The Material Requirements

Planning Process

Slide 2

What is MRP? MRP answers the following questions:

What materials are required? How many of the materials are required? When are the materials required?

Slide 3

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

Slide 4

MRP AND Production

Slide 5

MRP Process Flowchart

Slide 6

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

Slide 7

MRP Problems (2) Too little inventory

Out of stock conditions Backorder conditions

Slide 8

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

Slide 9

MRP Data Dependencies Materials (Material masters) Vendors (for acquisition) Production (for estimates) Warehouse (to get raw materials and

store finished goods)

Slide 10

Production Planning Process (Overview)

DemandManagement

Forecasting

Sales & OperationsPlanning

SIS CO/PA

MPS

MRP

ManufacturingExecution

OrderSettlement

ProcurementProcess

Strategic Planning

Detailed Planning

Slide 11

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

Slide 12

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

Slide 13

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

Slide 14

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)

Slide 15

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

Slide 16

MRP Reorder Point Planning

Slide 17

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

Slide 18

MRP (Types of Planning – Illustration)

Slide 19

Material Master (MRP Tabs) MRP1 – Overall strategy MRP2 – Scheduling MRP3 – Material availability MRP4 – BOM Selection

Slide 20

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”

Slide 21

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)

Slide 22

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)

Slide 23

MRP 1 (Illustration)

Slide 24

MRP 2 (Procurement) Procurement type

In-house production External

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

Slide 25

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

Slide 26

MRP 2 (Net Requirements) Safety stock

Desired Minimum

Safety time ind. is used to enable safety stock calculations

Slide 27

MRP 2

Slide 28

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)

Slide 29

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

Slide 30

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

Slide 31

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

Slide 32

MRP 3 (Planning

Slide 33

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

Slide 34

MRP 4 Define repetitive manufacturing

characteristics Storage Location MRP is used to plan for

a specific storage location

Slide 35

MRP 4

Slide 36

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

Slide 37

Forecasting Models Trend Seasonal Trend and seasonal Constant

Slide 38

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)

Slide 39

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

Slide 40

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

Slide 41

Consumption (Types) Backward

CIRs consume PIRs dated prior to the CIR Forward

CIRs consume PIRs dated after the CIR Combination

Slide 42

Consumption (Illustration)

Lot Size

Replenishment Lead Time

Safety Stock

Reorder Point

Slide 43

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

Slide 44

Product Group (SAP) Transaction MC84, MC85, MC86 to

maintain product groups

Slide 45

GBI Product Groups

Slide 46

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

Slide 47

Global Bike Product Groups

Slide 48

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

Slide 49

Top-Level Product Group

Slide 50

Second Level Product Group

Slide 51

SOP Planning (SAP)

Slide 52

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

Slide 53

SAP Planning Table It’s a tabular form containing sales,

production, and stock-level estimates Sales data derived from forecast

Slide 54

Sales Planning Table (Illustration)

Slide 55

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

Slide 56

Sales Plan (Creating) From profitability analysis in

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

Slide 57

Disaggregation One the high-level product group plan is

complete we disaggregate to the raw material level

Slide 58

MRP – The final step MRP plans for all elements in the BOM