Satisfy Customer Demand with Component Substitution in SAP IBP

Improve Your Supply Chain Stability

Having the necessary components in stock for producing finished goods is a critical factor for a stable supply chain.  Component availability can be challenging for companies that produce a large variety of products with many different components. This is further complicated due to components having differing lead times, inventory accuracy issues, and demand variability for finished goods.

Adding Stability into Supply Planning

To address these issues within SAP IBP, Component Substitution functionality has been introduced to help companies ensure component availability. Component Substitution enables supply chain planners to designate components that can be used as substitutes for producing finished goods in instances where primary components are unavailable. The Supply Optimizer in SAP IBP accounts for component substitution to help meet customer demand, which improves overall supply chain stability.

Supply Optimizer Logic for Substitute Components

Planners begin by designating substitute components within the Bill of Materials and Component Substitution master data tables. From there planners can run the Supply Optimizer to find the lowest cost optimal supply plan. The Supply Optimizer logic will first try to fulfill customer demand for finished goods using primary components listed in the Bill of Materials master data.

In the event of a primary component shortage, the Supply Optimizer will utilize the Component Substitution master data and inventory data to attempt to fulfill customer demand. The Supply Optimizer will also account for substitution cost rates to determine which time buckets should use primary and substitute components to find the lowest cost optimal supply plan.

Component Substitution Can Vary Across Multiple Dimensions

IBP Component Substitution functionality allows planners to assign substitution cost rates that can vary across multiple dimensions:

  • Product Location – component substitution cost can vary from Plant 1 to Plant 2 e.g. 
  • Component – a substitute component can be used for multiple primary components with varying substitution costs 
  • Time – planners can change the substitution cost rate across time to help prioritize production 

Our Five Minute Feature video shows Component Substitution in action:

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