Key Planning Strategies in SAP S/4HANA: Long-, Mid-, and Short-Term Approaches

Effective production planning is essential for balancing supply and demand, optimizing inventory, and meeting customer expectations.

Usually, organizations do their planning with a time horizon in mind. Long-term planning takes into account business development strategy, marketing, and long-term product strategies. Mid-term planning is about executing these strategies based on the long-term planning forecast.

SAP Integrated Business Planning (SAP IBP) is used for long-term and mid-term planning if your supply chain planning strategy is implemented outside the SAP S/4HANA instance.

Short-term planning is started by MRP in SAP S/4HANA. If required, capacity requirement planning (CRP) and production planning/detailed scheduling (PP/DS) is used to further break down the MRP output into more detailed operations in SAP S/4HANA's logistics capabilities. Eventually, a manufacturing execution system (MES) is used to execute, monitor, and confirm the production. This post focuses on the MRP part of the planning, as it has the strongest impact on inventory management.

This figure summarizes the interplay between the different planning horizons.

• Long-term planning: Falling under sales and operation planning, long-term planning can be done using SAP IBP or legacy software. The output of long-term planning feeds the mid-term planning.
• Mid-term planning: Also falling under sales and operation planning, mid-term planning can be fulfilled by sales and operation planning, SAP IBP, predictive MRP, or legacy software.
• Short-term planning: Short-term planning is executed by MRP, CRP, PP/DS, and production execution. 

Note: You can feed PIRs as results of a legacy-based planning process into SAP S/4HANA with the appropriate interface.

We’ll walk through the key planning strategies in the following sections.

Production Planning Strategies in SAP S/4HANA

When it comes to inventory management, there are several production planning strategies to choose from. The main strategies are as follows:

• Make to stock (MTS): The output of the production process is stocked because it’s not linked to a concrete customer requirement. Therefore, planning is often done based on forecasts.
• Assemble to order (ATO): The output of the production process with a low vertical integration is linked to a customer requirement based on a limited subset of product variants.
• Make to order (MTO): The output of the production process with a high vertical integration is linked to a customer requirement based on various product variants.
• Engineer to order (ETO): The output of the production process with a high vertical integration is engineered according to an individual single customer requirement.

This figure shows the key factors influencing your production planning strategy and hence also your inventory situation.

The listed planning strategies are closely linked to the following factors:

• Production variants: How many different variants of one product do you plan to offer to your customers?
• Production volume: How many finished products do you plan to sell in the market?
• Value per product: How much value do you generate with each product?
• Production trigger: What business model are you using to sell your product to the market?

In addition to your go-to-market strategy, another factor that influences your production planning strategy is the service-level agreement (SLA) you offer to your customers or, in other words, the market lead time of your finished goods.

The next figure explains how the total production lead time is calculated by the maximum replenishment lead time within all components, plus the production time of the finished good. If total production lead time is greater than the SLA (i.e., market lead time), you’ll opt for an MTS planning strategy or risk your SLA. If the total production lead time is shorter than your SLA, you have the choice to plan with MTS or MTO/ATO strategies.

The figure also outlines that the planning strategies within the supply chain of one finished good might vary. As shown, one option to shorten the total production lead time and increase the SLA is to stock semi-finished goods within the supply chain (SA3 above), which are on the critical path. Hence, you decouple the production of finished goods from the availability of M3.

The production planning strategies outlined so far exist in theory. In real life, however, you’ll often plan with a combination of different planning strategies:

• For example, if you would like to boost your market share with a special promotional variant of your original product, you’ll plan this with an MTS strategy.
• If you have a complex supply chain network, you can plan the finished product with MTO, but some components used in several product variants are planned with MTS.
• Consumer behavior may influence planning strategies. For example, some customers want to configure their desired car individually with the help of configurations tools, resulting in an MTO planning strategy. Others simply buy the car model displayed in the car shop “off the shelf,” which is planned according to an MTS strategy.

In fact, SAP S/4HANA supports these hybrid scenarios as you can plan each material with a different planning strategy. SAP S/4HANA explicitly supports the idea of demand-driven replenishment as a special kind of hybrid planning strategy with an intelligent automation-based decoupling strategy.

Discrete versus Process Manufacturing

SAP S/4HANA distinguishes between discrete and process industries in production planning. Discrete manufacturing is the production of distinct items (automobiles, smartphones, etc.), whereas process manufacturing yields undifferentiated products (chemicals, food, oil, etc.). Some of the differences are mainly in terminology. Naturally, some differences reside in the configuration, and some differences are in the created documents; for example, each planned order can be converted into a production order or a process order.

Demand-Driven versus Plan-Driven Planning

Demand-driven planning implies there is a concrete product demand out of the sales process that triggers the manufacturing process. In SAP S/4HANA, this is, for example, a sales order item on the finished good level (i.e., primary demand). Planning of a sales order item may result in dependent requirements (i.e., secondary demand), which are needed to assemble the finished product (see figure below).

Sales orders can be created in SAP S/4HANA automatically by the sales process, or the demand can be entered manually.

Plan-driven planning, on the other hand, implies that the manufacturing process is triggered based on a previously created plan. This plan is created based on calculated forecasts, and its creation normally follows three general steps, as shown in this figure.

1. Forecast is collected for a defined time frame on an abstract level based on a previously agreed algorithm.
2. Forecast is distributed based on an applicable formula between products and production intervals.
3. Planned primary demands are converted into PIRs per production interval.

If desired, the SAP S/4HANA system can be configured so that the forecast in a given time period is matched against incoming sales orders. Thus, the forecast consumption can be monitored. If there is a surplus at the end of the time period, the forecast was too high (example in the figure below); if there is a negative difference, the forecast was too low.

SAP S/4HANA offers several functionalities, such as sales and operations planning, to generate input for plan-driven manufacturing and to monitor and adjust the execution of such plans.

Conclusion

Strategic, tactical, and operational planning are all essential components of a well-run production process in SAP S/4HANA. By combining long-term forecasting through SAP IBP, short-term execution with MRP and CRP, and hybrid demand-driven methods, businesses can align production with market realities. Choosing the right mix of planning strategies ensures not only efficient manufacturing but also consistent delivery performance and stronger customer satisfaction.

Editor’s note: This post has been adapted from a section of the book Inventory Management with SAP S/4HANA by Bernd Roedel and Johannes Esser. Bernd is chief development architect within a central architecture team in the area of supply chain management (SCM) core logistics, where he has supported SAP S/4HANA development for the last ten years.  Johannes joined SAP in 2002 and is a development manager in SAP development and a certified Scrum master.

This post was originally published 10/2025.