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280 CHAPTER 8 The Material Planning Process

it would use MTO for these products. The bikes would not be produced until
the order was received.
A variation of the MTO strategy is assemble-to-order (ATO), in which
an inventory of components (semifi nished goods) needed to make the fi n-
ished good is procured or produced to stock. The production of the fi nished
goods is triggered by a sales order and therefore uses an MTO strategy. ATO
is commonly employed in an environment in which there are a large number of
possible confi gurations of end items. For example, different computer confi gu-
rations are possible using a number of different options for monitors, storage
devices, and memory. A sales order for the fi nished product can usually be
fi lled quickly because only the fi nal assembly has to be executed. (The compo-
nents are already in stock.) In SAP ERP, the ATO strategy is also referred to
as planning without fi nal assembly (strategy 50) or subassembly planning.
Variations of both the pure MTO and MTS strategies offer more fl exibility in
meeting customer requirements.

Consumption Mode
A key point that emerges from the discussion of strategy groups is that the
manner in which PIRs (planned independent requirements) and CIRs (actual
customer orders) interact is determined by the planning strategy. On the one
hand, in a MTS strategy such as net requirements planning, CIRs and PIRs
are independent of each other, and procurement proposals generated by the
material planning process are based only on PIRs. CIRs are fulfi lled entirely
from existing stock. On the other hand, under the planning with fi nal assem-
bly approach, procurement proposals take into account both PIRs and CIRs.
However, procurement proposals are not created by simply adding the PIR
and CIR quantities. This is because the PIRs are created in anticipation of
customer orders, and CIRs are expected to consume the PIRs. In other words,
sales orders are expected to be fi lled from the planned requirements. When
a CIR consumes PIRs, it reduces the quantity of PIRs by the quantity of the
CIR. This process is called consumption.
Table 8-1 illustrates consumption under the planning with fi nal assembly
strategy. In Example 1 a PIR of 50 exists when a CIR of 60 is created. Because
the CIR is greater than the PIR, the entire PIR is consumed. Therefore, after
consumption the PIR quantity is zero. The planning process will create a pro-
curement proposal for the CIR quantity of 60 units. In Example 2 a PIR of 50
exists when a CIR of 40 is created. After consumption, 10 of the original 50 in
the PIR remain. The planning process will create two procurement proposals:
one for the PIR quantity of 10 units and one for the CIR quantity of 40 units.

Before Consumption After Consumption
PIR CIR PIR CIR

Example 1 50 60 0 60
Example 2 50 40 10 40

Table 8-1: Consumption example

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