Introduction

In today’s hyper-competitive manufacturing environment, make-to-order (MTO) businesses face unique challenges. Unlike make-to-stock operations, where inventory is pre-produced based on demand forecasts, MTO businesses only begin production after a customer order is received. This model offers greater customization and reduced inventory holding costs, but it also introduces complexities in raw material planning. The key to success lies in accurately forecasting raw material needs, minimizing lead times, and ensuring efficient production.

This is where SAP Integrated Business Planning (IBP) comes into play. By leveraging SAP IBP’s advanced planning and forecasting tools, MTO businesses can significantly enhance raw material planning, enabling them to meet customer demands while reducing costs and optimizing resource utilization.

The Challenges of Raw Material Planning in MTO

In make-to-order environments, raw material planning is inherently complex due to:

• Uncertain demand patterns: Without clear demand forecasts, businesses struggle to balance material availability with production timelines.
• Long lead times: MTO businesses often face longer lead times for procuring raw materials, which can delay production.
• Customization needs: Each order may have unique requirements, making standard raw material inventory strategies ineffective.
• Supply chain disruptions: Global supply chain disruptions can further complicate raw material procurement, leading to stockouts or production delays.

To address these challenges, MTO businesses require an agile planning system that can adapt to varying demand while ensuring raw material availability. SAP IBP offers a comprehensive solution that optimizes raw material planning through better visibility, forecasting, and supply chain collaboration.

Leveraging SAP IBP for Enhanced Raw Material Planning

SAP IBP provides a range of functionalities that are highly beneficial for MTO businesses. Let’s explore how IBP’s key capabilities can be used to enhance raw material planning:

Demand Planning and Forecasting

In an MTO environment, raw material planning often starts with demand sensing. While customer orders drive production, it’s crucial to anticipate demand trends for common raw materials used across multiple product configurations. SAP IBP’s Demand Planning module leverages advanced forecasting algorithms and machine learning to provide more accurate demand projections, even in the absence of historical sales data.

• Real-time demand sensing: SAP IBP can capture real-time market signals and customer demand patterns, enabling businesses to adjust their raw material procurement plans accordingly.
• Scenario planning: The ability to run multiple demand scenarios helps businesses assess the impact of potential changes in order volumes and adjust raw material procurement strategies accordingly.

Supply Planning and Inventory Optimization

SAP IBP’s Supply Planning module is a game-changer for MTO businesses. It allows for real-time optimization of raw material inventory levels based on changing production schedules and customer orders. By integrating raw material procurement with production plans, businesses can reduce excess inventory while ensuring that materials are available when needed.

• Multilevel supply planning: SAP IBP enables multilevel supply planning, considering not only finished products but also the raw materials and components required to produce them. This helps optimize the supply chain end-to-end, reducing bottlenecks and improving efficiency.
• Dynamic safety stock optimization: SAP IBP calculates dynamic safety stock levels, ensuring that businesses maintain optimal inventory buffers for raw materials while avoiding overstocking. This is particularly important for MTO businesses, where demand can be volatile, and raw materials must be readily available without incurring excess inventory costs.

Sales and Operations Planning (S&OP)

A core component of SAP IBP is its S&OP module, which ensures that raw material planning is tightly integrated with overall business planning. MTO businesses can leverage S&OP to align raw material requirements with production capacities, sales forecasts, and financial goals.

• Cross-functional collaboration: The S&OP process in SAP IBP fosters collaboration between departments like sales, production, procurement, and finance. This ensures that raw material planning is based on comprehensive, cross-functional insights, reducing the risk of misalignment between demand and supply.
• Real-time analytics and dashboards: SAP IBP’s real-time analytics provide a 360-degree view of the supply chain, enabling MTO businesses to track raw material availability, production schedules, and delivery timelines. This visibility allows for more agile decision-making, ensuring that raw materials are sourced and allocated efficiently.

Real-Time Monitoring and Alerts

SAP IBP’s real-time monitoring capabilities allow MTO businesses to track raw material availability and inventory levels across the supply chain. This is particularly important for businesses that rely on multiple suppliers or have long lead times for certain raw materials. With real-time alerts and exception management, businesses can proactively address potential disruptions before they impact production.

• Supplier collaboration: SAP IBP supports seamless collaboration with suppliers, enabling real-time visibility into their raw material availability and lead times. This ensures that raw material orders are placed well in advance, reducing the risk of production delays.
• Automated alerts: SAP IBP’s automated alert system notifies businesses when raw material levels fall below critical thresholds, allowing for quick corrective actions.

Optimizing Production with Integrated Raw Material Planning

By integrating raw material planning with production scheduling, SAP IBP helps MTO businesses optimize their entire production process. When raw material availability is synchronized with production orders, businesses can reduce lead times, improve production efficiency, and meet customer delivery timelines more effectively.

• Order pegging: SAP IBP’s order pegging functionality allows businesses to link customer orders to specific raw materials, ensuring that the right materials are allocated to the right orders at the right time.
• Capacity-constrained planning: IBP’s advanced planning engine considers production capacities and raw material availability when creating production plans. This helps MTO businesses avoid production bottlenecks and optimize the use of both materials and resources.

The Benefits of Using SAP IBP for Raw Material Planning in MTO

Implementing SAP IBP for raw material planning offers several benefits for MTO businesses:

• Reduced lead times: By optimizing raw material procurement and aligning it with production schedules, businesses can significantly reduce lead times, ensuring on-time delivery to customers.
• Cost savings: By minimizing excess inventory and reducing raw material wastage, businesses can lower costs and improve profitability.
• Improved customer satisfaction: With better visibility into raw material availability and production timelines, businesses can meet customer expectations for customized orders and on-time deliveries.
• Greater agility: SAP IBP enables MTO businesses to respond quickly to changes in demand, supply chain disruptions, and production constraints, ensuring they remain competitive in a rapidly evolving market.