Lot Size Policies and Lot Size Parameters

in IBP Time-series based Supply Planning

(IBP for Sales & Operations Planning)
July, 2019
Dr. Volkmar Soehner, Dr. Stefan Wedner

Change History:

- November 2017: New section 2.4 inserted

- December 2018: New sections 2.5 and 2.6 inserted
- February 2019: Numbers of example 2 in section 2.5
- March 2019: Name of key figure SUBPERIODSOFSUPPLYSAFESTOCK (section 2.6) corrected
- July 2019: Added section 2.2.5

1. Introduction
Via the IBP time-series based supply planning lot size policy the user controls if and
how the dependent and independent demand of several subsequent periods are
bundled and satisfied by one transportation or production receipts. In order to
minimize or to limit the number of transportation or production events a lot size policy
enforces the system to produce or transport the demands of a period t and the n
subsequent periods already in period t. The intention is to satisfy the demand of t and
of the n subsequent periods with the inventory built up in period t so that the next
production or transportation event must be planned in period (n+1) or later.

In addition to the lot size policy there are lot size parameters which impact how the lot
size is determined in time-series based supply planning of IBP. Lot size parameters
determine the quantity range in which a lot size can be chosen, i.e. the lower and
upper bound (minimum and maximum lot size) and whether a lot size quantity should
be a multiple of a given increment (rounding value). Lot size parameters are defined
on the planning level of production or transportation sourcing rule.

It is important to know that IBP supply planning follows a bucket-oriented planning

approach which means that all quantities in key figures given as input to or computed
as output by the IBP supply planning operator are related to a period, which can be a
year, a quarter, a month, a week or a day. IBP supply planning does not plan on an
order level. For that reason, the term lot size is de facto wrong as a lot size usually
defines the quantity of an order, i.e. a production or transportation order. A more
appropriate term for the IBP supply planning therefore would be something like a

Page 1
period production or transportation quantity. However, as lot size is far more common
we nevertheless decided to use this term in IBP supply planning as well – based on
this clarification.

2. Lot Size Policies

All lot size policies are defined on location product level via attribute LOTSIZEPOLICY.
The following values of this attribute define the following lot size policies:

0 => lot for lot (see section 2.1)

1 => static periods of supply (see section 2.2.1)

2 => dynamic periods of supply (see section 2.2.2)

3 => periods of coverage (see section 2.3)

4 => static periods of supply based on average demand (see section 2.4)

5 => dynamic periods of supply with safety stock (see section 2.6)

2.1 Lot for Lot

The default lot size policy is “lot for lot” which means that the heuristic of S&OP does
not bundle demands of subsequent periods. In general, the S&OP standard heuristic
“infinite with no shortages” plans a transport or production receipts in each period
with a net demand greater than zero. Usually, no inventory is built up to satisfy the
demand in later periods.

This lot size policy has no impact on the optimizer as it computes lot sizes strictly
based on costs which means that if inventory holding costs are low and fixed
production costs are high the optimizer might build up inventory to satisfy the demand
of future periods, for instance in order to avoid or minimize fixed production costs or
to minimize the effect of increasing purchasing costs.

2.2 Periods of Supply

The strategy of the lot size policy periods of supply is to bundle the dependent and
independent demand or the production demand of a period t and its n subsequent
periods into one transport or production receipts which is planned for that period t. As
a result, total receipts are higher than the net demand in t so that inventory is built up
to cover the demand of t and the n subsequent periods. The n subsequent periods
are called in the sequel coverage time span as the inventory built up in t is intended
to cover all demands in this coverage time span of n periods.

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There are two different variants of this lot size policy, the static and the dynamic
variant of periods of supply.

2.2.1 Static Periods of Supply

The approach of the static variant of periods of supply is, for each period to build up a
projected inventory which covers the (dependent and independent) demand of n
subsequent periods where n is derived of input key figure SUBPERIODSOFSUPPLY.
This means that the supply planning operator should plan transport and / or
production receipts so that the resulting projected inventory in each period is equal or
greater than the sum of the demands of the n subsequent periods. Figure 1 illustrates
an example with a planning horizon of eight periods. In the upper area there is a
supply plan computed (by the heuristic) according to the policy lot for lot – as a
starting point. The dependent demand (D) is produced lot for lot, i.e. in each period
with a dependent demand greater than zero exactly this demand is produced. (For
simplicity, the following example do not contain independent demand.) For that
reason, we see a production quantity greater than zero in periods 2, 3, 6, 7 and 8. As
the inventory target is assumed to be zero the projected inventory is zero in each
period as well.

Example 1: Static Periods of Supply

DC1 P1
D: 00 10 10 00 00 10 10 10
DC1 P1 S1
PS:
I: 00 00 00 00 00 00 00 00 100% P: 00 10 10 00 00 10 10 10
Lot for Lot: N: 00 10 10 00 00 10 10 10
R: 00 10 10 00 00 10 10 10
S: 00 10 10 00 00 10 10 10

DC1 P1
DC1 P1 S1
D: 00 10 10 00 00 10 10 10
PS: 02 02 02 02 02 02 02 02
Static Periods 100% P: 20 00 00 10 10 10 00 00
I: 20 10 00 10 20 20 10 00
N: 20 00 00 10 10 10 00 00
of Supply: R: 20 00 00 10 10 10 00 00
S: 00 10 10 00 00 10 10 10

