In my last post I had conjectured that the MTO (Make to Order) needs will be fulfilled by taking care of using batch management functionality along with how materials re defined in the 2 cases of steel sheets and steel rods. But there is one more aspect to be considered in these scenarios. Suppose the heat size is 100 tons and the ordered quantity is 5 tons from that heat number (batch number) then we still have 95 tons of material left. The heat size can not be made smaller as this is the capacity of the furnace. What can be done in this situation? One alternative is to wait and find some more orders which can consume material from the same batch. So one strategy employed by steel manufacturers is to take orders freely from customers and after a period of time (say 15 days), segregate the orders as per batch and find out if the entire material produced in each batch is consumed by these orders. If not then they will go ahead and produce material. Whatever material is left from the batches are stocked and sold whenever orders matching those materials arrive.
So we can see that steel manufacturing can not operate only in MTO environment. They also have to operate in MTS (Make to Stock) environment. So both MTO and MTS environments exist at steel manufacturing facilities.
The best strategy for steel manufacturers is that whenever any order arrives, they first search if any material already exists in their stocks. If it does then the order is linked to that material and no production planning is done for that order. If no stock exists for any new arrival of order or only a partial quantity exists then production planning is made to fulfill that order.
To ensure this kind of functionality is possible, the system should be able to search batches of materials in the stocks. In SAP this is perfectly possible. The search functionality of batches is achieved by customizing the system.
Now let us discuss our third scenario where plates are ordered by customers and in the existing stocks, some more work needs to be done. Here, even MTS systems needs to be refined some more. It is because the customer orders do not match with the existing stocks. For example, the customer wants a steel plate 5 mm thick, 2 meter width and 10 meters length. But in stock, we have identified a plate which is 5 mm thick, 2 meters wide and 11.5 meters length. In this case, we have to cut the plate so that it becomes 10 meters long. A functionality will be needed so that first the system will be able to search existing batches and find out closely matching stocks if not exact matched stock. Then the system should be able to support functionality like cutting the material, the cut parts to be scrapped or returned to the stock as a new material should be allowed.
In SAP this scenario is again possible. You can define a batch class system which will hold values for thickness and length. There will be just one material master record which will contain all plates of a certain width (e.g. 2 meters) and all plates of that width will be taken inside batches. The batches will differ from each other based on differences in length and thickness. The search functionality for batches can be made using customizing in SAP. For accounting of cutting pieces, SAP has functionality in its solution for Mill Industries (DIMP). If DIMP is not implemented then the cutting functionality can be achieved by using subcontracting functionality in standard SAP. You can issue a piece of plate to be cut and after cutting both required piece as well aas the remaining piece can be returned back. The expense in cutting operation can also be covered this way.