Demand-Driven Procurement

1. Demand-Driven Procurement SAP Best Practices for Retail

2. Purpose, Benefits, and Key Process Steps • Purpose • This scenario begins with the required planning steps. The forecasting processes and different consumption-based MRP procedures. The supply source determination schema in SAP R/3 is then outlined in brief and the various options explained. The Purchase Order process shows you how to work with the Planning Workbench. Order optimizing comprises quantity optimizing, investment buying, load building and goods receipt capacity check. The last section shows you how vendor evaluations can be used to optimize goods procurement. • Benefits • Alongside article-specific inventory management, the SAP R/3 System provides an accurate data basis for using the comprehensive range of requirements planning methods. The main task in requirements planning is to monitor stocks and, in particular, generate automatic order proposals for purchasing. • With the planning workbench, extensive functionalities for order optimization and vendor evaluation you can handle the whole process for demand-driven procurement. • Key Process Steps • Requirement Planning • Planning Run • Supply Source Determination • Contract Processing • Planning Workbench • Order Optimizing • Purchase Order Monitoring • Vendor Evaluation

3. Required SAP Applications and Company Roles • Required SAP Applications • SAP SAP enhancement package 3 for SAP ERP 6.0 • Company Roles • Retail Non-Seasonal Purchaser • Retail Non-Seasonal Purchaser – Power User • Retail Non-Seasonal Purchase – Manager • Retail Replenishment Planner • Retail Replenishment Planner – Power User • Retail Masterdata Manager • Retail Warehouse Clerk

4. Process Flow Diagram Demand-driven Procurement - Requirement Planning Event Unload Materials from Truck Retail Non-Seasonal Purchaser MRP Procedure Automatic reorder point planning MRP Procedure Time-phased planning MRP Procedure Time-phased planning with reorder point planning Carry out the individual Forecast from the article master MRP Procedure Forecast-based planning Retail Replenishment Planner Optional: Planning File Convert the Purch. Requisition to a Purchase Order Alternative: Carry out the individual Forecast from the menu Optional: Reprocess the Forecast results Optional: Evaluating the Planning Results Carry out Single-Item, Single-Level Planning R. Non-Seas. Purch.– Power U Enter goods receipt in distribution center

5. Process Flow Diagram Demand-driven Procurement - Supply Source Determination Ev-ent Unload Materials from Truck Retail Replenishment Planner Release Order for the Contract Supply Source: Source List Maintain Source List Automatic Conversion of the Purchase Requisition to a Purchase Order Automatic conversion of PR to PO Retail Non-Seas. Purchaser - Power User Goods receipt in DC Retail Non-Seas. Purchaser Display purchasing info record Purchase Requisition (Assign Supply Source) Create Purchase Requisition Supply Source: Purchase Info Record Create Purchase Order with reference to P. Requisition Retail Replen. Planner Power User Create Contract

6. Process Flow Diagram Demand-driven Procurement – Contract Processing Retail Replenishment Planner Create purchase requisition Release order for contract Retail Non-Seas. Purchaser - Power User Goods receipt in the distribution center Create contract Retail Non-Seas. Purchaser Retail Replen. Planner Power User Display release documentation

7. Process Flow Diagram Demand-driven Procurement - Purchase Order Process and Vendor Evaluation Retail Replenish. Planner Online requirements planning Order cancellation Retail Non-Seas. Pur. Power U. Good receipt in the distribution center Retail Non-Seas. Purchaser Storage costs Article master data Check stock Check consumption & forecast values Create PO via eCATT Order release Create PO Shelf life, expiration date (food only)

8. Process Flow Diagram Demand-driven Procurement - Purchase Order Process and Vendor Evaluation (contd.) Retail Masterdata Manager Online requirements planning Order cancellation Terms of payment Retail Non-Seas. Pur. Power U. Good receipt in the distribution center Retail Non-Seas. Purchaser Individual forecast Storage costs Article master data Check stock Check consumption & forecast values Create PO via eCATT Order release Create PO Shelf life, expiration date (food only) Future price changes Maintain forecast values Carry out forecast Retail Replen. Planner Power User Requirements determination procedure in investment buying Return on investment Investment buying analysis

9. Process Flow Diagram Demand-driven Procurement - Purchase Order Process and Vendor Evaluation (contd.) Retail Non-Seas. Pur. Power U. Maintain vendor evaluation manually Create goods receipt in distribution center Automatic re-evaluation Retail Non-Seas. Purchaser / Manager Display open PO Execute evaluation of article / merchandise category Rank lists Create goods receipt in distribution center Display status data for PO header Create PO Individual forecast Display PO history Retail Replen. Planner Power User Carry out single-level, single-item planning Convert PR to PO Automatic load building Load building results list Manual load building

10. Requirements Planning

11. Objectives Automation of the procurement process on site level Inventory monitoring of a site Central + distributed application

12. Requirements Planning: Forecasting Model Selection Manual model selection with additional Manual Automatic automatic test T: Test for trend Automatic Constant model S: Test for season Model selection Trend models Seasonal models A: Test for trend Seasonal trend models and season Models Parameters Basic value Basic value Trend value Basic value Season indices

13. Requirements Planning: Overview RP type Forecast ? indicator Articles Articles Purchase Requisition Item 10 Consumption Item 20 Forecast values Requirements 10/2000 987 Planning 11/2000 1000 12/2000 1251 Purchase Order Item 10 Item 20

14. Forecast Applications Forecast Application Reorder Point Planning Reorder Point Planning Forecast-Based Planning Time-Phased Planning • Calculation of the reorder • point and the safety • stock by the forecast. • The forecast values are • copied as requirements • and replace the reorder • point. • Calculation of the reorder • point and the safety • stock by the forecast. • The forecast values are • copied as requirements. • The planning run is only • carried out on predefined • dates. • Time-Phased planning can • be applied in combination • with Reorder Point • planning.

