The Material

Requirements Planning
Process
What is MRP?
 MRP answers the following questions:
 What materials are required?
 How many of the materials are required?
 When are the materials required?
A Few Key Terms
 PIR – Planned Independent Requirements
 Forecasts based on actual and forecasted sales
 CIR – Customer Independent Requirements
 Forecasts based on actual customer sales
 Usually derived from sales orders
 Dependent Requirement – A dependent item
(such as assembly or raw material)
 Independent Requirement – Not dependent
on another material
MRP AND Production
MRP Process Flowchart
MRP Problems (1)
 Too much inventory
 Materials in stock that we cannot sell
 Raw materials that we no longer need in the
manufacturing process
 Materials that have lost significant value
 Expired materials
MRP Problems (2)
 Too little inventory
 Out of stock conditions
 Backorder conditions
Cisco Case
 Purchased extra parts
 Did not accurately estimate demand
 Did not forecast demand drop-off
 Cisco wrote off $2.5 billion in inventory in
2001
MRP Data Dependencies
 Materials (Material masters)
 Vendors (for acquisition)
 Production (for estimates)
 Warehouse (to get raw materials and store
finished goods)
Production Planning Process
(Overview)
SIS Forecasting CO/PA

Sales & Operations

Planning
Strategic Planning

Demand
Management
Detailed Planning
MPS

MRP

Manufacturing Procurement
Execution Process
Order
Settlement
What Causes an MRP
 Sales and operations planning estimates
materials (finished goods) requirements
 Sales quotation / orders
 Demand management calculates the required
raw materials to produce the finished goods
 Final production proposals are generated
which trigger production
MRP Master Data
 Bill of material is used to determine raw
materials
 Product routings are used to estimate
production time
 Material Master have various views that
control the MRP process
MRP (SAP)
 Remember that we have four MRP views of a
material
 Discussed in the next screens
 MRP is defined at the plant level as expected
 We can subdivide into MRP areas
 MRP is relevant to both discrete, repetitive,
and process manufacturing
MRP vs MPS
 Master Production Scheduling
 One level of a material’s BOM is used to calculate
material requirements
 It’s a high level analysis
 Material Requirements Planning
 Run after MPS to determine detailed
requirements
 It’s time phased (recommendations to
reschedule open orders)
 Considers dependent requirements
 Assemblies (semi-finished goods)
MRP (Types of Planning)
 Consumption-based relies on historical
consumption data
 Reorder point planning
 See figures 8.3 and 8.4
 Forecast-based planning uses historical data and
forecasted estimates
 Time-phased planning is used when materials
arrive on specific days of the week
MRP Reorder Point Planning
Reorder Point Planning
(Details)
 When material is withdrawn, the reorder level
is checked
 Net requirements are then calculated
 Available stock + firmed receipts (purchase
orders, production orders)
 If a shortage exists, calculate the
procurement quantity according to material
master lot sizing procedure
 Procurement is then scheduled
MRP (Types of Planning –
Illustration)
Material Master (MRP Tabs)
 MRP1 – Overall strategy
 MRP2 – Scheduling
 MRP3 – Material availability
 MRP4 – BOM Selection
MRP 1 (MRP Procedure)
 MRP type
 Forecast-based planning, time-phase planning,
etc.
 Reorder Point is only used only with reorder
point planning
 Planning time fence - Number of days before
procurement that planning (automated
procurement) is frozen
 Only applies to MRPs with “firming types”
MRP 1 (Lot Size Data)
 Lot size – The procedure used to determine
the lot size (quantity produced)
 Static lot-sizing
 Fixed lot size (predetermined value)
 Lot-for-lot (exact quantity required)
 Period lot-sizing (combine requirements for
multiple time periods)
 Optimum lot-sizing (takes into account
economic order quantity and economic
production quantity)
MRP 1 (Lot Size Data)
 Minimum and Maximum Lot size contains the
min and max amounts that can be made
during a production run
 Ordering costs are used in optimum lot sizing
procedures
 Rounding profiles used to round the lot size
to a “deliverable quantity)
MRP 1 (Illustration)
MRP 2 (Procurement)
 Procurement type
 In-house production
 External
 In-house production time
 This comes from production
 It can be derived from product routing
MRP 2 (Scheduling)
 In-house production time
 Only used when we are producing goods “in-
house”
 This comes from production
 Planned delivery time is only used when
material is procured externally
 GR (Goods receipt) processing time
MRP 2 (Net Requirements)
 Safety stock
 Desired
 Minimum
 Safety time ind. is used to enable safety stock
calculations
MRP 2
MRP 3
(Forecast Requirements)
 Period Indicator
 Time period for which planning takes place
(M=Monthly, W=Weekly, etc…)
 Fiscal Variant
 Use to describe how the fiscal year is calculated
(for financial accounting)
MRP 3 (Planning)
 Strategy group
 Make to stock
 Make to order
 Sales order based consumption
 Assemble to order
 Similar to make to order
 Assemble finished goods from prefabricated
assemblies
 There are others
MRP 3 (Planning)
 Consumption mode
 Backward or forward
 Back. consumption per contains the number
of workdays used for backward consumption
 Forw. Consumption per contains the
workdays for future consumption
MRP 3 (Planning)
 Availability check
 Strategy to determine whether a material will be
available on a specific date
 Supply side
 Existing inventory, purchase requisitions,
production orders, purchase orders
 Demand side
 Material reservations, safety stock, production
orders
MRP 3 (Planning
MRP 4 (BOM)
 BOM Selection Method
 Determines which bill of material to use based
on
 Production version
 Date
 Order quantity
 Requirement Group
 Combine or display requirements individually
MRP 4
 Define repetitive manufacturing
characteristics
 Storage Location MRP is used to plan for a
specific storage location
MRP 4
Forecasting (Introduction)
 Caveat – Forecasts are always wrong
 But some are more wrong than others
 Accurate forecasts essential to manufacturing
 Our goal is to match supply and demand
 This is challenging for innovative products,
fashions
Forecasting Models
 Trend
 Seasonal
 Trend and seasonal
 Constant
Strategy Groups
 On MRP 3, it defines the high-level strategy
used to plan production
 The following are make-to-stock
 (10) make to stock is the simplest
 Based on PIRs
 (30) production by lot size
 (40) Planning with final assembly
 Utilizes consumption (discussed in a moment)
Strategy Groups
 Make-to-order production strategies
 (20) make-to-order (used for a particular sales
order)
 (50) Planning without final assembly (we are
really building “assemblies”)
 (60) Planning with planning material
 Use with variant parts such as the same products
in different container with different labels
The Process of Consumption
 Customer Independent Requirements
consume materials produced through Planned
Independent Requirements
 CIRs are filled through existing stock
 Planned Independent Requirements are
created in anticipation of customer orders
 See table 8.1 on page 280
Consumption (Types)
 Backward
 CIRs consume PIRs dated prior to the CIR
 Forward
 CIRs consume PIRs dated after the CIR
 Combination
Consumption (Illustration)

