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Material Requirement Planning (SAP MRP) is a tool which helps in planning the
requirement quantities and schedules of a given material. It not only
ensures availability of the material for which MRP is carried out, but also
ensures availability of the components (of all the BOM levels) below in the BOM
structure.
Apart from assuring material availability, MRP also carries out scheduling of the
procurement proposals using the lead times for the materials/components. When
the material is an internally manufactured material, it will use the lead times or
operation lead times from the routings/recipes and when the material is an external
procured material, it will fetch the lead times or delivery times for the material
defined at an appropriate place in the tool/system. Scheduling of the procurement
proposals not only derives the capacity loading of the orders on the workcenter but
it also calculates the delivery dates of the components that would be requried for
manufacturing (delivery date = start date of processing).
While the Material Requirement Planning in SAP ECC (SAP MRP), derives a plan
for the materials and helps the planners and supervisors to purchase, produce or
sell. It offers all the possible planning methods available in the market like the
reorder point planning for the consumption based planned materials, lot for lot
MRP planning for the demand based planning materials, forecast based planning
methods which uses the past historical figures to extrapolate the future
requirements (again a consumption based planning material).
SAP material requirement planning or SAP MRP, uses the following factors in its
planing run:
b) planning types - type of the MRP run, i.e., consumption based planning methods
or demand based planning methods and net requirement planing or gross
requirement planning
SAP also offers tools for forecasting the future demand using the historical data
and playing various other fators on it. SOP (Sales and operation Planning) is one
such tool in SAP, where you can forecast future demand using past historical
information for a pre-selected organizational structure, for example, you could
have the system pull in the historical information for a given organizational
segment llike Sales oragnization, Sales Division, Distribution Channel, Material or
for a Sales office, Sales division, Material group. The forecast carried out the sales
information from specially defined sales information structure can be used as
planned independent demand for production over the forecasted period.
On the other hand, you could also have the demand coming in from sales orders
and the production is initiated thereafter, such scenarios are typical make-to-order.
Manfuacturing after an Order is booked is carried out for products of high value or
for products whose design is supplied by the customer or as specified/requested by
a customer. For Example, Manufacturing of Jewelry, Aircrafts, Special Purpose
Pumps.
Note that Made-to-Order can also be initiated for a typical Made-to-Stock Product,
in cases where a special customer places a huge order and the manufacturing is
triggered seperately for them.
You should not be amazed to come across a product which is manufactured as both
MTS and MTO.
All the above cases are typical make-to-order and such demands come in through
sales orders.
Note - The Sales orders demand coming in for a made-to-stock material is fulfilled
using the existing stock, whereas the sales order created for a make-to-order
material can never be satisfied using any existing inventory as the inventory
created for the material would have been produced for fulfilling other customer
orders.
The SAP R/3 or ECC has a MRP system that plans for material and capacity
(schedules) without considering any constraint and by assuming availability
of infinite capacity for the work centers. This gap of SAP ECC was later-on
removed with the help of an add-on or a plug-in introduced by SAP for the
advanced planning of requirements; it was called SCM - APO (Supply Chain
Management - Advanced Planning Optimizer). This tool worked on much complex
and much supreme heuristics with the capability of planning based on finite
capacity and constraints. The SCM - APO had modules such as Demand planning
which was a superlative version of Sales and Operation Planning (SAP - SOP) in
SAP ECC, Supply Network Planning which allowed planning across plants and
across geographical locations and allowing businesses to place orders for
production or procurement across the global based on time and cost contraints
and the PPDS module (Production planning and detail scheduling) which was a
detailed version of SAP ECC plant level MRP based Production planning with
more brainy heuristics codes which could consider multiple contraints and finite
based planning situations in one planning run.
Made-to-stock Scenario:
In a made-to-stock scenario, the incoming customer requests are fulfilled from the
inventory. The made-to-stock products are normally the consumer products or
products which have a monopoly market and are sold out of the existing inventory.
Such products are developed and produced continuously over the years till the
product comes to the end of its life cycle.
In such scenarios, the shop floor or the production team never knows, for whom
the product is being produced. The customer demands and the market situations
can only be forecasted and used as a basis for future production. In SAP the
forecasted quantity is evidently used in a form of planned-independent-requirement.
