Lot Size Policies and Lot Size Parameters

in IBP Supply Planning

October 30th , 2015

1. Introduction
Via the IBP supply planning lot size policy the user controls if and how dependent
demands of several subsequent periods are bundled and satisfied by one
transportation or production receipts. In order to minimize or to limit the number of
transports and production events a lot size policy enforces the system to produce or
transport the demands of the current and n subsequent periods already in the current
period. The intention is to satisfy the demand of the current and of n subsequent
periods with the inventory built in the current period so that the next production event
or transport has to 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 IBP supply planning. Lot size parameters determine the 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 has to be a multiple of a given
increment (rounding value). Lot size parameters are defined on the 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 a
transportation or production or on any other 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 period production / 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 production level via attribute LOTSIZEPOLICY.
The following values of this attribute define the following lot size policies:
0 => lot for lot (see section 2.1)
Page 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)

2.1 Lot for Lot

The default lot size policy is lot for lot which means that the heuristic of IBP Supply
does not bundle demands of subsequent periods. The demand of each period is
satisfied by a receipt in each period. This lot size policy has no impact on the
optimizer as it computes lot sizes according to minimal costs which means that if
costs a lower the optimizer might decide to bundle the demand of subsequent weeks,
for instance in order to safe inventory holdings 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
demand or the production demand of the current and n subsequent periods into one
transport or production receipts which is planned for the current period. Inventory is
built up to cover the demand of the current and the n subsequent periods. The
current and the n subsequent periods are called in the sequel coverage time span.
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 to build up in each period a
projected inventory which covers the demand of n subsequent periods where n is
derived out 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 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.

Page 2

Example 1: Static Periods of Supply

DC1 P1

Lot for Lot:

D:
PS:
I:
N:
R:
S:

00
00
00
00

00
10
10
10

Static Periods
of Supply:

D:
PS:
I:
N:
R:
S:

00
02
20
20
20
00

10
02
10
00
00
10

Static Periods
of Supply:

D:
PS:
I:
N:
R:
S:

00
02
20
20
20
00

10 10 00
02
10 00 10
00 00 10
00 00 10
10 10 00

DC1 P1 S1

00 10 10 00 00 10 10 10
00
10
10
10

00
00
00
00

00
00
00
00

00
10
10
10

00
10
10
10

00
10
10
10

00
02
20
10
10
00

10
02
20
10
10
10

10
02
10
00
00
10

10
02
00
00
00
10

00 10 10
02
10 00 10
00 00 20
00 00 20
00 10 10

10

100%

P:

DC1 P1
10
02
00
00
00
10

00
02
10
10
10
00

DC1 P1 S1
100%

P:

DC1 P1

D:
I:
N:
S:

Dependent Demand
Projected Inventory
Net Demand
Supply

00
00
00
10

00 10 10 00 00 10 10 10

20 00 00 10 10 10 00 00

DC1 P1 S1
100%

R:
Total Receipts
CD: Constrained Demand
PS: Periods of Supply (SUBPERIODSOFSUPPLY)
SN: Number of sub-periods (SUBPERIODNUM)

P:

20 00 00 10 00 00 20 00

P: Production
IT: Inventory Target

2014 SAP AG. All rights reserved.

Figure 1: Static periods of supply

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 the current
period and the next two periods. For that reason the projected inventory of period 1
covers the demand of 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
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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
inventory which depends on the dependent demand of n subsequent periods. The
inventory should be high enough to cover the dependent 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 demand of future periods. Compared to
the Periods of Demand approach the disadvantages of inventory target are:
(i) if the sub-sequent periods do have no demand or less than expected the safety
stock would 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.

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 demand of the current period and n subsequent periods. In
other words, the projected inventory of a period has to 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
dependent demand plus the inventory target is greater than the projected stock of the
previous period, i.e. in periods where the stock-on hand does not cover the entire
demand and hence where receipts are required to satisfy the demand of the current
period. The dynamic variant therefore avoids planning a production event in periods
with no net demand. 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
Page 4

policy. Again, via input key figure PS (SUBPERIODSOFSUPPLY) the user has
specified that the projected inventory should cover the demand of the next two
periods, however, this condition should be fulfilled only for periods in which receipts
are required to satisfy its dependent demand. For that reason, the projected inventory
of period 1 is zero (in period 1 there is no dependent demand at all). The same holds
for periods 4 and 5.

