Orange County Convention Center

Orlando, Florida | May 15-18, 2011

Enabling Lean Supply Chain Planning

in SAP APO ]
Patrick Michels
Edson Bacin
[ Learning Points

Using APO Supply Network Planning (SNP) for Kanban loop
replenishment

Using APO SNP and PP/DS for production leveling (Heijunka)

Real Experience. Real Advantage. 2

[ Best Practices

Use standard product capabilities where possible. Only
customize where necessary to support critical business
requirements.

Use common business processes to simplify the technical
design and development.

Real Experience. Real Advantage. 3

[

Real Experience. Real Advantage.

[

Real Experience. Real Advantage.

[ Kanban Loop

+ + + =

Open WIP In Transit Available Target

Signals Inventory

Real Experience. Real Advantage.

[ Return on Investment

Lean principles can have huge returns in reduced inventory
carrying costs, scrap and obsolescence.

However, planning systems won’t make your supply chain lean.
They can only support (or hinder) your lean supply chain.

Real Experience. Real Advantage. 7

[ Company Overview

Founded in 1949, Medtronic has grown to become the world's
largest independent medical technology company. At the core
of all we do is our Mission: to alleviate pain, restore health and
extend life.

Financial: Revenue for the year ended April 30, 2010: $15.8
billion. New York Stock Exchange ticker: MDT.

Businesses:

Cardiac Rhythm Disease Management

Spinal and Biologics

CardioVascular

Neuromodulation

Diabetes

Surgical Technologies
Real Experience. Real Advantage.
[ Computer Systems vs. Visual Systems

Minuses

Added failure modes can lead to wrong signals

WIP and inventory must be accurate

Integration errors

Pluses

Easier adjustment of kanban and total loop sizes

Prioritization of signals rather than FIFO

Allows automation of order creation

No space consumption from empty bins

Easier to deal with large number of products

Real Experience. Real Advantage.

[ Headwinds

High margins / tax optimization -> long, multi-facility supply

chains

Labor optimization -> long, multi-facility supply chains

Regulatory requirements -> favor larger batch sizes

High (but predictable) demand variability -> production leveling

Component material availability

Large number of products (lengths, diameters, curves)

Real Experience. Real Advantage.

[ Lean Journey

Many years and many flavors of spreadsheets and custom
systems

Aug. 2009 - Lean manufacturing in LPO / MII

Nov. 2009 - Global pull distribution in APO Supply Network
Planning

Aug. 2010 – Lean manufacturing in APO (Hybrid SNP and
PP/DS solution)

Real Experience. Real Advantage.

[ Supply Network Planning Process

SNP Heuristic - Net Requirements Plan

Deployment Fair-share and push strategies

TLB Automated STO creation

Real Experience. Real Advantage.

[ Pull Distribution in SNP

Pull-based execution signal with long-term forward visibility.

Kanban Loop Target is dynamically calculated based on Safety Stock, Replenishment
Lead Time, Review Period, and an Average Demand/Usage value.

Kanban Loop Target calculation also depends on whether or not the product is part
of an interchangeability group.

More sophisticated safety stock calculations available standard.

Traditional Kanban Loop execution is single period and ignores the forecast, which
does not allow for long-term planning.

Target Stock Level and Kanban Loop

SNP plans to Target Stock Level

Our custom Target Stock Level calculation removes demand over lead time
from Kanban Loop Target to prevent double-counting and allow the plan to
consider the forecast.

This design allows you to have in the same model, products that are replenish to
Kanban loop, forecast or a mix of the two.

Real Experience. Real Advantage.

[ Planning Book Key Figures

Kloop Target Calculated

Kloop Target Override

Kloop Target Final

Target Stock Level (Planned)

Kloop Target Final – Safety Stock – Usage over Lead Time or Future Demand

Target Stock Level

= Target Stock Level (planned) + Safety Stock

Real Experience. Real Advantage.

[ Production Leveling - Value Stream Map

Real Experience. Real Advantage.

[ Production Leveling Overview

Starts from a traditional advanced planning approach that
attempts to simultaneously address due-date, capacity and
component availability requirements.

That solution is made “Lean” by

Leveling the aggregate production, even if the requirements are
less than capacity.

Incorporating prioritization by percentage to target.

Improving how frequently we cycle through individual products
(EPEI) using the PP/DS optimizer.

Real Experience. Real Advantage.

[ Process Detail

For the next 18 months

Run SNP at tier-one DCs to generate STRs

For the next quarter

Run SNP at manufacturing to generate SNP-planned orders for
each resource

An enhancement calculates the level run rate (capacity utilization
%) for each resource and populates it in the resource master.

Run capacity leveling at MFG in SNP using the optimizer (for one
quarter), generates leveled (in aggregate) SNP-planned orders for
Finished Goods

Real Experience. Real Advantage.

[ Process Detail - Continued

For the next 30 days

Convert SNP planned orders to PP/DS planned orders.

An enhancement calculates the order priority based on percent
to target

Run sequencing heuristic based on priorities on Finished Goods.

Run top-down heuristic for components.

For one week

Run PP/DS optimizer to distribute component consumption and
improve individual product leveling.

Setup matrix (cost) that has diagonal as most expensive

Setup matrix (time) for calculating proper duration

Optimizer profile (weighting): 1) setup costs, 2) order priorities 3)
setup times,

Review alerts, planning board reports

Real Experience. Real Advantage.

[ Key Learnings

APO Strong Points

Can execute on Kanban loop but still provide long-term visibility
for planning in one system.

Automation of order creation process.

Availability of statistical safety stock calculation methods.

Macros and custom key figures allow SNP to be tailored to your
needs.

SNP and PP/DS optimizers can be configured to approximate
Heijunka leveling.

Real Experience. Real Advantage.

[

Thank you for participating.

SESSION CODE:
1205
Please remember to complete and return your
evaluation form following this session.
For ongoing education in this area of focus, visit www.asug.com. ]
Real Experience. Real Advantage.