Made-to-order Scenario:
In cases where the material is defined as made-to-order, i.e., materials which are
marked with a made-to-order strategy in the MRP 3 view of the SAP material
master and marked with individual requirements in MRP 4 view, the system
calculates the material requirements through the use of an algorithm which takes in
to consideration the receipts expected for the material through purchase or
production and the incoming sales order demands. Here the system does not take
into account the storage location stock of the material (since the stock in the
storage location for the material is always tagged for a customer order and cannot
be used anywhere else).
In such a scenario, the tracking of the sales order from its creation to planning to
production to inventorying to delivery can be easily tracked unlike in made-to-
stock scenarios, where the incoming sales orders are not tracked in the plant, but
are fulfilled by the existing stocks.
Materials planning is one of the key of good inventory control systems. The
objective of materials planning is to monitor stocks to ensure material availability.
As a leader in ERP software, SAP R/3 also has a special materials planning
function that works like and even better than other inventory control software.
With materials planning in SAP, we can determine automatically which material is
required, the quantity required and when it is required. By doing so, we can
prevent lacking of materials when we need it.
An example of how SAP materials planning and other SAP functionalities can
help company to excel its business.
Sales and Distribution (SD) module of SAP receives demand from customer. Sales
department will create a sales order (SO) or sales forecast which contain the
information of what, how many, and when Finished Goods are needed by the
customer. The SO or sales forecast will be considered as an independent
requirement in SAP. This requirement will trigger materials planning process for
finished goods.
SAP will compare the requirements with finished goods current stock. If the
requirement fulfillment will result in shortage of stocks (according to certain
calculation of materials planning procedure for the finished goods), materials
planning will automatically create procurement proposal, such as planned order.
Planned order can be converted into production order (if finished goods are
produced internally) or purchase requisition (if finished goods are procured
externally). In addition, materials planning can also create purchase requisition
directly as a procurement proposal (no planned order).
If the finished goods are produced internally, the production order/planned order
created will be considered as dependent requirement for their components and/or
raw materials. SAP will determine these dependent requirements by using the
information from Bill of Materials (BOM) of finished goods. These dependent
requirements will also trigger materials planning for the components and/or raw
materials. SAP will compare the requirements with components/raw materials
current stock. If the requirement fulfillment will result in shortage of stocks
(according to certain calculation of materials planning procedure for the
components/raw materials), materials planning will automatically create
procurement proposal, such as planned order. Planned order can be converted into
production order (if components are produced internally) or purchase requisition
(if components/raw materials are procured externally). In addition, materials
planning can also create purchase requisition directly as a procurement proposal
(no planned order).
Production Order and Purchase Order will result in materials availability when we
need them, so we can fulfill the customer demand on-time.
There are three procedures in Consumption Based Planning (CBP), which are:
The following values are important for defining the safety stock:
▪ Past consumption values (historical data) or future requirements
▪ Vendor/production delivery timelines
▪ Service level to be achieved
▪ Forecast error, that is, the deviation from the expected requirements
In standard SAP R/3 system, besides “VB – Manual Reorder Point” and “VM –
Automatic Reorder Point” MRP Type, there are also other MRP Types that have
reorder point as its basis to calculate requirement with additional procedure which
count external requirement (sales order and manual reservation) as a requirement.
The MRP Type are: “V1-Manual reorder point with external requirements” and
“V2-Automatic reorder point with external requirements”.
b.Forecast-based planning
In forecast-based planning, historical data is used in the material forecast to
estimate future requirements. These requirements are known as forecast
requirements and are immediately available in planning.
The forecast, which calculates future requirements using historical data, is carried
out at regular intervals. This offers the advantage that requirements, which are
automatically determined, are continually adapted to suit current consumption
needs.
Materials planning is one of the key of good inventory control systems. The
objective of materials planning is to monitor stocks to ensure material availability.
As a leader in ERP software, SAP R/3 also has a special materials planning
function that works like and even better than other inventory control software.
With materials planning in SAP, we can determine automatically which material is
required, the quantity required and when it is required. By doing so, we can
prevent lacking of materials when we need it.
An example of how SAP materials planning and other SAP functionalities can
help company to excel its business.
