This document covers frequently asked questions from Consultants, Partners and Customers about SAP Integrated Business Planning for Inventory. If you have additional questions that need to be added, please contact the SAP IBP Customer Engagement Team (firstname.lastname@example.org).
Q: Does SAP IBP for inventory need SAP IBP for demand (or SAP IBP for r+s) to run?
A: No, SAP IBP for inventory can be used “standalone”. Using it with other SAP IBP modules can create synergies, but we have customers using it together with APO, or other planning solutions.
Q: How does SAP IBP for inventory calculate inventory targets?
A: The tool uses a stochastic non-linear optimization solver subjected to the hard constraint of meeting the desired customer service levels.
Q: Can we see / adjust the algorithm?
A: No. It’s our secret sauce!
However there are many levers how to tweak the model. You can find some examples further down the FAQ.
Q: How is the algorithm different from other tools or spreadsheet based text book calculation?
A: There are various parameters that the tool takes into account, that more basic calculation methods don’t consider, like lot sizes (minimum & incremental), bill of material, sourcing quotas and many more. Moreover, the output that is generated is time phased. A lot of tools only consider static inventory targets. Lastly, the algorithm generates inventory targets for the whole network simultaneously (Multi Stage Inventory Optimization) resulting in lower total inventory, as interdependencies within the Supply Chain are considered.
Q: IO solutions often work well for finished goods. How about implementing it for raw materials?
A: We support bill of materials connected to the production/processing of finished goods. Customers often start with finished goods networks, but eventually adopt the connection to the Bill of Materials.
Q: Does the IO module calculate forecast error at raw material level or does it take the FG error for optimizing raw material?
A: It calculates the forecast error for any material with customer sales and historical forecast, including finished goods, in process materials or raw materials.
Q: We are interested in starting small w IO. So while we will have a full supply chain model in the Unified Planning Area, we only want to use IO multistage on outbound network. Is that possible or do we need to start with the whole network?
A: It is actually a good and common way to get started modeling only customer facing finished good locations. Then as the system is adopted, you can consider adding more echelons.
Q: Does IBP IO consider demand "variability" or "uncertainty"? If the demand pattern is variable but can be perfectly forecasted, do we need a safety stock?
A: SAP IBP for inventory consumes the forecast error coefficient of variation as the basis for constructing demand variability into a multi-stage network. The Forecast error calculation compares historical forecast with historical sales, so if the forecast was accurate despite high demand variability, the recommended safety stock will be smaller.
Q: How does IO help in calculating results for truly seasonal SKU's, i.e. SKU's that are sold only once a year during season?
A: The solution will produce inventory targets for demand forecasts that include seasonal demand. Technically speaking, it consumes a future demand forecast at the week product-location-customer group level.
Q: Does the Inventory optimization consider the cost of holding stock?
A: Yes, inventory holding cost rate is used as an input as the basis for the optimization.
Q: Is internal service level proposed by the software? Or is it required for software to arrive at solution?
A: Yes, optimal service levels are calculated and are applied to decide where to allocate inventory.
Q: While generating Inventory targets, will the IO consider Supply pattern of material that is sourced based on Season?
A: Yes, we support dynamic sourcing for transportation, production and bill of materials to support that case.
Q: Does the solution calculate EOQs?
A: It can generate EOQs through configuration.
Q: Does the module consider capacity constraints?
A: Maximum on hand stock at prod-loc inventory can be set as a soft constraint during optimization.
Q: What are the outputs of the calculation?
A: The main output are Safety Stock targets. But the tool also breaks down this Safety Stock into Demand Variability Safety Stock, Supply Variability Safety Stock and Service Variability Safety Stock (this variability includes safety stock to buffer for "backlog" safety stock for the upstream service level when it is less than 100%). Moreover, it estimates target and average quantities for On Hand Stock, Cycle Stock, In Process Stock, Vendor In-Transit Stock, Pipeline Stock and Merchandising Stock.
Q: Where and how is the output being used?
A: That depends on the setup and goal of the inventory planning process. The Safety Stock Targets could for example be passed on to the Supply heuristic in SAP IBP for sales and operations to support strategic planning, or it could be passed on to an operational system like APO SNP or SAP ECC (in this case, safety stock targets are generally passed to ECC as a single value) to support tactical planning.
Q: Can users create what if scenarios?
A: Yes, the SAP IBP platform comes with rich functionality for scenario analysis.
Q: What inputs can be adjusted to create scenarios?
A: There is a long list of parameters that can be tweaked to run simulations, like different scenarios around demand (demand forecast, target service levels,…), transportation (lead times, lot sizes,…) manufacturing or processing (lead times, frozen windows,…) and different inventory policies (minimum internal service levels, inventory holding cost rates,…).
Q: Is it possible to determine the safety stock to distribution centers and internal and external warehouses?
A: It is possible. SAP IBP for inventory supports a multi-stage optimization approach that determines safety stock for distribution centers and internal and external warehouses. External warehouses can be supported if modeled as stocking locations in master data inputs.
Q: Can you send use production wheels as part of the PBR settings?
A: Production wheels are not supported by IBP for inventory.
Q: Is there a ratio of inventory holding cost rates between components and finished goods that effects the output of the IO algorithm? For example, if the holding cost rate of a component at a manufacturing location is equal to the holding cost rate of a subsequent finished good at the customer-facing DC, will the algorithm suggest a zero safety stock at the manufacturing location?
A: In this case, the algorithm treats both product-location combinations the same from cost minimization. However, safety recommendations may vary depending on other parameters such as target service level, demand and demand variability, lead time, lead time variability, sourcing ratios, lot sizes.
Q: What role did the financial team play in terms of working capital understanding and savings made under different settings?
A: The financial team is included in the IBP implementation and is aligned on the financial calculations of the application.
Q: What determines the % distribution of the variabilities of safety stock?
A: It depends on the echelon position of the product location. For example, demand variability safety stock plays a much bigger role for customer-facing echelons compared to vendor-facing echelons, where supply variability safety stock could play a bigger role.