Consumption-based Planning

Requirements Planning Material Planning Material Planning (MRP Procedures) SAP Terms Independent Demand (Consumption-based Planning) MRP-Material Requirements Planning Reorder point planning Forecast-based planning Time-phased planning SAP Exercise Manual reorder point Automatic reorder point

Planning Process External procurement In-house production Planning Run Planned Order Conversion Production Order Purchase Requisition Schedule Line Can be automatic

Planning Process Planned Order: Recommendation by the MRP planning process of quantity and timing of production or purchase order Production Order: Actual order given to shop floor to commence production. May be electronic or paper. Can include production details (routing, quality requirements, drawings, instructions, etc.)

Planning Process Purchase Requisition: Request to purchasing to create purchase order Purchase Order Request to vendor to supply materials Schedule Line Direct request to vendor for materials, covered by scheduling agreement (blanket PO)

Reorder Point Processing Lot Size Safety Stock Time Replenishment Lead Time

Reorder Point Processing When the inventory level for a product that is planned using consumption-based planning reaches the ROP, an order for the material is NOT created automatically Consumption-based planning uses the Material Requirements Planning (MRP) planning process to create purchase orders The MRP planning process is typically run overnight on a daily basis Historically, might have used weekly runs Time until MRP planning run is executed should be considered in ROP calculation (daily runs, add 1 day to lead time)

Forward Scheduling for External Procurement (Release Date) Today Purchase Order Date Goods Receipt Availability Processing Time For Purchasing Planned Delivery Time Replenishment Lead Time

MRP Planning Process For a company with thousands of materials to plan, the computing resources needed to calculate material plans can be significant To make sure that: Only those calculations that are necessary are performed: Only on materials that need planning Two “filters” are used: Planning Run Type Planning Horizon

Planning Run Types NETCH: Net change in the total horizon In the MRP Planning Process, materials are planned if there have been any: Changes in material stocks (receipts, issues) Addition of purchase requisitions, purchase orders, planned orders, dependent requirements Changes in Material Master Data (Lot Size, ROP, etc.)

Planning Run Types NETPL: Net change in the planning horizon Same at NETCH, EXCEPT: Changes must occur within the planning horizon Planning horizon keeps MRP planning process from making plans for future periods that: Do not impact current operations Will be made irrelevant through the dynamics of business

Planning Run Types NETCH NETPL Order/ Requisition Planning Horizon Requirement Time Planning Horizon NETPL

Plant Parameters: Planning Horizon

Planning Run Types NETUPL: Regenerative Planning Plans all materials for total planning horizon Good idea to run this option regularly (e.g. every weekend), even though it is more resource intensive Customizing changes don’t trigger planning under NETCH or NETPL “Time passage” problem with NETPL

NETPL: Potential Problem Planning Horizon NETPL Today Passage of time is not an “event” Would require monitoring to detect Planning Horizon NETPL Today Solution: Run NETUPL

Planning File A Planning File entry exists for each material Keeps track of changes that would require material to be planned under NETCH or NETPL options MRP Planning process looks at planning file entries for each material to see if it should be planned

Planning File Low-level Code NETCH Indicator NETPL Indicator

Planning Run Options Planning Run Type: NETCH NETPL NETUPL Create Purchase Req: 1 – Purchase Requisitions 2 – Purchase Requisitions in Opening Period 3 – Planned Orders Defined by Schedule Margin Key Usu. does not impact consumption-based planning

Planning Run Options Create MRP List: 1 – Yes 2 – Depending on Exception Messages 3 – No Planning mode: Determines how system deals with previous plans (planned order, purchase requisitions) Scheduling: Determines level of detail in schedule calculation for production orders Display results before they are saved Lets planner make changes before the results are saved

Planning Run Options With consumption-based planning in practice: You would not run MRP for a single material, but do it as part of a group (MRP Area based on storage location) You would have it scheduled to run automatically You would have it either: Create purchase requisitions automatically Create schedule lines

Net Requirements Calculation Reorder Point Stock Firm Planned Orders Purchase Order Proposal for Lot Size Shortage Fixed Purchase Requisitions How does safety stock figure into this process?

Exercise: Material Master Data MRP Type: VB sets consumption-based planning Reorder point Lot size: FX is fixed lot size Fixed lot size: Quantity in an order

Exercise: Material Master Data Plnd delivery time: Vendor part of lead time SchedMargin key: Sets opening period, among other things Safety stock: Desired stock level when replenishment order arrives How does it work in SAP R/3?

Exercise: Stock/Requirements List Your one-stop shopping location for all things material

Exercise: MRP Planning Run MRP control parameters: Planning run parameters discussed previously

Exercise: MRP Planning Run Planning run results displayed: Purchase requisition created

Exercise: Purchase Requisition Can easily create purchase order from S/List

Exercise: Purchase Order Purchase order screen is where the requisition is converted to a purchase order Vendors selected Price determined

Exercise: Receive Purchase Order Goods Receipt Screen: In practice, could just be a bar-code scan Links receipt to purchase order Tell SAP R/3 system where goods have been stored

Exercise: Goods Issue Goods Issue Screen: When goods are issued, something has to absorb costs (project, production order, cost center) In this case, we will charge costs to the warehouse cost center (P020) What is the downside to charging to a cost center?