The Possibilities of Product Segmentation in S/4 ATP
Author: aRmando Chavez
Did you ever wish Global ATP (GATP in SCM-APO) could schedule orders at a lower level than just product/location, maybe down to a characteristic level? Has the promise of Characteristics Based Planning been elusive to everyone outside of the fashion industry? Well… SAP S/4’s new Product Segmentation capability might finally have bridged that gap.
The simplest definition of Segmentation: an attribute level extension to the material master. The concept comes from the fashion industry, where you can plan your supply/demand at the higher product level without explicit consideration of characteristics explosion such as size, color, and so on. But when the finished good is to be produced and sold, it is necessary to distinguish by the characteristics of the product. In SAP’s new solution, the segment is simply a 40 character field that can be partitioned and configured to store the applicable characteristics of your material. In the segment you can define an intelligent concatenation of the characteristic values or a numeric pointer enabling identification of differentiated elements of material stock. But, probably the most exciting thing about segmentation is that it is supported across the entire logistics process from planning and procurement to production and sales. Basic transactions like the Stock & Requirements list (MD04), Sales order creation (VA01), Stock Overview (MMBE), Purchase Order creation (ME21N) and other transactions are extended to break out supply and demands by Segment.
Once the master data segment strategy is established, the segment value can be used during order scheduling, planning, and execution to help differentiate a stock or receipt element as needed. This is something GATP has never really been able to do in the past as it was only scheduling at the product/location data intersection.
To better illustrate how segmentation can be useful, I have noted a few scenarios which you could also solve using other capabilities in your ERP or SCM system, such as product allocation, ATP categories/scope of check, characteristic dependent planning, and fixed pegging but where the new segmentation is a more straightforward, native way to set it up.
Tariff Management - Country of Origin Differentiation
One of the more relevant Segmentation use cases today is managing the impact of the new tariffs (as discussed in one of our earlier blogs on Brexit and Trade Wars) on your order promising. Our clients are using many creative ways to differentiate stock originating from restricted source countries like China, so that they are either not sold at all to customers in the United States or at least minimized as it is a direct hit to their bottom line. The new segmentation capability would make this all much easier:
- As receipts are planned and stock is posted, the segment would be defined to contain the country of origin information - it is all the same material master, thus no impacts to the BOM, Routes, etc., but with this new segment differentiation attached to the material
- Within your order promise setup, you can configure the recognition and usage of this segment so that customer with a Ship-to partner within the US would not see those receipt elements for order confirmation while non-US customers could see it
- As laws change, you don’t need to change your master data as an attribute like country of origin is static, you would only change you scheduling strategy/configuration to either broaden or restrict the visibility to that stock
Customer Stock Holding Strategies
A number of our clients in high tech, pharma, and CPG will manufacture materials to then hold them in their own warehouses for specific customers in a “virtual hub” concept. The idea of customer specific material masters is always an option but creates quite a bit of friction when the market shifts and stock needs to be reallocated … new labels, boxes, documentation, and so on. Most companies have found creative ways to setup storage locations, virtual areas, or product allocation configurations within their warehouses to manage the partitioned inventory. This works great in terms of ECC execution steps but never translated that well to the right differentiation strategies when using GATP. Segmentation fits this gap quite well:
- As stock is received into the warehouse, the segment setting strategy is based on the customer demand and/or order stream and is set on the material master
- As Sales orders come in, the Order-To-Cash configuration informs the order which segments are allowed for consumption and thus protects the stock that is for other customers
- Real time reporting, something often demanded by the customer, is easily established keying off the segment
- When the market shifts and order patterns change, the segment can be updated to reflect the new position and thus immediately be consumed (or protected) accordingly
ATP Categories and Scope of Check
