Chapter 8
Material Planning Process
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Learning Objectives
1.
2.
3.
4.
5.
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Explain the master data associated with the material
planning process.
Analyze the key concepts associated with material planning
Identify the basic steps in the material planning process and
the data, documents, and information associated with
them.
Effectively use SAP® ERP to execute the basic steps in the
material planning process.
Extract and evaluate meaningful information about the
material planning process using the SAP ERP system.
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Material Planning
 Answers three basic questions
 What materials are required?
 How many are required?
 When are they required?
 Main objective is to balance the demand for materials with
the supply of materials.
 Demand: fulfillment and production processes.
 Supply: procurement and production processes.
 Other processes -- asset management, project systems,
warehouse management -- also affect demand and supply
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Material Planning
 One of the most complex processes within an organization
 Outcome is procurement proposals
 Internal procurement: planned orders
 External procurement: purchase requisitions
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A Basic Material Planning Process
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Organizational Data
 Client
 Company code
 Plant
 Storage location
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Material Master
 Views discussed for other processes
 Basic data
 Purchasing related
 Sales related
 Accounting related
 Views highly relevant to material planning
 MRP views – plant specific
 Work scheduling – plant specific
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Material Master Data for Material
Planning
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Material Master: Procurement Type
 In house or internally (production process)
 Externally (procurement process)
 Both
 None
 GBI
 Finished goods: both
 Raw materials: externally
 Semifinished goods: internally
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Material Master: MRP Type
 Identifies which production planning technique to use
 Consumption-based planning
 Materials requirements planning (MRP)
 Master production scheduling (MPS)
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Material Master: ConsumptionBased Planning
 Derives requirements based on historical consumption data
 Reorder point planning
 Replenishment lead time
 Safety stock
 Forecast-based planning
 Time-phased planning
 Use of low-value materials
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Consumption-Based Planning
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Reorder Point Planning Example
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Independent and Dependent
Demand
 Independent demand
 Demand is based on customer (external) demand
 Finished goods, trading goods
 Calculated based on actual and forecasted sales
 Actual sales orders = customer independent requirement (CIR)
 Calculated demand = planned independent requirements (PIR)
 Dependent demand
 Demand is dependent on the demand for another material
 Seimfinished goods, raw materials
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Material Master: MRP and MPS
 Materials requirements planning (MRP)
 Derives dependent requirements based on independent
requirements
 BOM explosion
 Can plan for all levels in the BOM
 Master production scheduling (MPS)
 Optional step, similar to MRP
 Derives dependent requirements only for the first level
(component) in the BOM
 Executed first for critical finished goods
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MRP vs. MPS
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Material Master: Lot Size Key
 Procedure to determine the lot size of each procurement
proposal generated by material planning
 Static procedures: fixed quantity based on
 Fixed lot size = predetermined fixed quantity
 Lot-for-lot = exact quantity required
 Replenishment up to maximum stock level
 Period lot sizing procedures: combine requirements from
multiple time periods
 Optimum lot sizing procedures: EOQ, EPQ
 GBI
 All materials: lot-for-lot
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Material Master: Scheduling Times
 Task is to estimate the time needed to procure the necessary
materials.
 Common estimates are:
 In-house production time
 Planned delivery time
 GR (goods receipt) processing time
 In-house production time is further divided into:
 Setup time
 Processing time
 Interoperation time
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Material Master: Planning Time Fence
 Used to prevent ERP systems from automatically changing
procurement proposals during a specific period of time
 Changes can be made manually
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Material Master: BOM Selection
Method
 A single material can have multiple BOMs.
 The BOM selection method identifies the criteria the ERP
system should use to select the BOM.
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Material Master: Availability Check
Group
 Defines the strategy the ERP system uses to determine whether a
quantity of material will be available on a specific date
 Most commonly applied method is available-to-promise (ATP)
 Considers a broad range of elements (MRP elements) representing
both supply and demand for the material
 Supply elements: current inventory, requisitions, purchase orders,
planned orders, production orders, etc.
 Demand elements: sales orders, safety stock, material reservations,
etc.
 Availability check is used by many processes
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Material Master: Strategy Group
 High-level strategy used in production
 Make to stock (MTS)
 Net requirements planning (Strategy 10): proposals based only
on PIR without regard to CIR
 Planning with final assembly (Strategy 40): similar to Strategy
10, but takes sales orders (CIR) into account via consumption
 Make to order (MTO)
 No inventory
 Sales order (CIR)-based planning
 Sales orders trigger production
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Material Master: Strategy Group
 Assemble to order (ATO)
 Planning without final assembly (Strategy 50) or subassembly
planning
 Finished product is made to order (CIR)
 Components are made to stock (PIR)
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Consumption
 When a strategy includes both PIRs and CIRs, the CIRs are
said to consume the PIRs.
