• In SNC, a service fill analysis component is now part of the supplier delivery performance rating
• In Forecast and Replenishment (F&R) the forecast ad estimated safety amounts are based upon both the forecast error and the safety stock.
• In F&R periods with expected similar patterns can be combined, and separate service levels can be assigned to each ABC classification.
• In F&R demand influencing factors (DIFs) which are the primary mechanism of forecasting in the module, service level profiles can be setup for the DIFs.
• Safety stock can be set by service level in the product location master.

Explicit Methods

• In Service Parts Planning (SPP), target service levels can be set at the location or product location level. As of 7.0, targets can be set depending upon whether the location is an entry, intermediate parent or child location. - Of the major methods in SCM, this is the closest to meeting actual service level planning, however strangely it is not strongly proposed by SAP, even though the functionality brings them closer to being on par with the traditional service parts planning leaders. Secondly, there is a strong trend in companies to move towards service level planning. SPP is one of the few areas that actually does it in an explicit manner.

There is a good reason that several service parts planning applications are built around service level planning. The concept is that with service parts, you are providing a service level to a customer and signing a contract to this effect. Therefore, with service parts planning, service level based planning is explicitly necessary in order to meet the contract terms. However, shouldn’t it be just as important for the company to plan its inventory level based upon service levels as well? For instance, knowing what is a profitable vs. unprofitable in stock position allows a company to know how many financial resources to allocate to inventory and at what level to stop holding inventory. The question of when to stop holding inventory could be answered by the rough average profit margin of the company’s products. This concept is fundamentally different whether one is planning service parts or finished goods.

For details on how service level planning interacts with SOP and contract creation and pricing, see this post.

http://spplan.wordpress.com/2009/09/22/service-level-planning-sop-and-planning-group-interactions/

References:

http://www.oracle.com/industries/automotive/learn_mro.pdf