In SCM-APO-GATP, there is the concept of scope of check, which determines the types of receipts, requirements, and stocks that need to be considered during an availability check. Each receipt, requirement, and stock type is associated with an ATP Category. This category can be out of the box or you can introduce custom ones. Those of us with decades of GATP experience use this ALL THE TIME. To give you an example where this can be useful, think of a company that is introducing a product and as an introductory offer would like to give away 10 units per every 100 units that the customer buys. However, you cannot give away too much, so you limit the free stock to 10,000 units. In today’s SCM, we could think of creating a special stock category Free Stock, and we could produce and assign the units to the Free Stock category. This will ensure that we don’t give away more than the limit. Also, we could configure the system in such a way that only certain item categories in our sales order consumes from that stock category. As in ECC, we don’t have the same flexibility in S/4 in terms of using ATP categories. However, we can easily achieve this with segmentation. For example:
- Set up one of our segment characteristics as “stock type”, where one of the stock type values would represent “Free Stock”
- When you have your promotion, you would create stock in that “Free Stock” segment with as many units as you want to give away
- In the second step you set up a Sales BOM with 100 units of the material at full price (the stock type segment value could be blank), and 10 units of the same material indicating stock type “Free Stock” in the segment and zero charges
Characteristic Dependent Planning (CDP)
With CDP, you can match your demand in ERP (sales orders) with planned receipts in APO such as planned or production orders. During an availability check, the system compares the characteristics of the requested (configured) product with the characteristics of the receipts in APO, and confirms the sales order if the characteristics match. In S/4, you can use assemble-to-order for configurable products. Of course, this functionality has been there for a very long time but the introduction of segmentation in the BOM components provides additional simplification and flexibility. For example, suppose a business that builds pallets has a BOM that requires two 4” x 2” x 48” boards per pallet. However, you want to have the flexibility to build your pallet with 4” x 2” x 60” boards. With segmentation, you include both types of boards as alternatives (same SKU, different segment), but prioritize the 4” x 2” x 48” boards so that you can consume from that segment whenever it is available.
This is applicable to many other scenarios where you will have the possibility to complete your assembly in different ways, utilizing alternatives of the same SKU but different characteristics, which you can encode using segmentation. Also, unlike CDP, segmentation enables visibility across the supply chain.
Fixed Order Pegging
Conceptually, you can implement fixed pegging with segmentation within S/4. This will simply require creating a segment with a characteristic representing Order Number on it. After the availability check, we can think of “moving” the confirmed stock to the segment with the order number, and this will ensure that no other requirement can be confirmed against that stock. Of course this is conceptual, which would have to be fully implemented through BADis and user exits, but the concept is powerful, because it would allow you to peg stock at virtually any level, e.g. customer account, ship to, sold to, or customer group.
This use case touches upon another fashion industry functionality introduced into the mainstream S/4, Supply Assignment (ARun), which can create a fixed assignment between receipts and requirements until a delivery is created, but we will keep this topic for another blog.
Other scenarios include the modeling of Country of Destination and Packaging. A tremendous amount of SKU variation in CPG and Life Sciences industries can be attributed to these dimensions. Segmentation is ideally suited to address these aspects as product attributes instead.
There are some critical callouts for you to be aware of:
- You will notice that 40 characters may not be enough for keeping all characteristics values that apply to your material. You will have to “codify” your characteristic values to capture them in the segment if you want to have intelligent naming
- The segment definition is final. Once you configure your segmentation (assign the characteristics, define a strategy), and you release it, you will not be able to change it as this would create inconsistencies in your transactional data (stock/requirements/receipts) where you have used the segment. It is possible however, to change the characteristic values in a segment of an MRP element like stock, by means of goods movement transaction MIGO.
- You can only introduce segmentation in materials where no business documents exist. Also, once you create business documents for a material where you use segmentation, you will not be able to remove it. If you intend to use segmentation in a material, it is wise to have an “all blank” characteristic combination in your segment.
- The materials must be set up as being batch managed
- S/4 Advanced ATP (AATP) does not support splitting demand between segments when partial availability needs to be confirmed across segments. At least not yet.
In summary, segmentation is the new swiss army knife in the S/4 toolbox. It will be very interesting to see how it evolves as the solution is new outside of the fashion solutions, but the potential for addressing many business problems more simply is definitely there.