How to Understand Source of Supply in APO - Brightwork Research & Analysis

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Executive Summary

There is a hierarchy of a source of supply for SNP heuristics and CTM.
The SNP optimizer supposedly enables multisourcing.
One of the concepts is that one can constrain the source of supply.

Introduction to Sources of Supply in APO

This article will cover how APO can set up the logic for choosing from multiple sources to supply the network.

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Where Source of Supply Applies

Source of supply applies to the following modules in SAP APO:

SNP
CTM
PPDS

APO defines different sources of supply which can be selected automatically or in interactive planning. Inherent to his process is a method of prioritizing the different sources. A quotation is a method of setting a static source of supply.

Quota arrangements are often based upon procurement agreements that rely upon a certain amount of volume to qualify for price discounts, as you can see in this article.

The Hierarchy of Source of Supply for The SNP Heuristic and CTM

Implementing quotas in SCM is a way to ensure that planning is in concert with the business arrangements that the company has made with its suppliers. The source of supply determination can be seen as a hierarchy. At the top of the hierarchy are the quota arrangements. After the quota arrangements, the following mechanisms are used to perform the selection:

Procurement Priority: (sources of supply can be coded with priorities; they take over if no quota is set)
Costs: (When priorities are identical, the low-cost source will be selected over the higher cost source)
Procurement Type: (Here, in-house production is given precedence over procurement – if the same item can be either bought or made)

The SNP Optimizer and Sources of Supply

In previous versions, the SNP optimizer did not respect these quotas and external procurement relationships; however, in later releases, it can. Read more about the interaction between the optimizer and sources of supply here. However, it greatly depends upon “how much” quota arrangements are to be used. The more pre-existing agreements must be used, the less sense it makes sense to use the optimizer.

Quota arrangements and external procurement relationships are the required procurement constraints in some industries.
The logic is that better prices and quality can be obtained by signing these long-term agreements.

Solution by Industry

This is true for some industries. A more marketplace selection approach is enabled with the SNP optimizer, making decisions based upon costs (although it can now respect quota arrangements). However, a cost-based approach works better for procurement situations that are not subject to significant scale economies and where the quality is relatively standardized. The items are more like commodities. This would include industries such as petrochemical and agricultural post-processing.

The Source of supply is of particular importance for the CTP function. This is a connection between GATP and PPDS. This results in an allocation of production capacity to future orders.

Constraining Supply with Source of Supply?

How is supplier capacity modeled? The most straightforward method was described in the book Supply Chain Planning in SAP APO. See the excerpt below.

“In some cases the procurement quantity of a supplier is limited – by capacity of by the volume of the contract. The restriction night apply to a single product or how a set of products. this kind of capacity restriction is modeled in SAP APO™ using a transport resource for the capacity and the capacity consumption in the ‘product specific means of transport’s-view of the transportation lane as resource load. he advantage of using transport resources to production resources at the supplier for the modeling of the supplier capacity is – besides avoiding additional master data – that the quantities are available at any time within le bucket, so that the complete amount can be ordered at the beginning of he period, whereas in a modeling with the production resources quantity is only available at the end of the period.”