DC1 P1
DC1 P1 S1
D: 00 10 10 00 00 10 10 10
PS: 02 02 02
100% P: 20 00 00 10 00 00 20 00
Static Periods I: 20 10 00 10 10 00 10 00
N: 20 00 00 10 00 00 20 00
of Supply: R: 20 00 00 10 00 00 20 00
S: 00 10 10 00 00 10 10 10

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY)
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 1

Figure 1: Static periods of supply

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The plan in the middle was computed (again by the heuristic) with parameter n set in
key figure SUBPERIODSOFSUPPLY (“Periods of Supply”) equal to two (n = 2) in
each period. Hence the heuristic plans production receipts so that the resulting
projected inventory in each period covers the dependent demand of that period and
the next two periods. Consequently, the projected inventory of period 1 covers the
dependent demand of periods 2 and 3 which is in total 20. The projected inventory of
period 2 covers the dependent demand of periods 3 and 4, which is 10 – and so
forth.

This example was slightly modified in the lower area of figure 1. The difference to the
example in the middle is that key figure PS (SUBPERIODSOFSUPPLY) is equal to
two only in the first and fourth period so that only in these two periods the projected
inventory should cover the demand of the next two periods. Therefore, the projected
inventory in period 6 is zero and does not cover the demand of periods 7 and 8. In
the example shown in the middle, the projected inventory of period 6 was 20. The
reason is that in the lower example input key PS (SUBPERIODSOFSUPPLY) stores
no value (which is equivalent to zero) for period 6 whereas in the example in the
middle the user entered a two in for that period. In periods where input key figure
SUBPERIODSOFSUPPLY does not contain a value (greater than zero) the lot for lot
policy is applied.

The objective of the lot size policy static periods of supply is to build up a safety stock
which depends on the dependent and the independent demand of n subsequent
periods. This safety stock covers the dependent and independent demand of some
future periods. In contrast, via input key figure inventory target a user can specify a
safety stock which is independent of the dependent and independent demand of
future periods. Compared to the periods of supply approach the disadvantages of
inventory target are:

(i) if the sub-sequent periods do have no demand or less than expected the safety
stock will be built up unnecessarily or unnecessarily high

(ii) if the future demand is higher than expected the target stock might be too small to
cover the entire future demand.

The lot size policy static periods of supply is respected by the heuristic and the
optimizer of IBP Sales & Operations Planning.

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2.2.2 Dynamic Periods of Supply
The approach of the lot size policy dynamic periods of supply is similar to the static
variant of periods of supply: plan production or transport receipts high enough to
satisfy the dependent and independent demand of each period t and its n
subsequent periods. In other words, the projected inventory of a period should cover
the demand of n subsequent periods. For the static variant this condition has to be
fulfilled in each period in which key figure SUBPERIODSOFSUPPLY contains a
value greater than 0, for the dynamic variant this condition has to be fulfilled only for
periods where the sum of dependent and independent demand plus the inventory
target is greater than the projected stock of the previous period, i.e. where receipts
are required to satisfy the demand of the period t. (“Demand” at this point is equal to
the dependent plus independent demand plus inventory target minus projected stock
of the previous period which is the net demand according to a lot for lot policy, i.e. lot
size policy = 0. We therefore call this demand the “lot for lot-net demand”.) The
dynamic variant therefore avoids planning a production or transport event in periods
with a lot for lot net demand of zero. A supply plan computed according to dynamic
periods of supply therefore contains, in general, less periods with a production or
transport receipts than a plan computed according to static periods of supply. This
can be verified by comparing the results shown in Figure 2 with those of Figure 1.

In the upper area of Figure 2 we again see as a starting point the same example of
Figure 1, computed according to the lot for lot policy. The lower area of Figure 2
depicts a supply plan which was computed based on the dynamic periods of supply
policy. Again, via input key figure PS (SUBPERIODSOFSUPPLY) the user has
specified that the projected inventory should cover the dependent demand of the next
two periods, however, this condition should be fulfilled only for periods with a lot for
lot net demand greater than zero. For that reason, the projected inventory of period 1
is zero (in period 1 there is no dependent demand and hence no net demand at all).
The same holds for periods 4 and 5.

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 Example 1: Dynamic Periods of Supply

DC1 P1
DC1 P1 S1
D: 00 10 10 00 00 10 10 10
PS: 100%
P: 00 10 10 00 00 10 10 10
I: 00 00 00 00 00 00 00 00
Lot for Lot: N: 00 10 10 00 00 10 10 10
R: 00 10 10 00 00 10 10 10
S: 00 10 10 00 00 10 10 10

DC1 P1
DC1 P1 S1
D: 00 10 10 00 00 10 10 10
PS: 02 02 02 02 02 02 02 02 100% P: 00 20 00 00 00 30 00 00
Dynamic Periods I: 00 10 00 00 00 20 10 00
of Supply: N: 00 20 00 00 00 30 00 00
R: 00 20 00 00 00 30 00 00
S: 00 10 10 00 00 10 10 10

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY)
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 2

Figure 2: Dynamic Periods of Supply

As period 2 has a dependent demand of 10 units the heuristic ensures that the
resulting projected inventory of period 2 covers the demand of periods 3 and 4, which
is 10 + 0 = 10 units. The projected inventory of period 6 covers the demand of
periods 7 and 8, i.e. 20 units.