Sales and Distribution (SD) module of SAP receives demand from customer. Sales
department will create a sales order (SO) or sales forecast which contain the
information of what, how many, and when Finished Goods are needed by the
customer. The SO or sales forecast will be considered as an independent
requirement in SAP. This requirement will trigger materials planning process for
finished goods.
SAP will compare the requirements with finished goods current stock. If the
requirement fulfillment will result in shortage of stocks (according to certain
calculation of materials planning procedure for the finished goods), materials
planning will automatically create procurement proposal, such as planned order.
Planned order can be converted into production order (if finished goods are
produced internally) or purchase requisition (if finished goods are procured
externally). In addition, materials planning can also create purchase requisition
directly as a procurement proposal (no planned order).
If the finished goods are produced internally, the production order/planned order
created will be considered as dependent requirement for their components and/or
raw materials. SAP will determine these dependent requirements by using the
information from Bill of Materials (BOM) of finished goods. These dependent
requirements will also trigger materials planning for the components and/or raw
materials. SAP will compare the requirements with components/raw materials
current stock. If the requirement fulfillment will result in shortage of stocks
(according to certain calculation of materials planning procedure for the
components/raw materials), materials planning will automatically create
procurement proposal, such as planned order. Planned order can be converted into
production order (if components are produced internally) or purchase requisition
(if components/raw materials are procured externally). In addition, materials
planning can also create purchase requisition directly as a procurement proposal
(no planned order).
Production Order and Purchase Order will result in materials availability when we
need them, so we can fulfill the customer demand on-time.
In traditional SAP MRP system, sales order, planned independent requirements, reservations, de
explosion, and so on are planned directly as requirements. The materials planning procedure will
requirements will result in shortage of material stocks at a certain time. There are no other requi
procedure is used in “PD-MRP” MRP Type in standard SAP R/3.
MRP is especially useful for the planning of finished products and important assemblies and com
Originally, in CBP, planned independent requirements or dependent requirement will not be con
it is triggered when stock levels fall below a predefined reorder point or by forecast requirement
the planned independent or dependent requirements in a certain period of time should have been
calculate the requirement forecast).
Consumption-based planning procedures are simple materials planning procedures which we can
effort. Therefore, these planning procedures are used in areas without in-house production and/o
parts and operating supplies.
There are three procedures in Consumption Based Planning (CBP), which are:
We can determine the reorder point manually (“VB-Manual reorder point planning” MRP Type
automatically using the material forecast (“VM-Automatic reorder point planning” MRP Type in
The reorder point should cover the average material requirement/consumption expected during t
time + planned delivery time + GR processing time). Besides the average consumption, we also
to cover both excess material consumption within the replenishment lead time and any additiona
delays. Therefore, the safety stock is included in the reorder level.
The following values are important for defining the safety stock:
In standard SAP R/3 system, besides “VB – Manual Reorder Point” and “VM – Automatic Reor
Types that have reorder point as its basis to calculate requirement with additional procedure whi
manual reservation) as a requirement. The MRP Type are: “V1-Manual reorder point with exter
with external requirements”.
b.Forecast-based planning
In forecast-based planning, historical data is used in the material forecast to estimate future requ
requirements and are immediately available in planning.
The forecast, which calculates future requirements using historical data, is carried out at regular
requirements, which are automatically determined, are continually adapted to suit current consu
This procedure is used in “VV-Forecast-based planning” MRP Type in standard SAP R/3.
Besides all procedures that have been explained above, in SAP R/3 system we can create other p
through configuration with SPRO T-code.
We will write another post about how to configure MRP in SAP R/3 System.
MRP
MRP is the planning tool in SAP which will look at all aspects of a material and is
highly based upon the master data of the material.
MRP looks at current inventory, current requirements, and open purchase
requisition/orders and so on. So if a material is required to satisfy a sales order and
there is no inventory, MRP will create a planned order if the item is to be produced
in house. This planned order can then be converted to a production order by the
master scheduler.
If the item is to be procured, then MRP will create a purchase requisition which the
Buyer will convert to a purchase order. This is just one scenario, the system is
highly configurable and will do pretty much whatever you tell based on config and
master data.
▪ Planning Procedure
▪ MRP at Plant or MRP Area Level
▪ Reorder Point Planning
▪ MRP Run Procecure
▪ Total Planning
▪ Total Planning Run With MRP Controller and much more…