The Material
Requirements Planning
Process
What is MRP?
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MRP answers the following questions:
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What materials are required?
How many of the materials are required?
When are the materials required?
A Few Key Terms
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PIR – Planned Independent Requirements
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Forecasts based on actual and forecasted sales
CIR – Customer Independent Requirements
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Forecasts based on actual customer sales
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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)
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Too much inventory
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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)
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Too little inventory
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Out of stock conditions
Backorder conditions
Cisco Case
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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
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Materials (Material masters)
Vendors (for acquisition)
Production (for estimates)
Warehouse (to get raw materials and store
finished goods)
Production Planning Process
(Overview)
SIS
Forecasting
Sales & Operations
Planning
CO/PA
Strategic Planning
Demand
Management
MPS
Detailed Planning
MRP
Manufacturing
Execution
Order
Settlement
Procurement
Process
What Causes an MRP
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Sales and operations planning estimates
materials (finished goods) requirements
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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
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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)
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Remember that we have four MRP views of a
material
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MRP is defined at the plant level as expected
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Discussed in the next screens
We can subdivide into MRP areas
MRP is relevant to both discrete, repetitive,
and process manufacturing
MRP vs MPS
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Master Production Scheduling
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One level of a material’s BOM is used to calculate
material requirements
It’s a high level analysis
Material Requirements Planning
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Run after MPS to determine detailed
requirements
It’s time phased (recommendations to
reschedule open orders)
Considers dependent requirements
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Assemblies (semi-finished goods)
MRP (Types of Planning)
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Consumption-based relies on historical
consumption data
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Reorder point planning
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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)
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When material is withdrawn, the reorder level
is checked
Net requirements are then calculated
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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)
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MRP1
MRP2
MRP3
MRP4
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–
–
–
Overall strategy
Scheduling
Material availability
BOM Selection
MRP 1 (MRP Procedure)
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MRP type
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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
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Only applies to MRPs with “firming types”
MRP 1 (Lot Size Data)
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Lot size – The procedure used to determine
the lot size (quantity produced)
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Static lot-sizing
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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)
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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)
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Procurement type
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In-house production
External
In-house production time
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This comes from production
It can be derived from product routing
MRP 2 (Scheduling)
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In-house production time
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Only used when we are producing goods “inhouse”
This comes from production
Planned delivery time is only used when
material is procured externally
GR (Goods receipt) processing time
MRP 2 (Net Requirements)
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Safety stock
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Desired
Minimum
Safety time ind. is used to enable safety stock
calculations
MRP 2
MRP 3
(Forecast Requirements)
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Period Indicator
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Time period for which planning takes place
(M=Monthly, W=Weekly, etc…)
Fiscal Variant
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Use to describe how the fiscal year is calculated
(for financial accounting)
MRP 3 (Planning)
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Strategy group
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Make to stock
Make to order
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Assemble to order
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Sales order based consumption
Similar to make to order
Assemble finished goods from prefabricated
assemblies
There are others
MRP 3 (Planning)
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Consumption mode
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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)
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Availability check
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Strategy to determine whether a material will be
available on a specific date
Supply side
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Existing inventory, purchase requisitions,
production orders, purchase orders
Demand side
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Material reservations, safety stock, production
orders
MRP 3 (Planning
MRP 4 (BOM)
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BOM Selection Method
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Determines which bill of material to use based
on
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Production version
Date
Order quantity
Requirement Group
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Combine or display requirements individually
MRP 4
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Define repetitive manufacturing
characteristics
Storage Location MRP is used to plan for a
specific storage location
MRP 4
Forecasting (Introduction)
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Caveat – Forecasts are always wrong
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But some are more wrong than others
Accurate forecasts essential to manufacturing
Our goal is to match supply and demand
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This is challenging for innovative products,
fashions
Forecasting Models
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Trend
Seasonal
Trend and seasonal
Constant
Strategy Groups
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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
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Based on PIRs
(30) production by lot size
(40) Planning with final assembly
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Utilizes consumption (discussed in a moment)
Strategy Groups
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Make-to-order production strategies
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(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
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Use with variant parts such as the same products
in different container with different labels
The Process of Consumption
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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)
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Backward
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Forward
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CIRs consume PIRs dated prior to the CIR
CIRs consume PIRs dated after the CIR
Combination
Consumption (Illustration)
Lot
Size
Reorder
Point
Safety Stock
Replenishment
Lead Time
Product Groups
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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
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Product groups can be nested
Materials can belong to different product groups
so as to support different planning scenarios
Product Group (SAP)
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Transaction MC84, MC85, MC86 to maintain
product groups
GBI Product Groups
Product Groups (Other)
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Product groups can be assigned a proportion
Low-level plans can be aggregated into highlevel plans
High-level plans can be disaggregated into
low-level plans
Global Bike Product Groups
Sales and Operations
Planning (SOP)
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Purposes
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Operations plans are developed from SOP
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Create sales forecasts
Define inventory requirements
It’s a high-level plan (rough-cut plan)
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
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Used to generate production plans based on
various assumptions (sales forecasts)
Types
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Standard planning uses predefined planning
models
Flexible planning allows users to configure their
own sophisticated production plans
SAP Planning Table
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It’s a tabular form containing sales,
production, and stock-level estimates
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Sales data derived from forecast
Sales Planning Table
(Illustration)
Sales Planning (Fields)
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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
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Inventory / sales per workday
Sales Plan (Creating)
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From profitability analysis in management
accounting
From historical sales
From adjusted historical sales
Manually
From another product group sales plan
Disaggregation
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One the high-level product group plan is
complete we disaggregate to the raw material
level
MRP – The final step
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MRP plans for all elements in the BOM