 Proposals are not created by simply adding CIRs and PIRs
Example 1
Example 2
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Before Consumption
PIR
CIR
50
60
50
40
After Consumption
PIR
CIR
0
60
10
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Consumption Mode
 Forward consumption
 Backward consumption
 Consumption period
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Consumption Modes
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Demo 8.1 Review MRP and Scheduling
Views for a Material
 Review MRP and scheduling views for a material
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Product Groups
 Products with similar planning characteristics or similar
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manufacturing processes are placed into a product group.
Products are aggregated into groups from the lowest level to the
highest level.
Lower-level groups can be nested within higher-level groups.
The lowest-level product group in any hierarchy consists of
materials, either finished goods or trading goods.
Materials and product groups can be members of more than one
group for different planning scenarios.
Each member of a product group is assigned a proportion factor.
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GBI Product Groups
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Product Groups at Apple Inc.
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Demo 8.2 Review GBI Product
Groups
 Review GBI product groups
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The Material Planning Process
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Sales and Operations Planning
 SOP is triggered when the organization wishes to revise its
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production plan.
SOP can also be triggered by unexpected events; for
example, changes in the overall economic outlook.
SOP uses data from a variety of sources to produce a
production plan.
SOP can generate several versions of the production plan
based on assumptions concerning economic growth.
SOP can be either standard or flexible.
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Elements of the SOP Step
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Data in the SOP Step
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Tasks
 Tasks in the SOP step include:
 Creating the sales plan
 Specifying inventory requirements
 Creating operations (production) plans
 Evaluating the feasibility of the operations plans
 The interface to complete the tasks in SOP is the planning table, a
simple-to-use spreadsheet-like tool.
 The production plan that is generated from SOP is based on:
 Synchronous to sales
 Target stock level
 Target day’s supply
 Stock level = 0
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Standard SOP Planning Table
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GBI SOP Example
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Outcomes
 One or more versions of the production plan
 No financial implications
 No material movements
 Therefore no FI, CO, or material documents are created.
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Demo 8.3 Create an SOP for the
Bicycles Product Group
 Review creating an SOP for the bicycles product group
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Disaggregation
 The plans from SOP must be translated into plans for the
finished product in the product hierarchy (disaggregation).
 Disaggregation is triggered when a new production plan is
created.
 Organizational data (e.g., plant) and master data (e.g., product
groups) from the production plan are used to calculate
requirements for the materials in the product group.
 These requirements are then transferred to the demand
management step for further planning.
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Elements of the Disaggregation Step
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Data in the Disaggregation Step
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Tasks
 The primary task in the disaggregation step is to translate the plans
generated for product groups during the SOP step into plans for
the materials contained in those groups.
 Disaggregation can be completed for the entire product group
hierarchy or for one or more levels of the hierarchy.
 Either the production plan or the sales plan can be disaggregated.
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Tasks
 Disaggregate the production plan to the next level
 Disaggregate the sales plan to the next level
 This becomes the sales plan for the next level.
 Then, calculate the production plan for that level.
 Disaggregate the sales plan to the material level
 Calculate the production plan for the materials.
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GBI Disaggregation Example
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Outcomes
 Calculate the PIRs for each planning period
 These requirements are then transferred to demand
management
 No financial implications
 No material movements
 Therefore no FI, CO, or material documents are created.
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Transfer PIRs to Demand Management
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Demo 8.4 Disaggregate Production Plan
and Transfer to Demand Management
 Review disaggregate production plan and transfer to demand
management.
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Demand Management
 Demand management calculates revised PIRs for the materials
using:
 PIRs from SOP after disaggregation
 Customer orders (CIRs) from the fulfillment process
 Data regarding planning strategies from the material master
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Elements of the Demand Management
Step
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Data in the Demand Management
Step
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Tasks
 The primary task is to create revised PIRs for the materials.
 Which procedure a company uses to calculate these requirements
depends on the production planning strategy defined by the
strategy group in the material master.
 Demand management is carried out automatically by the ERP
system.
 The MRP controller monitors the results using a variety of reports
and makes adjustments as needed.
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Outcomes
 PIRs for each material included in planning
 PIRs represent requirements for the materials for specific
quantities and specific dates.
 No financial implications
 No material movements
 Therefore no FI, CO, or material documents are created.
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Materials Requirements Planning
 SOP: plans at the product group level
 Demand management: plans at the material level (FG, TG)
 MRP: plans for materials (FG, TG), components (SFG), and raw
materials (i.e., for all levels of the BOM)
 MRP calculates the net requirements for the materials.
 MRP creates procurement proposals - to make or buy the
necessary materials.
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Materials Requirements Planning
 Activities that affect material availability in different processes:
 Procurement: purchase requisitions, purchase orders, and goods
receipts
 Fulfillment: sales orders, deliveries, and goods issues
 Production: planned orders, production orders, material
reservations, and goods receipts and goods issues
 These activities, called MRP elements, are used by MRP for
calculating net requirements and generating procurement proposals.
