The Material

Requirements
Planning Process

What is MRP?

MRP answers the following questions:

Slide 2

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

Slide 3

Usually derived from sales orders

Dependent Requirement A dependent

item (such as assembly or raw material)

MRP AND Production

Slide 4

MRP Process Flowchart

Slide 5

MRP Problems (1)

Too much inventory

Slide 6

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

Slide 7

Out of stock conditions

Backorder conditions

Cisco Case

Slide 8

Purchased extra parts

Did not accurately estimate demand
Did not forecast demand drop-of
Cisco wrote of $2.5 billion in inventory
in 2001

MRP Data Dependencies

Slide 9

Materials (Material masters)

Vendors (for acquisition)
Production (for estimates)
Warehouse (to get raw materials and
store finished goods)

Production Planning
Process (Overview)
Forecasting

SIS

Sales & Operations

Planning

CO/PA

Strategic Planning

Demand
Management
MPS

Detailed Planning

MRP
Manufacturing
Execution
Slide 10

Order
Settlement

Procurement
Process

What Causes an MRP

Sales and operations planning estimates

materials (finished goods) requirements

Slide 11

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

Slide 12

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

MRP is defined at the plant level as

expected

Slide 13

Discussed in the next screens

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 materials BOM is used to

calculate material requirements
Its a high level analysis

Material Requirements Planning

Run after MPS to determine detailed

requirements
Its time phased (recommendations to
reschedule open orders)
Considers dependent requirements

Slide 14

Assemblies (semi-finished goods)

MRP (Types of Planning)

Consumption-based relies on historical

consumption data

Reorder point planning

Slide 15

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

Slide 16

Reorder Point Planning

(Details)

When material is withdrawn, the reorder

level is checked
Net requirements are then calculated

Slide 17

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)

Slide 18

Material Master (MRP Tabs)

Slide 19

MRP1
MRP2
MRP3
MRP4

Overall strategy
Scheduling
Material availability
BOM Selection

MRP 1 (MRP Procedure)

MRP type

Reorder Point is only used only with

reorder point planning
Planning time fence - Number of days
before procurement that planning
(automated procurement) is frozen

Slide 20

Forecast-based planning, time-phase

planning, etc.

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

Slide 21

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)

Slide 22

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)

Slide 23

MRP 2 (Procurement)

Procurement type

In-house production time

Slide 24

In-house production
External
This comes from production
It can be derived from product routing

MRP 2 (Scheduling)

In-house production time

Slide 25

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

Slide 26

Desired
Minimum

Safety time ind. is used to enable safety

stock calculations

MRP 2

Slide 27

MRP 3
(Forecast Requirements)

Period Indicator

Fiscal Variant

Slide 28

Time period for which planning takes place

(M=Monthly, W=Weekly, etc)
Use to describe how the fiscal year is
calculated (for financial accounting)

MRP 3 (Planning)

Strategy group

Make to stock
Make to order

Assemble to order

Slide 29

Sales order based consumption

Similar to make to order
Assemble finished goods from
prefabricated assemblies

There are others

MRP 3 (Planning)

Consumption mode

Slide 30

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

Demand side

Slide 31

Existing inventory, purchase requisitions,

production orders, purchase orders
Material reservations, safety stock,
production orders

MRP 3 (Planning

Slide 32

MRP 4 (BOM)

BOM Selection Method

Determines which bill of material to use

based on

Requirement Group

Slide 33

Production version
Date
Order quantity

Combine or display requirements

individually

MRP 4

Slide 34

Define repetitive manufacturing

characteristics
Storage Location MRP is used to plan for
a specific storage location

MRP 4

Slide 35

Forecasting (Introduction)

Caveat Forecasts are always wrong

Accurate forecasts essential to

manufacturing
Our goal is to match supply and
demand

Slide 36

But some are more wrong than others

This is challenging for innovative products,

fashions

Forecasting Models

Slide 37

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

(30) production by lot size

(40) Planning with final assembly

Slide 38

Based on PIRs

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

Slide 39

Use with variant parts such as the same

products in diferent container with
diferent labels

The Process of
Consumption

Slide 40

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

Forward

Slide 41

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
Slide 42

Product Groups

Instead of planning for a single product,

we plan for a group of related products
or product family
Its possible to hierarchically group
products using a process called
aggregation

Product groups can be nested

Materials can belong to diferent product

groups so as to support diferent planning
scenarios
Slide 43

Product Group (SAP)

Slide 44

Transaction MC84, MC85, MC86 to

maintain product groups

GBI Product Groups

Slide 45

Product Groups (Other)

Slide 46

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

Slide 47

Sales and Operations

Planning (SOP)

Purposes

Operations plans are developed from

SOP

Slide 48

Create sales forecasts

Define inventory requirements
Its 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

Top-Level Product Group

Slide 49

Second Level Product

Group

Slide 50

SOP Planning (SAP)

Slide 51

SOP Planning

Used to generate production plans

based on various assumptions (sales
forecasts)
Types

Slide 52

Standard planning uses predefined

planning models
Flexible planning allows users to configure
their own sophisticated production plans

SAP Planning Table

Its a tabular form containing sales,

production, and stock-level estimates

Slide 53

Sales data derived from forecast

Sales Planning Table

(Illustration)

Slide 54

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
Days supply contains a calculated
value

Slide 55

Inventory / sales per workday

Sales Plan (Creating)

Slide 56

From profitability analysis in

management accounting
From historical sales
From adjusted historical sales
Manually
From another product group sales plan

Disaggregation

Slide 57

One the high-level product group plan is

complete we disaggregate to the raw
material level

MRP The final step

Slide 58

MRP plans for all elements in the BOM