Example 1: Dynamic Periods of Supply

DC1 P1
DC1 P1 S1

Lot for Lot:

D:
PS:
I:
N:
R:
S:

00 10 10 00 00 10 10 10
00
00
00
00

00
10
10
10

00
10
10
10

00
00
00
00

00
00
00
00

00
10
10
10

00
10
10
10

00
10
10
10

00
02
00
00
00
00

10
02
20
30
30
10

10
02
10
00
00
10

10
02
00
00
00
10

100%

P:

DC1 P1

Dynamic Periods
of Supply:

D:
I:
N:
S:

Dependent Demand
Projected Inventory
Net Demand
Supply

D:
PS:
I:
N:
R:
S:

00
02
00
00
00
00

10
02
10
20
20
10

10
02
00
00
00
10

00
02
00
00
00
00

00 10 10 00 00 10 10 10

DC1 P1 S1
100%

R:
Total Receipts
CD: Constrained Demand
PS: Periods of Supply (SUBPERIODSOFSUPPLY)
SN: Number of sub-periods (SUBPERIODNUM)

P:

00 20 00 00 00 30 00 00

P: Production
IT: Inventory Target

2014 SAP AG. All rights reserved.

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
Page 5

the current and n subsequent periods, in order to avoid the need to produce or
transport the same product in too many periods again and again.
Only the heuristic of IBP supply planning considers the dynamic periods of supply
policy explicitly. The optimizer, in contrast, minimizes the sum of set up and inventory
holding costs to find a cost optimal plan with a reasonable number of lots.

2.2.3 Partial Coverage of Sub-sequent Periods

For both lot size policies, static and dynamic periods of supply it is possible to
configure the system so that the dependent demand of a future period is only
covered partially by stock which is built up in the current period. To do so, the user
has to 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 period 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 subperiods. 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. 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.

Page 6

Example 1: Dynamic PoS with Sub-Periods

DC1 P1
D:
SN:
PS:
I:
N:
R:
S:

D:
I:
N:
S:

00
30
15
00
00
00
00

10
30
15
05
15
15
10

Dependent Demand
Projected Inventory
Net Demand
Supply

10
30
30
00
05
05
10

00
30
30
00
00
00
00

00
30
30
00
00
00
00

10
30
45
15
25
25
10

10
30
30
05
00
00
10

10
30
30
00
05
05
10

DC1 P1 S1
100%

P:

00 15 05 00 00 25 00 05

R:
Total Receipts
CD: Constrained Demand
PS: Periods of Supply (SUBPERIODSOFSUPPLY)
SN: Number of sub-periods (SUBPERIODNUM)

P: Production
IT: Inventory Target

2014 SAP AG. All rights reserved.

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 Receipts are greater than zero which is not the case for any of
these three periods.
For period 6 the heuristic had to plan Receipts 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 the feature Periods of Supply is used together with Inventory Target the system has
to take into account Dependent 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 Figure 4, computed by the heuristic, shows
an example for one location product and six periods. The Dependent Demand is 10
Page 7

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 includes this period itself, i.e. the
current (planning) period and the sub-sequent planning periods which should be
covered by the Projected Stock of the current period. In the example of Figure 4 the
coverage time span of all periods has the same lengths of three (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. So, the coverage time span (of each
period) includes the current period and the next two periods. 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 Stock of the previous period) the
-

Dependent Demand of the current period and

Dependent Demand of all sub-sequent periods of the coverage time span 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
D:
10
SN:
30
PS:
60
I:
60
IT:
20
N:
70
R:
70
S:
10

D:
I:
N:
S:

Dependent Demand
Projected Inventory
Net Demand
Supply

2
10
30
60
50
20
00
00
10

3
10
30
60
40
40
00
00
10

4
10
30
60
40
20
10
10
10

5
10
30
60
30
20
00
00
10

6
10
30
60
20
20
00
00
10

R:
Total Receipts
CD: Constrained Demand
PS: Periods of Supply (SUBPERIODSOFSUPPLY)
SN: Number of sub-periods (SUBPERIODNUM)

P: Production
IT: Inventory Target

2014 SAP AG. All rights reserved.

Figure 4: Static Periods of Supply with Inventory Target

Page 8

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 Stock in each period of the coverage
time span is met which means that the Projected Stock 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 Stock 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 Stock 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
current period, the entire 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
1 and 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 have to be fulfilled.)

Page 9

Example 3: Static PoS with Inventory Target

DC1 P1
Period 1
D:
10
SN:
30
PS:
45
I:
35
IT:
20
N:
45
R:
45
S:
10

D:
I:
N:
S:

Dependent Demand
Projected Inventory
Net Demand
Supply

2
10
30
45
55
20
30
30
10

3
10
30
45
45
40
00
00
10

4
10
30
45
35
20
00
00
10

5
10
30
45
30
20
05
05
10

6
10
30
45
20
20
00
00
10

R:
Total Receipts
CD: Constrained Demand
PS: Periods of Supply (SUBPERIODSOFSUPPLY)
SN: Number of sub-periods (SUBPERIODNUM)

P: Production
IT: Inventory Target

2014 SAP AG. All rights reserved.

Figure 5: Static PoS with Inventory Target and partial coverage time span

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.

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.)
Page 10

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 optimizers
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
optimizers 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.
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
Page 11

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.

Page 12