The supply plan of Figure 2 has two periods (2 and 6) with production receipts
greater than zero, the comparable example of Figure 1 (middle area) has four.

The objective of lot size policy dynamic periods of supply is to minimize the number
of periods with a production or transportation event. The strategy is to produce or
transport only in periods with a demand and to produce or transport the demand of
the current and n subsequent periods, to avoid the need to produce or transport the
same product in too many periods again and again.

Only the heuristic of S&OP considers the dynamic periods of supply policy explicitly.
The optimizer of S&OP, in contrast, minimizes the sum of set up and inventory
holding costs to find a cost optimal plan with the cost-optimal number of lots.

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2.2.3 Partial Coverage of Subsequent Periods
For both lot size policies, static and dynamic periods of supply it is possible to
configure the system so that the sum of dependent and independent demand of a
future period is only covered partially by stock which is built up in a period t. To do so,
the user must define the number of sub-periods in input key figure SUBPERIODNUM
(planning level: product, location) for each planning period of the planning horizon.
So, for instance, if a planning period models a month, a sub-period could be a day or
a week. If a sub-period models a day key figure SUBPERIODNUM stores either the
number of days of a month or the number of working days of each month –
depending on whether the coverage time span should relate to all days or to working
days only.

If key figure SUBPERIODNUM contains a value greater than zero the coverage time
span will be defined in number of sub-periods. (If SUBPERIODNUM is empty, as
assumed for the examples in sections 2.2.1 and 2.2.2, the coverage time span
equals a multiple of planning periods).

Figure 3 again takes example 1 from the previous figures. In contrast to figures 1 and
2 now key figure SUBPERIODNUM contains values – here the value 30 indicating
that there are 30 sub-periods in each planning period.

In Figure 3, the values of key figure Periods of Supply (technical name is

SUBPERIODSOFSUPPLY) vary from 15 to 30, then to 45 and then back to 30 sub-
periods. The value of 15 in the first two periods defines that the Projected Inventory
at the end of both periods should cover 15 sub-periods and hence 15/30 = 50% of
the dependent demand of the sub-sequent period.

As this example is based on the dynamic version of the lot size policy periods of
supply, the projected inventory should cover a certain portion of sub-sequent periods
only in periods where receipts are required to fulfill the current demand (i.e. where
the “lot for lot net demand” is greater than zero – see section 2.2.2). For that reason,
the heuristic does not build up inventory in period 1, but in period 2. The Projected
Inventory of period 2 should cover 50% of the demand of period 3 which are 5 units.

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 Example 1: Dynamic PoS with Sub-Periods

DC1 P1

D: 00 10 10 00 00 10 10 10 DC1 P1 S1
SN: 30 30 30 30 30 30 30 30
PS: 15 15 30 30 30 45 30 30 100% P: 00 15 05 00 00 25 00 05
I: 00 05 00 00 00 15 05 00
N: 00 15 05 00 00 25 00 05
R: 00 15 05 00 00 25 00 05
S: 00 10 10 00 00 10 10 10

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY)
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 3

Figure 3: Dynamic Periods of Supply with Sub-Periods

In periods 3, 4 and 5 the coverage period is set to 30 sub-periods which means that
the Projected Inventory of these three periods should cover exactly one planning
period – but only if the lot for lot net demand is greater than zero – which is true only
for period 3.

For period 6 the heuristic had to plan Receipts greater than zero (because the lot for
lot net demand is greater than zero) so that the dynamic Periods of Supply should
apply. For that reason, the Projected Inventory should cover 45 days and hence the
demand of the next 1.5 planning periods which means that the Projected Inventory of
period 6 should be equal or greater than the entire demand of period 7 plus 50% of
the demand of period 8 – which is 10 + 5 = 15 units.

2.2.4 Periods of Supply in Conjunction with Inventory Target

If lot size policy Periods of Supply is used together with inventory target the system
should take into account (current and future) dependent and independent demand,
projected inventory of the previous period and the demand possibly caused by
inventory target while computing the net demand of a period. The supply plan of

Page 8
Figure 4, computed by the time-series-based supply planning heuristic of S&OP,
shows an example for one location product and six periods. The dependent demand
is 10 in all periods, each period has 30 sub-periods and the number of sub-periods to
be covered by the Projected Stock is 60 in all periods, which means that the
Projected Stock of each period should cover the dependent demand of the next two
periods.

The coverage time span of a planning period t includes all n subsequent periods of t
which should be covered by the projected inventory of period t. In the example of
Figure 4 the coverage time span of all periods has the same lengths of two planning
periods as key figure Periods of Supply (PS) contains the value 60 (sub-periods) for
all planning periods and as all planning periods consist of 30 sub-periods the number
of subsequent periods to be covered is 60 / 30 = 2. The background of this definition
is that the Net Demand of a period is computed so that it covers (together with the
Stock-on hand, i.e. the projected inventory of the previous period) the

- Dependent and independent demand of period t and

- Dependent and independent demand of all subsequent periods of t and
- the demands caused by increases of the inventory target within the coverage
time span

Example 2: Static PoS with Inventory Target

DC1 P1

Period 1 2 3 4 5 6
D: 10 10 10 10 10 10
SN: 30 30 30 30 30 30
PS: 60 60 60 60 60 60
I: 60 50 40 40 30 20
IT: 20 20 40 20 20 20
N: 70 00 00 10 00 00
R: 70 00 00 10 00 00
S: 10 10 10 10 10 10

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY)
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 4

Figure 4: Static Periods of Supply with Inventory Target

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The Net Demand of period 1 is computed so that the Dependent Demand of period 1
(which is 10) plus the dependent demands of periods 2 and 3 (which is 10 + 10 = 20)
are met and it has to be ensured that the target inventory in each period of the
coverage time span is met which means that the projected inventory of each period
has to be equal or greater than the inventory target. As the maximum inventory target
of periods 1, 2 and 3 is 40 the net demand of period 1 is: 10 + 20 + 40 = 70 units.

