When one plant makes what another plant needs: how Production Planning and GenLots share the decisions

Who decides what when a plant manufactures an intermediate for another plant, and in what order.

Most manufacturing groups make some of their intermediates in one plant for the others: an active ingredient synthesised on one site and formulated on three, a base material compounded centrally and finished locally. Two planning systems are then involved in the same flow. Production planning (MRP, SAP PP/DS or another APS) decides when a production run happens and on which line, with capacity, changeovers and sequencing in view. Order planning, which is what GenLots does, decides when to order and how much: for purchased materials, for transferred materials, and for made materials, where the decision is how much to launch and when. Because the two systems touch the same material at different points, the question is who owns which decision, and in what order the decisions are taken, so that neither system undoes the other’s work.

This article answers it in three parts: the three ways a plant obtains a material, and which system writes the document for each; the six-step cascade when plant A orders an intermediate that plant B manufactures; and where this sits relative to multi-echelon planning.

What are the three ways a plant gets a material?

The route is written in the material master, per material and per plant. GenLots reads it and never decides make versus buy; it decides how much and when, whatever the route.

When two plants are involved, these decisions follow each other in a fixed order.

How does the cascade work when plant A orders from plant B?

Plant A consumes material 1, an intermediate that plant B manufactures. At B, material 1 has a bill of materials of two purchased components, materials 2 and 3. Material 1 ships directly from B to A; a central warehouse, if there is one, only handles what is bought from vendors.

Six steps follow, always in the same order:

1. GenLots at A plans the transfer requests for material 1. From A’s consumption over the horizon, it computes the cheapest transfer plan from B on Total Cost: transport per shipment, holding at A, transfer lead time. The result is written as transfer requests to B.
2. MRP at B computes the net requirement for material 1. It adds A’s transfer requests, the requests of any other plant B supplies and B’s own consumption of material 1 if B uses it too, and nets the total against B’s stock and the process orders already released.
3. GenLots at B plans the planned orders for material 1. From that net requirement, it decides how much to produce and when, on Total Cost: changeover cost, holding at B, minimum campaign size, shelf life. The result is written as planned orders.
4. Production planning at B turns the planned orders into process orders. MRP, SAP PP/DS or another APS places them on the lines, checks capacity, sequences the runs, moves or merges them where a line is not free, and converts them.
5. The bill of materials turns each run into component requirements. Each planned order, then each process order, sets on which date B will consume how much of material 2 and material 3. SAP creates these requirements as soon as the planned order exists, so the purchase plans do not wait for the conversion.
6. GenLots at B plans the purchases of materials 2 and 3. One order plan per material, computed against those consumption dates on Total Cost, written as purchase requisitions to the vendors.

This is the most common setup for an intermediate made in one plant for another: make-to-stock, a stock transfer between the two plants, production planning in MRP, PP/DS or another APS. Other setups, such as repetitive manufacturing or production in an alternative plant, use different documents for the same three decisions.

Read together, the six steps contain three GenLots order plans, with three ERP and production-planning steps between them. The first order plan (step 1) and the third (step 6) are written as requisitions: a transfer request to another plant, purchase requisitions to vendors. The second (step 3) is written as planned orders, because material 1 is made, not bought; it is the same computation applied to a production decision. The three steps in between are the net requirement at B (step 2), which merges A’s demand with everything else B has to serve; production planning (step 4), which decides on which line and in which order the runs happen; and the bill of materials (step 5), which the ERP turns into component needs as soon as a planned order exists. Each step gives the next one the dates it works from: A’s transfer requests set the demand B produces for, and B’s planned and scheduled runs set the dates on which B buys its components.

One change can happen after the plans are written. If pr

oduction planning moves a run at B, to free a line or merge two campaigns, the consumption dates of materials 2 and 3 move with it, and GenLots recomputes their purchase plans on its next run. A’s transfer requests are not affected, since they were computed from A’s own consumption.

Three order plans across two plants and three materials raise a natural question: is this multi-echelon planning?

Is this multi-echelon planning?

Multi-echelon inventory optimization is the discipline of setting stock and ordering policies for a whole supply network, with several stocking levels from vendors to plants to warehouses, by accounting for how demand and lead times propagate from one level to the next, rather than optimizing each location on its own. The theory dates from Clark and Scarf’s work on serial systems in 1960 [1]; the guaranteed-service model of Graves and Willems is its most used practical form [2].

Against that definition, what GenLots does in the cascade above is multi-echelon in two respects and single-echelon in one.

• Multi-echelon in scope: GenLots plans every stock point of the flow: material 1 at A, material 1 at B, materials 2 and 3 at B.
• Multi-echelon in the links between stock points: the demand plant B sees for material 1 comes from GenLots’ transfer requests at A, and the demand for materials 2 and 3 comes from GenLots’ planned orders at B, once scheduled. Demand moves from one stock point to the next through GenLots’ own decisions, which is what the definition describes.
• Single-echelon in each calculation: each order plan is computed for one stock point at a time, from that stock point’s net requirement, one after the other, with production planning between them. GenLots does not solve one model of the whole network in which A’s transfer plan and B’s production plan are chosen together, and it does not decide how a total safety buffer should be split between A and B.

What each stock point holds follows from these decisions. At every site, the projected stock of a material is the current stock, plus what the plan brings in, minus what production consumes, kept as low as Total Cost allows without ever falling below the safety stock. Material 1 at A is fed by GenLots’ transfers and drawn down by A’s production. Material 1 at B is fed by B’s process orders and drawn down by the transfers to A, so its level follows B’s production plan. Materials 2 and 3 at B are fed by GenLots’ purchases and drawn down by B’s process orders. Safety stock at each stock point is sized on the lead time that stock point faces: the transfer lead time from B for material 1 at A, each vendor’s lead time for materials 2 and 3 at B.

Frequently asked questions

Does GenLots create process orders?
No. Process and production orders are execution documents that commit capacity and start release and quality chains. GenLots writes proposals, purchase requisitions and planned orders, which planners or the APS convert.

Does an APS such as SAP PP/DS redo GenLots’ plan?
No. PP/DS decides on which line and in which order the runs happen; GenLots decides how much to launch and when, and what to buy and when. If PP/DS moves a run, the component dates move and GenLots recomputes the purchases. The only overlap is the purchase requisitions PP/DS creates for its own components, and there GenLots replaces PP/DS for that step, as it replaces MRP.

What if plant A makes material 1 itself instead of ordering it from plant B?
The cascade loses its first step. There is no transfer request: MRP at A computes the net requirement for material 1 from A’s own consumption, GenLots at A writes the planned orders directly on that requirement, production planning at A converts them into process orders, and GenLots at A buys the components against the resulting consumption dates. The same three decisions are taken, now all inside one plant.

Summary

• Three routes, set by the material master; GenLots writes the proposal on each, as purchase requisitions, transfer requests or planned orders.
• Six steps when plant A orders from plant B: three GenLots order plans, with three ERP and production-planning steps between them; each step gives the next one its dates.
• Production planning decides which line runs what, in which order, within capacity; GenLots decides how much and when.
• GenLots plans every stock point in the flow and links them through its own orders; each order plan is computed for one stock point at a time.

References
[1] Clark, A. J. and Scarf, H., “Optimal Policies for a Multi-Echelon Inventory Problem”, Management Science, 1960.
[2] Graves, S. C. and Willems, S. P., “Optimizing Strategic Safety Stock Placement in Supply Chains”, Manufacturing & Service Operations Management, 2000.

Companion article: how GenLots plans purchases across a central warehouse and its plants.