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What can a materials planner do to better manage inventory?

Creating material groupings, assigning replenishment strategies and ensuring timely monitoring for changes are some important keys to effective materials planning.

A materials planner plays a key role in inventory management. This requires that they ensure a steady production...

and shipping flow -- for example, making sure there are enough raw materials to manufacture products, managing inventory levels and making sure products are properly shipped. Because of this pivotal role, a materials planner may be blamed by sales and production for product or inventory shortages.

In response, planners may resort to building up excess inventory, so there's never a materials shortage again. But that approach causes more problems than it solves, and the company's management team is likely to demand that planners reduce inventory to free up capital and to remedy warehousing woes and the pileup of slow moving or dead stock. Indeed, not knowing what, when and how much inventory to reduce can cause a vicious cycle.

A materials planner who is already using SAP ERP Central Component (ECC) may turn to planning tools such as SAP Advanced Planning and Optimization (APO) or the next-generation SAP Integrated Business Planning (IBP) to try to solve this demand-supply mismatch. It's important to note, however, that applications like SAP ECC, SAP APO and SAP IBP can only facilitate sound business and planning policies, not replace them.

Moreover, in order to choose the right technology, it's critical that a materials planner assesses the accuracy of materials planning data, as well as understands the materials planning features that SAP ECC offers. Some of these tools to consider are Materials Requirement Planning (MRP), Long-Term Planning (LTP) and Flexible Planning. Planners can also consider implementing add-ons to SAP ECC.

Beyond that, it can be helpful to consider these five materials planning best practices.

Grouping materials

Since a materials planner handles a large number of materials, it's only logical that there be a logical grouping of materials based on different criteria. Six such criteria are material consumption volume (high, medium, low), consumption predictability, lead time (long or short), footprint size or warehouse space required, material price and material lifecycle (new, regular, dying or obsolete).

Assigning materials replenishment strategies

With materials grouping in place, it's time to assign relevant replenishment strategies to be enforced by policies. For example, higher value materials having regular consumption and taking lesser warehouse space can have a strategy of 98% service level. This means that these materials need to be available at least 98% of the time that they are required for sale.

A materials planner can work with relevant stakeholders, such as sales, production or procurement, to devise, agree upon and implement different materials replenishment strategies. These strategies are then reflected with updated materials planning data in SAP ECC.

Continuous monitoring

But what good are strategies when there aren't effective mechanisms in place to monitor their adherence? Here, tools like Exceptions Monitoring in SAP ECC can help planners by providing detailed analyses of important exceptions, such as safety stock falling to a critical level or a lead time deviation that may slow down or halt production.

Reporting tools, like SAP Early Warning System, also alert planners to exceptions. There are also reports and features in SAP ECC to enable planners to constantly evaluate and improve master data, which forms the basis of entire materials planning.

Inventory controlling

As much as materials planning is critical for business success, monitoring and controlling inventory for optimization is important, as well. Planners can use reports and features to gain better insights into the lead time of critical components or materials consumption variability (slow moving or dead stock) and to accordingly adjust the future planning of such materials.

Leveraging add-on tools

Planning features available in SAP ECC still do not cover the entire depth or breadth of planning challenges a materials planner faces. To remedy that gap, SAP offers several add-on tools for SAP ECC, such as Inventory Optimization Cockpit, MRP Monitor, Kanban monitor or Replenishment Lead Time Monitor. These tools were developed by SAP and were created by working closely with SAP customers to address their planning pain points.

With careful planning, flawless execution, constant monitoring and ongoing improvements to the materials planning processes, a tactical materials planner can become a strategic planner, and, in turn, create a win-win situation for all.

Next Steps

Take advantage of native SAP ERP reports

How to upgrade SAP Advanced Planning and Optimization

How SAP MRP brings efficiency and optimization

Dig Deeper on SAP manufacturing

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