The net demand of period 4 is 10 because the net demand of that period has to
cover the dependent demand of period 4 (which is 10), the dependent demands of
period 5 and 6 (10 + 10 = 20) and the projected inventory of period 4, 5 and 6 has to
be equal or greater than the corresponding inventory target which is 20 in all periods.
Based on a projected inventory in period 3 of 40 units, the net demand in period 4 is
computed as follows: Net Demand (4) = 10 + 20 + 20 – 40 = 10.

Figure 5 shows another interesting example of static periods of supply in conjunction

with inventory target. The difference compared to Figure 2 is that now the coverage
time span does not include only multiples of periods. As now key figure Periods of
Supply contains the value 45 (sub-periods) the coverage time span includes the next
period and 15 sub-periods, i.e. 50% of the period after the next period. So, for
instance, the coverage time span of period 1 contains period 2 and 50% of period 3.

The inventory target of the last period of the coverage time span, i.e. the period which
is only partially included in the coverage time span, is not considered while the net
demand of the current period is computed. This means, the net demand of period 1 is
computed with respect to the inventory target of period 1 and 2, the inventory target
of period 3, however, is disregarded. The reason is that the inventory target could be
built up in period 2 or 3 which means there is no need to build up this inventory
already in period 1.

The net demand of period 1 in Figure 5 is computed so that it covers together with
the stock-on hand

- the dependent demand of periods 1 and 2 and 15/30 = 50% of the dependent
demand of period 3 and the inventory target of period 2, and

- the dependent demand of period 1 and the inventory target of period 1

(Both conditions should be fulfilled.)

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 Example 3: Static PoS with Inventory Target

DC1 P1

Period 1 2 3 4 5 6
D: 10 10 10 10 10 10
SN: 30 30 30 30 30 30
PS: 45 45 45 45 45 45
I: 35 55 45 35 30 20
IT: 20 20 40 20 20 20
N: 45 30 00 00 05 00
R: 45 30 00 00 05 00
S: 10 10 10 10 10 10

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY)
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 5

Figure 5: Static PoS with inventory target and partial coverage time span

2.2.5 Ignoring Demand Types for Lot Size Policies Periods of Supply
As explained at the beginning of section 2.2 the lot size policy periods of supply
bundles the dependent and independent demand of n subsequent periods, i.e. of the
periods of the coverage time span. Dependent demand, in general, contains different
demand types which are:

- Dependent customer demand

- Dependent location demand
- Dependent production demand

If you want the time-series-based supply planning algorithms to consider only the
dependent customer demand contained in a dependent demand to build lot sizes you
can use the lot size policy Target Periods of Customer Demand (see section 2.5).

If you want to exclude the dependent location demand or the dependent production
demand for static or dynamic periods of supply, you need to set to related of the two
following attributes (in the location product master data) to 1:

➢ IGNOREDEPLOCDEM (“ignore dependent location demand”)

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 ➢ IGNOREDEPPRODDEM (“ignore dependent production demand”)

If for a certain location-product the attribute IGNOREDEPLOCDEM is set to 1 then

the lot sizing procedures static and periods of supply will ignore (for that location-
product) the dependent location demand to compute the lot size of each period.
Analogously, for a component its production demand is ignored if attribute
IGNOREDEPPRODDEM is set to 1.

Figure 5b illustrates an initial situation. Net demands are calculated according to lot
size policy static periods of supply, the coverage time span is always two periods.

Initial Situation: No Demand Type Ignored

DC1 C1
C1 P1
DCD: 01 01 01 01 01
CD: 01 01 01 01 01 D: 21 21 21 21 21
TC: 01 01 01 01 01 I: 42 42 42 21 00
CR: 01 01 01 01 01
N: 63 21 21 00 00
SP: 02 02 02 02 02
S: 21 21 21 21 21
R: 63 21 21 00 00

DC2 C1
LSP: 1
D: 20 20 20 20 20 DLD: 20 20 20 20 20 IDLD: 0
N: 20 20 20 20 20 IDPD: 0
S: 20 20 20 20 20 TR: 20 20 20 20 20
R: 20 20 20 20 20

DCD: Depend. Cust. Demand S: Supply SP: Sub-Periods of Supply LSP: Lot Size Policy
CR: Customer Receipts T: Total Receipts IDLD: IGNOREDEPLOCDEM
D: Dep. Demand DLD: Dep. Locat. Demand IDPD: IGNOREDEPPRODDEM
N: Net Demand TR: Transport Receipts

© 2019 SAP SE. All rights reserved.

Figure 5b: Initial situation: no demand type ignored for static periods of supply#

The dependent demand at DC1 contains two demand types: dependent customer
demand (1 in each period) from customer C1, and dependent location demand from
DC2, 20 pieces in each period.

