Sourcing Rules for Items

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:

Item sourcing rules (MITSOR)
Received sourcing rules from M3 Supply Chain Planner (MSCTRA)
Disaggregated sourcing rules (MSCSOR).

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:

For optimization purposes, when different acquisition methods should be used. This is useful when, during specific periods, a company does not have the capacity to manufacture an item at a warehouse. Example: By using sourcing rules, a split can be made so that only 50% of the quantity is manufactured at the warehouse and the remaining quantity is distributed from another warehouse or purchased. This is called 'sourcing according to percentage share' in this document.
To distribute existing items between warehouses in a prioritized order. This is called 'sourcing in prioritized order' in this document.

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:

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.
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:

From where (if applicable): The warehouse or supplier from which the sourcing should be done.
To where: The warehouse to which the sourcing should be done.
When: The date interval during which the sourcing alternative is valid.
Percentage/priority order: Either the percentage of the demand that should be supplied from this warehouse, or the priority number together with different conditions that must be met in order for the alternative to apply.
How: The way the acquisition will be performed. This means whether the demand should be met by manufacturing, purchasing, or distributing the item.
Order specific information: The order type for the transaction that will be created to meet the demand, together with information used to calculate the order quantity.

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.

Basic example

Comments to the flow chart: a) MRP is used in the flow below, b) LL=Lowest level (the lowest level at which a material or a semi-finished product may be used in product structures and distribution networks, determining in which order the requirement calculation is performed), c) Acq code=The acquisition code for the item in (MMS002).

Sales warehouse 100 sells product A. The semi-finished product B is normally manufactured at warehouse 400. Due to a limited storage area or other constraints, the manufactured quantities of B are always stored at warehouse 300. A manual distribution order is used for moving the manufactured goods to warehouse 300.

When product A is assembled at warehouse 400, the semi-finished product B should primarily be distributed from warehouse 300. If this distribution does not cover the demand, the remaining quantity should be manufactured at warehouse 400 (according to the acquisition code for product B in MMS002).

Solution

The following sourcing alternative should be defined for product B and warehouse 400.


Sequence no	Source	ATP Check	Split Rule
001	300	Activated	1='Split allowed'

This results in the following:

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.
If there is still a demand, product B will be manufactured at warehouse 400 (according to the acquisition code for the item in MMS002).

Complex example

This example is similar to the basic one above, except that the stock warehouse 300 also supplies another manufacturing warehouse.

Sales warehouse 100 sells products A and F. These products both contain semi-finished product B. B is normally manufactured at warehouse 400. Due to a limited storage area or other constraints, the manufactured quantities of B are always stored at warehouse 300. A manual distribution order is used for moving the manufactured goods.

When assembling product A at warehouse 400, the same rules apply as described in the basic example.

When assembling product F at warehouse 200, semi-finished product B should always be distributed from warehouse 300. If that distribution does not cover the demand, a supplying distribution order from node 400 to 300 will be created. This is due to the fact that acquisition code 3 (Distribution) was specified for the product for warehouse 300 in (MMS002). This planned distribution order could lead to the creation of a new planned manufacturing order in node 400.

Solution

No sourcing alternative is needed for product B/warehouse 200. The following sourcing alternative should be defined for product B/warehouse 400:


Sequence no	Source	ATP Check	Split Rule
001	300	Activated	1=Split allowed

This results in the following:

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.
If there is still a demand for product B at warehouse 400, the product will be manufactured at warehouse 400 (according to the acquisition code for the item and warehouse 400 in MMS002).
If there is a demand for product B at warehouse 200, a distribution order will be created from warehouse 300 to warehouse 200 (according to the acquisition code for the item and warehouse 200 in MMS002). A shortage at warehouse 300 will create a distribution order from warehouse 400 to 300.

Alternative Solutions

You can also meet the above demand by using a function for splitting, which determines whether or not the distribution is done if the available ATP quantity at the warehouse covers the entire demand.

You should then define the following sourcing alternatives for product B and warehouse 400:


Sequence no	Source	Percentage	ATP Check	Split Rule
001	300	-	Activated	2=Split not allowed
002	200	-	Activated	2=Split not allowed
003	300	-	Activated	1=Split allowed

This results in the following:

If a demand occurs, a check will be made at warehouse 300. If there is an ATP quantity available that covers the entire demand, distribution will be made to warehouse 400.
If the demand does not cover the entire demand, a check will be made at warehouse 200. If there is an ATP quantity available that covers the entire demand, it will be distributed to warehouse 400.
If the quantity does not cover the entire demand, a check will be made once again at warehouse 300. If there is an ATP quantity available, it will be distributed to warehouse 400.
The remaining shortage quantity will be manufactured at warehouse 400.

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	-	-

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.
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.
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:

Order type
Order policy
Order quantity
Minimum and maximum order quantity
Order multiple (a value that the order quantity must be dividable with without any remainder)
Remaining quantity method (how the remaining quantity should be calculated).

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.