Product Substitution and Validity in Supply Chain

I already created in my previous article (see https://www.dhirubhai.net/pulse/how-manage-new-products-supply-chain-rodrigo-jr-villanueva-c7dte/?trackingId=N1O75VdjSHqGaHcSdkNNcQ%3D%3D) that when it comes to New Product Introduction, SAP Integrated Business Planning can be modelled to anticipate this and to project the impact of the new demand to the current supply and production. Many companies opted to put this process closer to Sales & Operations Planning particularly under the Demand Review process.

However, it may not just be a simple new product introduction as companies are also might be interested to use the previous information of the product in case the scenario is a Product Substitution. This process is very common to customer industries where new products are regularly being introduced when different packaging or labels are used in different target markets, for example.

Since this is inevitable, a system and process need to be setup and various logic should be taken into considerations. Questions to be prepared and aligned between implementation team and customer are:

• How often the process is initiated and which sources these can be extracted?
• Do we perform substitution according to Start and End Validity Date?
• Is there approval process involved?
• Do we consider calendars in the validity calculation?
• Do we extend the validity to different parameters like Stock situation, current Sales Orders?

SAP Integrated Business Planning allows some flexibility in modelling this scenario. Here are the features that are available to solve this requirement:

• IBP for Demand - demand planning and forecasting are most of the time being done at a certain aggregated level. Since substitution is usually taking place at the detailed level, you can use the validity to control disaggregation during the valid period only. Standard functionalities are also available to lookup the historical data but this can be enriched using some added calculation logic like calendar consideration.
• IBP for S&OP - once new product is introduced, the old product might still have some existing receipts e.g. Stocks. In some use cases, stocks of the old product can still be used by the new product in case demand is required. Standard functionality is available covering mid-term and long-term planning horizon in SAP IBP. In this situation, production and warehouse capacity is definitely something that needs to be checked and assessed. Thanks to the scenario planning, this can be translated to cost and S&OP members can evaluate the impact in the value chain.
• IBP for Response & Supply - like in the mid- to long-term planning horizon, the substitution must be enabled in the short-term. Without compromising the frozen planning horizon of course, this feature in the Order-Based planning is definitely important and should take care the most immediate demand and supply requirements. Either you use heuristics or optimizer in OBP, this can be handled by IBP.
• IBP for Control Tower - it is also equally important to manage this frequent activity in a proper and more intelligent way. Control Tower provides an outlook and controls alerts management in order to focus more on this. Procedural playbook might also be interesting to implement in order to assist users in solving this.

If you want to get more details, feel free to send me a message and will be happy to assist!

#digitalbusinesstransformation #digitalsupplychain #integratedbusinessplanning #substitution #salesandoperationsplanning