The difference between the example of figure 5b and 5c is that in 5c the demand
type dependent location demand is ignored during lot size computation. (Master data
attribute IGNOREDEPLOCDEM is set to 1.) To compute the lot size the supply
planning heuristic considers the dependent demand D*, which is an internal key

Page 12
figure and contains only the customer dependent demand, but not the location
dependent demand:

Ignoring Dependent Location Demand

DC1 C1
C1 P1
DCD: 01 01 01 01 01
CD: 01 01 01 01 01 D: 21 21 21 21 21
TC: 01 01 01 01 01 D*: 01 01 01 01 01
CR: 01 01 01 01 01
I: 02 02 02 01 00
N: 23 21 21 20 20
SP: 02 02 02 02 02
S: 21 21 21 21 21
R: 23 21 21 20 20

DC2 C1
LSP: 1
D: 20 20 20 20 20 DLD: 20 20 20 20 20 IDLD: 1
N: 20 20 20 20 20 IDPD: 0
S: 20 20 20 20 20 TR: 20 20 20 20 20
R: 20 20 20 20 20

DCD: Depend. Cust. Demand S: Supply SP: Sub-Periods of Supply LSP: Lot Size Policy
CR: Customer Receipts T: Total Receipts IDLD: IGNOREDEPLOCDEM
D: Dep. Demand DLD: Dep. Locat. Demand IDPD: IGNOREDEPPRODDEM
N: Net Demand TR: Transport Receipts

© 2019 SAP SE. All rights reserved.

Figure 5c: Static Periods of Supply, ignoring dependent location demand.

Analogously, it is possible to let the planning algorithms ignore dependent production

demand for lot size calculations. For the relevant location-products the attribute
IGNOREDEPPRODDEM needs to be set to 1. Default value for both attributes is
zero, which means none of both demand types are ignored.

Ignoring the two demand types mentioned here is available as of IBP 1911.

2.3 Periods of Coverage

This lot size policy can be defined on production or transportation sourcing rule level
(and not as all others on product location level). As this approach is very specific and
complex it will be explained in a separate documentation.

Page 13
2.4 Static Periods of Supply based on Average Demand
This lot size policy is available as of release IBP 1802 and it is considered by the
heuristic of S&OP only, i.e. not by the optimizer.

Static Periods of Supply based on Average Demand (SPoSbAD) works similar as the
lot size policy Static Periods of Supply (SPoS) – see section 2.2.1. Both lot size
policies trigger the heuristic of S&OP to build up inventory to satisfy all periods of the
coverage time span. SPoS builds up inventory in period t which equals the sum of the
dependent and independent demand of the n subsequent periods within the
coverage time span. SPoSbAD, in contrast, builds up inventory in period t to an
amount which is a multiple of the sum of the average dependent and independent
demand of K subsequent periods. So, it first computes the average demand AD of k
subsequent periods. Then the heuristic computes receipts in period t so that the
resulting Projected Inventory is equal to AD * n (periods) plus the defined inventory
target of period t.

Both, n and K are integers and in general, we can assume n, k > 0. Parameter n
again defines the coverage time span and k denotes the number of periods for which
the average demand should be computed.

While computing the required production or transport receipts for a period t according
to SPoSbAD the heuristic considers the inventory target of each period t but not the
inventory target of the periods within the coverage time span.

The underlying assumption of SPoSbAD is that future demands are merely forecasts
and not confirmed sales orders and hence, taking an average demand seems to be
more reasonable for computing a safety stock.

To configure lot size policy SPoSbAD it is required to set for the corresponding
location product the attribute LOTSIZEPOLICY equal to 4 and attribute
PERIODSAVGDEMAND requires an integer value greater than zero which defines k,
i.e. the number of periods for which the average demand is computed.

As for the static and dynamic variant of lot size policy periods of supply one must
specify n, i.e. the length of the coverage time span via key figure
SUBPERIODSOFSUPPLY. In case the coverage time span should cover only
partially a future period, it is required to define the number of sub-periods and to set a
corresponding value in key figure SUBPERIODSOFSUPPLY accordingly, as already
explained in section 2.2.3.

Background:

Page 14
The heuristic achieves to build-up inventory by increasing the “lot for lot-net demand”
(see section 2.2.2) so that the resulting net demand is higher than the supply – in
periods where inventory should be built-up according to the lot size policy. In the
case of SPoSbAD there are two cases to increase the lot for lot-net demand:

a) If key figure SUBPERIODNUM is completely empty (i.e. contains the value

NULL in all periods) then the lot for lot-net demand will be increased in period t
by:
AD(t) * SUBPERIODSOFSUPPLY(t)

b) If key figure SUBPERIODNUM is greater than zero (in period t), then the lot for
lot-net demand of t will be increased in period t by:

AD(t) * SUBPERIODSOFSUPPLY(t) / SUBPERIODNUM(t)

c) If key figure SUBPERIODNUM in period t is equal to zero or NULL then the lot
for lot-net demand of t will not be increased in period t.

Figure 6 shows an example of SPoSbAD for which the average demand is computed
for the next k = 3 subsequent periods and the coverage time span is two periods (key
figure of SUBPERIODSOFSUPPLY is equal to 2 in all periods).