Lot
Size
Reorder
Point

Safety Stock

Replenishment
Lead Time
Product Groups
 Instead of planning for a single product, we
plan for a group of related products or
“product family”
 It’s possible to hierarchically group products
using a process called aggregation
 Product groups can be nested
Materials can belong to different product groups
so as to support different planning scenarios
Product Group (SAP)
 Transaction MC84, MC85, MC86 to maintain
product groups
GBI Product Groups
Product Groups (Other)
 Product groups can be assigned a proportion
 Low-level plans can be aggregated into high-
level plans
 High-level plans can be disaggregated into
low-level plans
Global Bike Product Groups
Sales and Operations
Planning (SOP)
 Purposes
 Create sales forecasts
 Define inventory requirements
 It’s a high-level plan (rough-cut plan)
 Operations plans are developed from SOP
 These are the formal plans to produce
 Required only for make-to-stock production
 We perform aggregation and disaggregation
here
Top-Level Product Group
Second Level Product Group
SOP Planning (SAP)
SOP Planning
 Used to generate production plans based on
various assumptions (sales forecasts)
 Types
 Standard planning uses predefined planning
models
 Flexible planning allows users to configure their
own sophisticated production plans
SAP Planning Table
 It’s a tabular form containing sales,
production, and stock-level estimates
 Sales data derived from forecast
Sales Planning Table
(Illustration)
Sales Planning (Fields)
 Sales contains the sales plan (number of
units we plan to sell)
 Production contains the production plan
(calculated by the system)
 Target stock contains the desired inventory
levels
 Day’s supply contains a calculated value
 Inventory / sales per workday
Sales Plan (Creating)
 From profitability analysis in management
accounting
 From historical sales
 From adjusted historical sales
 Manually
 From another product group sales plan
Disaggregation
 One the high-level product group plan is
complete we disaggregate to the raw material
level
MRP – The final step
 MRP plans for all elements in the BOM