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How does SAP MM quota arrangement prevent supply chain disruption?

Quota arrangement in SAP MM enables materials planners to efficiently manage a material's uninterrupted supply from multiple suppliers.

At some point in time, a materials planner might face a nightmarish situation where one or more suppliers is unable...

to meet a company's materials demand, which could lead to significant production slowdown or a complete stoppage. To avoid this problem, a materials planner must diversify material supply sources by bringing more suppliers on board. Quota Arrangement, a planner-defined division or split of total required material quantity, greatly helps to distribute total material requirements among multiple suppliers.

A materials planner can use this feature of the SAP Materials Management (MM) module to set a quota arrangement for in-house production as well as for external procurement. Let's look at both options.

Quota arrangement in procurement

In the SAP MM procurement process, a materials planner assigns a percentage (quota) of the total required material quantity to each supplier. For example, a company might need 1,400 pounds of orange juice a month, but a supplier can deliver only 1,000 pounds. Using two different suppliers, the materials planner sets a 60% and 40% quota split; the system will allocate 840 pounds to the first supplier and 560 pounds to the second supplier.

A materials planner also can enter the base quantity the system must consider before splitting a material's total requirement among multiple suppliers. A base quantity is the minimum quantity the system considers before it activates a quota arrangement setting. In this example, if the planner enters a base quantity of 1,000 pounds, the system will allocate 1,000 pounds to the first supplier before allocating the remaining 400 pounds to the second supplier. If, for example, the second supplier requires a minimum order quantity, such as 500 pounds, the materials planner can maintain this information in the quota arrangement, and the second supplier will receive a purchase order for 500 pounds instead of 400 pounds.

Quota arrangement in production

Similar to the procurement example, quota arrangement in production lets a materials planner split the total production quantity of a material into various production or manufacturing units. All quota arrangement functions of production are the same as they are for procurement; the only difference is that a supplier's quota split is replaced with manufacturing units.

Quota arrangement integrates with material requirements planning, or MRP, a system that materials planners frequently use to plan which material and how much of it to procure or produce to ensure smooth and uninterrupted supply chain operations.

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This was last published in November 2014

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