The average demand (AD) of period 1 is:

AD(1) = (20 + 30 + 40) / 3 = 30

Due to the end of the planning horizon in period 7 there are no longer 3 periods
available to compute the average demand with 3 periods. Hence, for period 6 the
average demand is computed only based on the demand of period 7:

AD(6) = 70 / 1

Accordingly, for period 7 the system cannot compute an average demand so that
AD(7) = 0.

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 Example 4: PoS based on Average Demand

DC1 P1

Period 1 2 3 4 5 6 7
D: 10 20 30 40 50 60 70
AD: 30 40 50 60 65 70 0
SN:
PS: 2 2 2 2 2 2 2
I: 20 60 80 100 120 130 140 70
IT: 0 0 0 0 0 0 0
N: 50 40 50 60 60 70 0
R: 50 40 50 60 60 70 0
S: 10 20 30 40 50 60 70

PERIODSAVGDEMAND = 3

D: Dependent Demand R: Total Receipts P: Production

I: Projected Inventory CD: Constrained Demand IT: Inventory Target
N: Net Demand PS: Periods of Supply (SUBPERIODSOFSUPPLY) AD: Average Demand
S: Supply SN: Number of sub-periods (SUBPERIODNUM)

© 2014 SAP AG. All rights reserved. 6

Figure 6: Example of lot size policy Sub-Periods of Supply based on Average

Demand

The lot for lot-net demand of period 1 is 0 as the dependent demand of 10 units can
be satisfied by the stock-on hand of 20 units. We then increase this lot for lot-net
demand by n * AD(1) = 2 * 30 = 60. (The value 2 is derived out of key figure PS =
Periods of Supply which defines the coverage time span.) As we can satisfy 10 units
from stock on-hand the remaining net demand of period 1 is 50.

The remaining projected inventory at the end of period 1 is derived out of the stock
on-hand which we denote as I(0), the Total Receipts and the Supply in period 1:

I(1) = I(0) + R(1) – S(1) = 20 + 50 - 10 = 60

2.5 Target Periods for Customer Demand

This feature is available as of IBP 1902 for the time-series-based supply planning
heuristic and the supply propagation heuristic, but not for the time-series-based shelf
life planning heuristic and the time-series-based supply planning optimizer.

The static periods of supply lot size policy has a disadvantage in multi-level supply
chains if applied on all levels: Customer demands, either defined in key figure

Page 16
Customer Demand or in key figure Independent Demand, are considered at the
customer facing distribution centers to build up safety stocks. The net demand of
these customer facing distribution centers then is propagated by the time-series-
based supply planning heuristics to the next inventory level, i.e. to the next level
distribution centers or manufacturing plants. If there again this lot size policy is
applied, the incoming demand again leads to higher safety stocks. Hence, each
customer demand leads to a safety stock at each level of the supply chain. Via key
figure “Target Periods for Customer Demands” (technical name:
TARGETPERIODCUSTDEMAND) the heuristics will consider only direct customer
demands, i.e. dependent customer demands or independent demands, to build-up
safety stocks. Dependent demand caused by another location, via key figure
Dependent Location Demand and dependent demand caused by a Production
Source via key figure Dependent Production Demand is ignored.

The safety stock computation based on key figure “Target Periods for Customer
Demands” is quite similar to the Lot Size Policy 1 (i.e. static periods of supply). The
main difference is, as explained, that only dependent customer demands are
considered. Both lot size strategies increase, in each period, the user defined
inventory target by the sum of the demands of the n subsequent periods, i.e. of the
coverage time span. The supply planning heuristics then try to fulfill this increased
inventory target resulting in excessive inventory which is the intended safety stock.

It is recommended to combine the usage of key figure “Target Periods for Customer
Demands” only with Lot Size Policy 0, which is the lot-for-lot strategy. If it is combined
with another lot size policy, customer demands are considered twice to compute
safety stocks: once by the “Target Periods of Customer Demands” strategy and once
more by the configured lot size policy. Consequently, the resulting safety stocks are,
in general, too high.

Figure 7 shows an example of lot size policy “Target Periods of Customer Demand”.
As in this example the distribution center DC1 receives only customer dependent
demand and no location dependent demand the result is the same as for lot size
policy static periods of supply (except for the numbers in period 4 as the inventory
target is considered differently, as we will explain below).

In contrast to static periods of supply the user must specify the number of future
periods to be covered in key figure TARGETPERIODCUSTDEMAND (shown as TP
in figure 7), instead of key figure SUBPERIODSOFSUPPLY (shown as PS). As TP is
set to two in each period the dependent customer demand of each two subsequent
periods should be covered by the resulting projected inventory.

In period 1, the dependent customer demand as part of the dependent demand is 10

pieces. Inventory Target (IT) also is 10 pieces. The sum of the dependent customer
demands of the next two periods, i.e. periods 2 and 3 is 20, shown in key figure
Dynamic Inventory Target, technical name is INVENTORYTARGETDYNAMIC, short

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cut in figure 7 is ITD and its planning level is product-location. The increased
inventory target (IT*) now contains the sum of the user specified inventory target and
the value in row ITD. (Note: IT* and ITD are no real key figures. Both are used here
merely for an easier explanation of the computations.) Key figure Net Demand (N)
covers both, the direct dependent demand plus the increased inventory target which
is 10 + 30 = 40 (as there is not initial inventory).

The inventory target of subsequent periods does not impact the safety stock
computation which is different for lot size policies periods of supply, as explained in
section 2.2.4. This can be seen in figure 7, as the inventory target of period 4 has no
impact on the “increased inventory target” of periods 1, 2 and 3.