 MRP can be executed for one plant, for multiple plants, or within
MRP areas.
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Materials Requirements Planning
 Master Production Schedule (MPS)
 Optional
 MPS items are high-impact items.
 Materials planned by MPS are typically finished goods.
 Materials are flagged as master schedule items.
 After planning the master schedule items, MPS creates
dependent requirements for the first-level components in the
BOM of the MPS items.
 After MPS, MRP plans for the remaining materials in the BOM.
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Elements of the MRP Step
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Data in the MRP Step
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MRP Procedure
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Check Planning File
 Determine which materials must be planned.
 Any change to an MRP-relevant material generates an entry in
the planning file.
 Changes in material master (e.g, scheduling times, safety stock)
 Changes to an MRP element
 Finished goods are planned first, followed by BOM components
and then raw materials.
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Calculate Net Requirements
 Determine whether there is a need to procure material.
 Net requirement calculation takes into account all of the relevant
MRP elements to determine if a shortage of materials exists.
 If the MRP type is consumption-based planning, then the formula
is:
 Available stock = Plant stock + Receipts
 If the MRP type is MRP or MPS, then the formula is:
 Available stock = Plant stock – Safety stock + Receipts – Issues
 If available stock is negative, procurement proposals are generated.
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Determine Lot Size
 Lot size procedure is used to determine the quantity to be
included in the procurement proposals.
 Data needed to calculate lot size are included in the material
master: lot size key
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Scheduling
 Determines whether the material can be procured by the
required date
 Two types:
 Backward scheduling
 Forward scheduling
 Data needed for scheduling are included in the material master.
 ERP systems initially use backward scheduling; if not
successful, they then shift to forward scheduling.
 In backward scheduling the MRP controller can manually
adjust the schedule.
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Backward Scheduling
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Determine Procurement Proposal
 Purpose is to determine the type of procurement proposal to
generate
 Internal : planned orders
 External: three options
 Create purchase requisitions
 Create planned orders, which are converted to purchase requisitions
 Create schedule lines
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Procurement Proposals
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Determine Dependent Requirements
 For in-house procurement
 MRP generates dependent requirements for the component
by exploding the BOM
 Single-level MRP: Process is terminated after this initial step.
 Multilevel MRP: Calculations are performed for all levels.
 Assemblies have their own BOMs, and MRP creates dependent
requirements for the components in their BOMs.
 Creating dependent requirements can also make entries in
the planning file, which causes further processing.
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BOM Explosion
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BOM for Off-road Bikes
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MRP Control Parameters
 Processing key
 NETPL: Planning in planning horizon
 All materials for which MRP-relevant changes have been made in the
planning horizon
 Least time consuming
 NETCH: Net change to total horizon
 Planning for all materials for which MRP-relevant changes have been
made
 NEUPL: Regenerative planning
 Planning of all MRP-relevant items
 Most time consuming
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MRP Control Parameters
 Output of the MRP procedure
 Creation of a purchase requisition
 MRP (1) always creates a purchase requisition for externally procured
materials
 MRP (2) creates planned orders
 MRP(3) creates purchase requisitions only in the opening period and
creates planned orders after the opening period
 Schedule lines applies to scheduling agreements
 Option (1) not to create schedule lines
 Option (2) to create them only during the opening period
 Option (3) to create them only within the planning horizon
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MRP Control Parameters
 Output of the MRP procedure
 Create MRP list
 Determines whether the system will create the MRP list
 Creates the MRP list only for materials for which exception messages are
generated
 Planning mode
 Determines how previously created procurement proposals will be handled
 Adjusts the quantities and dates of existing proposals, or discards the existing
proposals and creates new ones
 Scheduling
 Should the ERP system calculate only basic dates using the scheduling times
in the material master?
 Should the ERP system perform lead time scheduling using the more detailed
times in the routing?
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Outcomes
 Procurement proposals
 Purchase requisitions
 Planned orders
 Both trigger procurement and production processes
 No financial implications
 No material movements
 Therefore no FI, CO, or material documents are created.
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Demo 8.5 Run MRP
 Review run MRP
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Reporting
 Reporting options for material planning are not as extensive
as those in other areas.
 Three very important tools for reporting the planning
situation:
 Stock/requirements list
 MRP list
 Planning result report
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Stock/Requirements List
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Exception Message
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Material Availability in the
Stock/Requirements List
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Stock Statistics
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Demo 8.6 Review
Stock/Requirements List and Related
Reports
 Review stock/requirements list and related reports
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Stock/Requirements List -- MRP List
Comparison
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Demo 8.7 Review MRP List
 Review MRP list
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Planning Result Report
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Demo 8.8 Review Planning Result
Report
 Review planning result report
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