Sourcing Rules for Items

This document explains what a sourcing rule is, what it is used for, and how you set it up so that a demand for an item is met in accordance with your needs.

Outcome

By studying this document, you will have a basic understanding of how the sourcing rules should be defined and – once this is done – how they will be applied when a demand for an item occurs at a warehouse.

Information about sourcing rules is stored in the following tables:

Purpose

The sourcing rule indicates how a warehouse should be supplied with items within a certain date range. The sourcing rule therefore determines how a demand for an item is met. The demand can be met by manufacturing, purchasing, or distributing the item.

When

The sourcing rule functionality is activated every time a demand for an item occurs in cases where the item is defined as a multiple source item. The demand is created either during the reorder point calculation or the material resource planning (MRP) calculation.

Note that the acquisition code defined for an item and warehouse in 'Item. Connect Warehouse' (MMS002) is the basic alternative for meeting a demand. It is only overridden if a sourcing rule was defined for the item and warehouse. If a sourcing rule according to prioritized order (see below) exists but does not fully meet the demand, the basic alternative is used to cover the remaining shortage.

Why

The sourcing rule functionality is used in industries that require multi-sourcing of an item in the following situations:

How

Sourcing rules can be defined and optimized in M3 Supply Chain Planner (M3 SCP). If so, data about the capacity to manufacture will be used as the basis for defining the sourcing rules. The sourcing rules are defined for each SCP item group. Once the rules are created, the following activities must be carried out in order to transfer the sourcing rules to, and implement them in, M3 BE:

  1. Transfer them to M3 BE using 'SCP Version. Enter Sourcing Rule/SCP Group' (SPS200) and disaggregate them. In this context, disaggregating means distributing the sourcing rules down to the item/warehouse level.

  2. Monitor and implement them in 'SCP Version. Display Sourcing Rules/Items' (SPS205).

Once the sourcing rules are implemented, they are displayed in 'Sourcing Rules. Open' (RPS090).

The sourcing rules can also be defined manually in (RPS090). Note that sourcing rules according to prioritized order must be defined manually in this program and cannot be imported from M3 SCP.

Components

A sourcing rule in M3 BE is defined for each item and warehouse, and might consist of several different sourcing alternatives. Each sourcing alternative consists of the following main components:

Sourcing according to percentage share

You can split how a demand should be met by defining several sourcing alternatives and entering a percentage share for each of them.

Example

A product is sold in two different markets. Manufacturing for one of the markets takes place at warehouse 400 and this product is sold at warehouse 100. Manufacturing for the other market takes place at warehouse 300. However, when there is a lack of capacity at warehouse 400, warehouse 300 should also be used for production. The demand for the product at warehouse 100 should then be met by manufacturing 50% of the demand at warehouse 400, supply 25% from warehouse 300, and purchase the remaining 25% from supplier A.

Solution

The following sourcing rule should be defined for product A and warehouse 400:

Sequence no Source Acquisition code Percentage
001 400 1=Manufacturing 50
002 300 3=Distribution 25
003 Supplier A 2=Purchase 25

This results in the following:

When a demand occurs, 50% of the required quantity will be manufactured, 25% distributed from warehouse 300, and 25% purchased from supplier A.

Sourcing according to prioritized order

You can also meet the demand for an item at a warehouse by defining the sequence in which to search for the item at other warehouses.

Combining percentage share and prioritization

You can also meet the demand for an item at a warehouse through a combination of sourcing alternatives with percentage share and priority order.

Example

The flow chart is based on the basic example above. The demand should be met by distributing product B from warehouse 300 or 200. However, if this does not cover the entire demand, the remaining quantity should be split between manufacturing and purchasing.

Solution

The following sourcing alternatives should be defined for product B and warehouse 400:

Sequence no Source Acq code Pct ATP Check Split Rule
001 300 3=Distribution - 1 1
002 200 3=Distribution - 1 1
003 A supplier 2=Purchasing 50 - -
004 400 1=Manufacturing 50 - -
  1. If a demand occurs, a check will be made at warehouse 300. If there is an ATP quantity available, it will be distributed to warehouse 400.

  2. If a demand still exists, a check will be made at warehouse 200. If there is an ATP quantity available, it will be distributed to warehouse 400.

  3. If a demand still exists, 50% of the remaining demand will be purchased from a specified supplier and 50% will be manufactured at warehouse 400.

Order and quantity information

The order information defined for the sourcing alternative is applied when the order that should meet the demand is created. The order information consists of:

These fields should be set up so that they match each other. For example, if you set the order multiple to 10, then the order quantity (if used) should be divisible by 10. The order quantity and the maximum/minimum order quantity overrides the order multiple in case they contradict each other.

Calculation of order quantity - Sourcing according to percentage share

For sourcing rules using percentage shares, all of the order and quantity fields above can be used.

Examples

A. The requested quantity is 48, the order multiple is 10, the share is 50%, and the acquisition code is 1 (Manufacturing). Results: A manufacturing order with 30 as quantity will be created. (48 multiplied with 0.5 is 24. The order multiple, used to round off quantities upwards, is 10, why the quantity is adjusted to 30.)

B. The requested quantity is 148, the order multiple is 10, the maximum quantity is 30, the share is 25%, and the acquisition code is 2 (Purchasing). Results: A purchase order with 30 as quantity will be created. (148 multiplied with 0.25 is 37. The quantity is adjusted to 30, in accordance with the maximum quantity.)

C. The requested quantity is 94, the order quantity is 50, the share is 50%, and the acquisition code is 1 (Manufacturing). Results: A manufacturing order with 50 as quantity will be created. (94 multiplied with 0.5 is 47. The quantity is adjusted to 50, in accordance to the order quantity.)

Calculation of order quantity - Sourcing according to prioritized order

For sourcing rules that use sourcing according to prioritization, the 'Remaining order quantity' and 'Order quantity' fields are not taken into consideration.

Examples

A. The requested quantity is 48, the order multiple is 10, and the ATP check quantity in the supplying node is 42. Results: A distribution order with 40 as quantity will be created. The remaining 8 will be checked by the next sourcing alternative.

B. The requested quantity is 48, the order multiple is 10, the maximum quantity is 30, and the ATP check quantity is 42. Results: A distribution order with 30 as quantity will be created. The remaining 18 will be checked by the next sourcing alternative.

C. The requested quantity is 48, the order multiple is 10, the maximum quantity is 35, and the ATP check quantity is 42. Results: A distribution order with 35 as quantity will be created. The remaining 13 will be checked by the next sourcing alternative.

D. The requested quantity is 48, the order multiple is 10, the minimum quantity is 50, and the ATP check quantity is 42. Results: No distribution order will be created. The remaining 48 will be checked by the next sourcing rule.

Style and stockkeeping Units (SKUs)

If the company manages fashion items and no sourcing rule is found for a stockkeeping unit (SKU), the sourcing rule for the style is applied instead. By defining sourcing rules only for the styles, you minimize the number of sourcing rules and make the definitions easier to maintain.

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