Target Periods for Customer Demands: Example 1

DC1 P1
D: 10 10 10 10
IT: 10 10 10 40
ITD: 20 20 10 00
C1 P1 IT*: 30 30 20 40
I: 30 30 20 40
CD: 10 10 10 10
PS:
TCR: 10 10 10 10
PN:
TP: 02 02 02 02
N: 40 10 00 30
S: 10 10 10 10
R: 40 10 00 30

D: Dependent Demand TCR: Total Customer Receipts IT: Inventory Target (INVENTORYTARGET)
I: Projected Inventory PS: Periods of Supply (SUBPERIODSOFSUPPLY) ITD: Inventory Target Cust. Demand
N: Net Demand PN: Number of sub-periods (SUBPERIODNUM) IT*: Increased Inventory Target
S: Supply TP: Target Periods Customer Demand
CD: Customer Demand
© 2018 SAP AG. All rights reserved.

Figure 7: Target Periods of Customer Demand: Example 1

Figure 8 illustrates a more complex example in which distribution center DC1

receives (in period 1) 10 pieces of customer dependent demand (from customer C1)
and 30 pieces as a dependent location demand (from DC2) so that the resulting
dependent demand is 40. Inventory target is set to 10 in period 1.

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In this example key figure Number of Sub-Periods, technical name is
SUBPERIODNUM, (PN) is used to specify that each planning period has 30 sub-
periods. If this key figure contains values, you specify in key figure Target Periods of
Customer Demands (TP) the number of subsequent sub-periods to be covered by
the safety stock. This functionality works in the same way as in conjunction with
periods of supply and as explained in section 2.2.3. In figure 8, key figure Target
Periods of Customer Demands stores in each period the value 15. Together with 30
sub-periods this means that the safety stock, which is the resulting projected
inventory should cover 15/30 = 50% of the direct customer demand of the
subsequent planning period. So, in period 1 the projected inventory should cover
50% of 10 pieces which is the dependent customer demand in period 2. As the
inventory target is set to 10, the net demand is equal to 40 + 10 + 5 = 55 which is the
sum of the dependent demand of period 1, the inventory target of period 1 and 50%
of the direct customer demand of period 2.

Target Periods for Customer Demands: Example 2

DC1 P1
D: 40 10 10 30
IT: 10 10 10 10
C1 P1 ITD: 05 05 10 00
IT*: 15 15 20 10
CD: 10 10 10 20 I: 15 15 20 10
TCR: 10 10 10 20 PN: 30 30 30 30
TP: 15 15 15 15
N: 55 10 15 20
S: 40 10 10 30
R: 55 10 15 20

DC2 P1
D: 30 00 00 10
N: 30 00 00 10
S: 30 00 00 10
R: 30 00 00 10

D: Dependent Demand TCR: Total Customer Receipts IT: Inventory Target (INVENTORYTARGET)
I: Projected Inventory PS: Periods of Supply (SUBPERIODSOFSUPPLY) ITD: Inventory Target Cust. Demand
N: Net Demand PN: Number of sub-periods (SUBPERIODNUM) IT*: Increased Inventory Target
S: Supply TP: Target Periods Customer Demand
CD: Customer Demand
© 2018 SAP AG. All rights reserved.

Figure 8: Target Periods of Customer Demand: Example 2

2.6 Dynamic Periods of Supply with Safety Stock (DPoSwS)

The lot size policy dynamic periods of supply with safety stock (DPoSwS) is a variant
of the lot size policy dynamic periods of supply (see section 2.2.2.). In addition to that

Page 19
lot size policy a second coverage time span can be defined for which safety stock will
be built-up. (The term coverage time span is defined in section 2.2 of this document.)

DPoSwS is available as of IBP 1902 for the time-series-based supply planning

heuristic, the supply propagation heuristic, but not for the optimizer and not for the
supply propagation heuristic.

Figure 9 illustrates how DPoSwS builds up inventory for an example of one location-
product and for six planning periods which are months. For simplicity, key figures
Dependent Demand (D) is 100 and Inventory Target (IT) is 50 in each period. Key
figures SUBPERIODNUM (SN) is 30, meaning that each planning period has 30 sub-
periods. Key figure SUBPERIODSOFSUPPLY is set to 60 which means that the
Projected Inventory of each period should cover (at least) the dependent demand of
the next 60 sub-periods, i.e. the next two months – according to the procedure
explained below. Key figure Sub-periods of Supply with Safety Stock (technical
name: SUBPERIODSOFSUPPLYSAFESTOCK, planning level: product-location) is
set to 30 sub-periods.

Dynamic Periods of Supply with Safety Stock

DC1 P1

D: 100 100 100 100 100 100

IT: 50 50 50 50 50 50
IT**: 100 100 100 100 100 50
SN: 30 30 30 30 30 30
PS: 60 60 60 60 60 60
PSS: 30 30 30 30 30 30
N: 400 0 0 250 0 0
S: 100 100 100 100 100 100
R: 400 0 0 250 0 0
I: 300 200 100 250 150 50

D: Dependent Demand SN: Number of sub-periods (SUBPERIODNUM) IT: Inventory Target (INVENTORYTARGET)
I: Projected Inventory PS: Sub-periods of Supply (SUBPERIODSOFSUPPLY) IT**: Increased Inventory Target
N: Net Demand PSS: Sub-periods of Supply with Safety Stock
S: Supply (SUBPERIODSOFSUPPLYSAFESTOCK)
R: Receipts
© 2018 SAP AG. All rights reserved.

