Most manufacturing companies typically adopt one of two production strategies when it comes to producing goods.
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Make to Stock Manufacturing Approach
Consumers frequently utilize and purchase make to stock items as they are essential rather than luxury commodities. Companies generate demand for these products through various means such as advertising, promotions, and activations. They then produce based on the actual demand, market trends, and forecasted figures. To cater to potential spikes in demand during seasonal changes or festive occasions, companies maintain safety stock levels of finished goods in their inventory.
Make to Order Production Approach
There are two options available in the make to order approach that can be chosen.
Understanding the MTO Procedure in SAP
In the SAP Glossary, Definition 2 states that make-to-order production refers to a manufacturing process where a product is specifically produced for an individual customer.
List:
1. Definition 2 from SAP Glossary
– Make-to-order Production: This term describes a specific type of production method.
– It involves manufacturing products tailored to meet the requirements of a particular customer.
SAP Make to Order Process in India
In the upcoming sections, we will illustrate the procedures involved in the SAP make to order process. We will guide you through each step, providing a comprehensive understanding of the process.
1. Revise Material Master Information
2. Generate a Quote
3. Establish a Sales Order
4. Validate Production Order Status
5. Carry out Delivery Process
6. Prepare Invoice
Material Master Update in SAP
To start the SAP make to order process, begin by creating a material master for finished goods or modifying an existing one with the correct item category group. We will illustrate the easier method. Use transaction code MM02 to modify an already existing material master record.
On the starting page, input the desired material number and press Enter. Next, choose the Sales: Sales Org. Data 2 view from the options displayed below.
Hit the Enter key and input the necessary organizational level information in the dialogue box.
Press the Enter key once more to refresh the material master. Modify the item category group to 0001 – Make-to-Order, as illustrated below:
Generate Quotation
To modify the pricing for the personalized order, select the appropriate line item and click on the button for item conditions.
To view the cost of the item, click on the Conditions tab. Make any necessary modifications to align with the desired customizations.
Generate Sales Order
Click on the Create with Reference button to proceed. In the appearing window, select the Quotation tab and input the quotation number generated in the previous step. Click on the Copy button to transfer all relevant details from the quotation to the sales order.
The sales order components are transferred from the quotation, and it is important to pay attention to the item category. The item category field is filled based on the combination of sales document type and item category group. This specific combination is set up to generate the item category TAK – Make-to-order Prod. as displayed above:
The costing for the SAP make to order process is performed on the sales order. To review and ensure an adequate profit margin, please navigate to condition type EK02 – Calculated costs.
Verify Production Order
To view the automatically generated production order, access the sales order in change mode. Utilize transaction code VA02 and input the previously created sales order number on the initial screen. Press Enter to display the sales order information in change mode. Choose the relevant line item and click on the Display item details button located at the bottom of the toolbar to proceed.
Click on the Schedule lines tab in the item details and then click on the Procurement button to view the specific information related to the production order.
Execute Delivery Process in SAP
To observe the impact on stock levels, we can generate a delivery using transaction code VL01N. In the first screen, input the shipping point and sales order number as displayed below.
Press the Enter key to continue and generate the delivery document. The delivery document will appear, containing pre-filled delivery details from the sales order.
To verify if the sales order stock has been used up, we can review the stock overview again. Simply enter the finished goods material number in transaction code MMBE. The quantity specified in the delivery document will be deducted from the available stock. In our scenario, there is no remaining stock left, as indicated below:
Billing Generation in SAP
To complete the make to order process in SAP, you will need to generate the billing for the product. To do this, use transaction code VF01 and input the sales order number on the initial screen. Press Enter to proceed and create the billing document.
Take a closer look at the sales document flow using transaction code VA23 in SAP. This allows you to track the progression of documents throughout the entire make-to-order process, starting from the initial quotation and ending with the accounting document.
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Make-to-order situation in SAP: What does it entail?
Make to order production is a process in which products are not pre-made and stored in a warehouse. Instead, they are produced specifically for each sales order or sales order item. This means that when a customer places an order, the materials required to fulfill that order are generated based on their specific requirements.
To explain it simply, imagine you want to buy a customized t-shirt with your name printed on it. In make to order production, the t-shirt would not already be sitting in a store waiting for someone to purchase it. Instead, once you place your order, the company will start producing the t-shirt according to your specifications.
In this process, individual customer requirements from each sales order item are sent to materials planning (MM/PP). This ensures that only the necessary materials are used and nothing goes wasted or unused. It helps companies optimize their inventory management by reducing excess stock and minimizing storage costs.
Key points about make-to-order production:
1. Products are made specifically for each sales order or item.
2. Customer requirements drive material planning.
3. Helps minimize excess stock and storage costs.
Understanding the MTS process in SAP
Make-to-Stock (MTS) Inventory: On the other hand, the Make-to-Stock strategy in SAP involves producing goods in advance and storing them in inventory until customer orders are received. This approach is based on forecasts and historical demand patterns to maintain a ready stock of items.
In the MTS process, companies analyze market trends, customer demands, and historical sales data to forecast future demand for their products. Based on these predictions, they produce goods in bulk quantities before receiving specific customer orders. These pre-produced items are then stored in warehouses or distribution centers until they are needed.
P.S.: The Make-to-Stock (MTS) strategy implemented within SAP involves producing goods ahead of time based on forecasts and historical demand patterns. These pre-produced items are stored until customer orders are received. Adopting this approach offers benefits such as faster order fulfillment and cost optimization through economies of scale during production.
An instance of make-to-order?
By adopting the MTO process, Dell Computers ensures that every computer is tailored specifically to meet individual customer requirements. This level of customization enables customers to choose from various hardware components, software options, and additional features based on their specific needs and preferences. As a result, customers can enjoy an enhanced computing experience by receiving products that are perfectly suited to their intended use.
The MTO system also provides Dell Computers with several benefits from an operational standpoint. Firstly, it helps minimize inventory costs since products are only manufactured once they have been ordered by customers. This eliminates the need for excessive stockpiling of finished goods and reduces the risk of obsolete inventory sitting idle in warehouses. Additionally, this production strategy allows Dell Computers to streamline its supply chain management processes by focusing on procuring raw materials based on confirmed orders rather than speculative forecasts.
Configuring the MTO process in SAP
To initiate the Make To Order (MTO) process in SAP, it is essential to have a material with an item category group of 0001, which signifies it as a Normal Item. In order to perform availability checks for MTO items, the checking group should be set as 02, indicating individual requirements. This can be configured in the General/Plant tab of the system.
Once these settings are in place, you can proceed with creating an order using transaction code VA01. Upon doing so, you will notice that the item category for MTO items is displayed as TAK, while the schedule line appears as CP and requirement type is indicated by KE.
Expanding on this information further:
For effective management of inventory and demand planning during MTO scenarios in SAP systems, conducting availability checks becomes imperative. By setting up a checking group value of 02 – representing individual requirements – under the General/Plant tab configuration options ensures accurate assessment of product availability based on specific customer demands.
MTS and MTO in SAP: An Explanation
In SAP production, there are two types of strategies commonly used: Make to Order (MTO) and Make to Stock (MTS).
1. MTO Strategy: This strategy is employed when the production is based on specific customer orders. In other words, products are manufactured only after receiving an order from a customer.
2. MTS Strategy: On the other hand, the MTS strategy is utilized when production occurs continuously based on internal demand rather than specific customer orders. Products are manufactured in advance and stocked in inventory for future sales.
These two strategies offer different approaches to meet customer demands and manage inventory levels effectively in SAP production processes.