15. Source Determination

16. Purchase Order: Supply Source Determination ? PReq Purch . requisition 1 Vendor ?? WITHOUT Art. 3214 20 pc Art. 5110 supply source Quota arrangement Quota arrangement 15 pc 40% 60% ? 40% ? 60% Article PCS-04-MRP201 for VZ01 50 ea 2 Source list Source list 3 Article Article Purch . order Vendor PCS-V201 Supply source ind . Art. 3214 20 ea Art. 5110 15 ea • Find external source of 4 Outline agreements MIT supply only Supply region Purch info records . • Find internal source of ? Regular vendor supply only • Find internal supply source first , then external Stock transfer deliv - 5 • Find external supply source ery schedules first , then internal Vendor PCS-V201 Vendor R3001 Supplying sites

17. Order Processing

18. Planning Workbench Manual Planning Select worklist Start variant - Site - Vendor Material selection - Stock planner - Merchandise category Internet Services Default data General Settings - Item category - Account assignment - Hide processed worklist category - Expand levels with one Control data www element - Sort algorithms Application settings - Display symbols - Display E-mail Worklist settings - Sequence

19. Planning Workbench: Manual Planning • Planning workbench with integrated manual planning • Worklist personalization • Simple display navigation in tree format • Display of additional information, for example, site or vendor master data • Direct access to the Internet or mail system • Worklist view personalization • Manual planning • Display of consumption and/or forecast data • Use of restriction profiles • Automatically generated purchase requisitions

20. Order Optimizing

21. Quantity Optimizing: Rounding Profiles DynamicRoundingProfiles 0 No rounding 1 Round up to a multiple of the order units/sales units 2 Round up to order/sales/logistical units of measure 3 Round up to order/sales/logistical units of measure, or log. unit of measure, zero qty for order units only Dynamic profile • Rounding method • Rounding rule • Unit of measure group AUn % Up % Down CAR 70.0 10.0 LAY 80.0 10.0 PAL 90.0 10.0 Check the permitted units of measure used by vendors or recipients

22. Investment Buying: Purpose • Investment buying is a method of determining procurement • proposals that take account of future price increases, and are • to be covered by external procurement • The aim of Investment buying is to purchase articles • in suitable quantities • in good time • as cheaply as possible • taking account of various influencing factors

23. Actual ROIis lower thanrequired ROI Investment Buying: Overview Purchase price Select condition changes Open PO quantities conditions Stock on-hand Select relevant articles (Info Record) ROI Parameters Simulate purchase price Purchase price higher than future price Forecast Cancellation Calculate ROI Investment Log of items found relevant to Purchasing Calculate order quantity Cancellation Protokoll Buying Analysis Purchase requisitions - Purchase orders Worklist

24. Load Building • Load building is a process used to group together purchase orders and other requirements, while taking account of • procurement restrictions, thereby reducing procurement • costs.

25. Purch. Req. . ... Purch. req . ... Purch. Req. . ... Purch. order ... Lieferant 326 ... Purch. Order Vendor 326 Load Building Overview Req. Planning Req. Planning Req. Planning Promotion Orders Other order processes Without existing Purchase Requisitions requirementelements Automatic load building process Simulation list process Manual load building EDI to Vendor EDI to vendor

26. Up to now, there was no check for sufficient capacity for the delivery date of a planned delivery in the goods receipt area of a warehouse. If the goods are delivered to a warehouse door that does not have any free capacity, there can be a bottleneck in the goods receipt area of a warehouse. At the same time, another warehouse door might have enough capacity. Advantages for Retailer and Vendor: Taking the goods receipt capacity into account prevents potential bottlenecks. The vendor's delivery date planning utilizes the capacity of the retailer's goods receipt areas. The vendor can schedule the deliveries better since the planned time window for inbound deliveries is binding. Goods Receipt Capacity Check

27. Vendor Evaluation

28. Functions in Vendor Evaluation Regular vendor ? for Article 1 Vendor C Vendor B Vendor A Complaints Quantities Quality audits Delivery dates Prices GR checks Vendor Evaluation Vendor C

29. Automatic Subcriteria: Overview Subcriteria Main Criteria Price Price level Price development Quality GR inspection Complaints Audit Delivery On-time delivery Quantity reliability Shipping instructions Confirmation Service

30. Analyses for Vendor Evaluation HIT LIST General Vendor Evaluation Total Price Qual . Dlvy . Service Preis Qual . Lief . Service Vendor B 90 92 90 93 85 Vendor A 84 75 92 88 81 Vendor C 81 90 76 74 84 Analysis for Article/ Merchandise category Vendor Evaluation Evaluation Total Price Qual . Dlvy Service Preis Qual . Lief . Service Vendor A 88 81 93 92 86 Vendor C 81 90 76 74 84 Evaluation Comparison Evaluation for Article 1 General Vendor Evaluation Total Price Qual . Service Total Price Qual . Dlvy Service Preis Qual . Dlvy . Service Preis Qual . Lief . Service Vendor A 84 75 92 88 81 88 81 93 92 86