Figure 9: Example of Dynamic Periods of Supply with Safety Stock

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For lot size policy DPoSwS the S&OP heuristics first compute for each period t an
increased Inventory Target IT** (shown in grey in figure 9) which is the maximum of
the inventory target of week t and the sum of the dependent demands within the
coverage time span, i.e. the subsequent n periods of t (if n periods is the length of the
coverage time span). In the example of figure 9, the coverage time span for this step
is defined by key figure Sub-periods of Supply with Safety Stock (PSS). As the value
of this key figure is 30 (sub-periods = days) the coverage time span is one planning
period, i.e. one month. For that reason, IT** is the maximum of 50 (i.e. the inventory
target) and 100 (which is the dependent demand within the coverage time span), so
that IT** is 100 in period 1 through 5. (Due to the horizon end it has a different value
in the last period). Now, the dynamic periods of supply logic (see section 2.2.2) is
applied but based on the increased inventory target IT** and not, as explained in
section 2.2.4 (for static periods of supply), based on input key figure Inventory Target
(IT).

As a result, the net demands are increased so the resulting projected inventories
cover the dependent demands within the coverage time span and so that they cover
in each period of the coverage time span the increased inventory target. For the
example in figure 9, this means that the projected inventory of period 1 should cover
the sum of the dependent demands of periods 2 and 3, i.e. 200 pieces and it should
cover the increased inventory target (IT**) in each period of the coverage time span
(which is 2 month). We see, in figure 9, that all of these conditions are fulfilled, as the
projected inventory in period 1 is greater than

- the dependent demand plus the increased inventory target of period 1 and

- the sum of the dependent demands of periods 1 and 2 plus the increased inventory
target of period 2 and

- the sum of the dependent demands of periods 1, 2 and 3 plus the increased
inventory target of period 3.

In order to fulfill these conditions, the net demand and hence the receipts of period 1
are increased accordingly by the heuristics. These conditions are to be fulfilled only if
the lot for lot-net demand (see section 2.2.2) is greater than zero, which is a central
characteristic of the dynamic periods of supply lot size policy.

The lot size policy dynamic periods of supply with safety stock follows somehow the
objectives of both, the static and the dynamic periods of supply policies. As dynamic
periods of supply it minimizes the number of production or transportation events as is
planes production and transport receipts only in periods with a demand. And as the
static periods of supply policy it builds up safety stock in each period.

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3. Lot Size Parameters
Lot size parameters impact the quantity of lots, to be more precise, of the
transportation or production quantities per period and per sourcing rule. Whereas the
lot size policy determines if and how the demand of several periods should be
bundled, the lot size parameters determine the range in which a lot size can be
chosen. It is important to know that lot size policy is defined on location product level
and therefore impacts the production or transport receipts on location product level.
The lot size parameters, in contrast, are defined on sourcing rule level and hence
impact the lot quantities along each production and transport source of supply. (For
external sources of supply lot size parameters are not available.)

3.1 Minimum Lot Size

A minimum lot size can be defined if the transport or production quantity of each
period of the planning horizon has to be either zero or equal to or greater than a
given minimum. Usually contractual, technical or economical reasons are enforcing
such a constraint.

This means, if there is a minimum lot size defined the SCM planning operator either
plans no transport or production event or the resulting transport or production
receipts will be equal or greater than the defined minimum lot size.

Both, heuristic and optimizer take into account minimum lot sizes.

3.2 Maximum Lot Size

The maximum lot size limits the transport and production quantities in each period.
This lot size parameter can be defined for transportation and production sourcing
rules (as minimum lot size). If a maximum lot size is defined the transport or
production receipts are equal to or smaller than the specified value.

Only the optimizer, but not the heuristic, takes maximum lot sizes into account.

3.3 Rounding Values

As of SAP Integrated Business Planning 4.0 Feature Pack 2 Patch 2, rounding
values as another lot size parameter is available for customer, production and
transportation sources of supply. However, rounding values are respected by the
SCM heuristic only, not be the optimizer. It is planned to extend the optimizer’s
capabilities by rounding values with a future release or feature pack of IBP. But, it is
important to know, that rounding values will have a significant negative impact on the
optimizer’s runtime.

The parameter rounding value can be used to plan customer, transportation and
production receipts only in multiples of a user-defined increment, called rounding
value. This parameter is to be set in the master data, i.e. via an attribute of the
transportation and production sourcing rule.

Page 22
For example, you could set the rounding value to 20 units in the production sourcing
rule. The IBP supply planning operator then will compute production receipts which
are equal to zero or equal to a multiple of 20, i.e. 20 or 40 or 60 etc. – depending on
the production demand. In case a production demand is 61 units, the resulting
production receipts will be 80 if the heuristic is used and it could be zero, 20, 40, 60
or 80 (but not more) – depending on available capacities and other constraints - if the
optimizer is used.

You can combine rounding values with a minimum lot size. If, for example, the
minimum lot size (of a production sourcing rule) is set to 100 and the corresponding
rounding value is 20, the heuristic will plan production receipts of 100 or 120 or 140
and so forth, depending on the production demand in the considered period.

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