Material Planning Process Chapter 8 Material Planning Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Learning Objectives 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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Planning One of the most complex processes within an organization Outcome is procurement proposals Internal procurement: planned orders External procurement: purchase requisitions Magal and Word | Integrated Business Processes with ERP Systems | © 2011

A Basic Material Planning Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Organizational Data Client Company code Plant Storage location Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master Data for Material Planning Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master: MRP Type Identifies which production planning technique to use Consumption-based planning Materials requirements planning (MRP) Master production scheduling (MPS) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master: Consumption-Based 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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Consumption-Based Planning Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Reorder Point Planning Example Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

MRP vs. MPS Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Before Consumption After Consumption PIR CIR Example 1 50 60 Example 2 40 10 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Consumption Mode Forward consumption Backward consumption Consumption period Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Consumption Modes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.1 Review MRP and Scheduling Views for a Material Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Product Groups Products with similar planning characteristics or similar 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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI Product Groups Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Product Groups at Apple Inc. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.2 Review GBI Product Groups Magal and Word | Integrated Business Processes with ERP Systems | © 2011

The Material Planning Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Sales and Operations Planning SOP is triggered when the organization wishes to revise its 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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the SOP Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in the SOP Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Standard SOP Planning Table Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI SOP Example Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Outcomes One or more versions of the production plan No financial implications No material movements Therefore no FI, CO, or material documents are created. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.3 Create an SOP for the Bicycles Product Group Review creating an SOP for the bicycles product group Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the Disaggregation Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in the Disaggregation Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI Disaggregation Example Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Transfer PIRs to Demand Management Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.4 Disaggregate Production Plan and Transfer to Demand Management Review disaggregate production plan and transfer to demand management. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the Demand Management Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in the Demand Management Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the MRP Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in the MRP Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

MRP Procedure Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Backward Scheduling Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Procurement Proposals Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

BOM Explosion Magal and Word | Integrated Business Processes with ERP Systems | © 2011

BOM for Off-road Bikes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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? Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Outcomes Procurement proposals No financial implications 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. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.5 Run MRP Review run MRP Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Stock/Requirements List Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Exception Message Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Availability in the Stock/Requirements List Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Stock Statistics Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.6 Review Stock/Requirements List and Related Reports Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Stock/Requirements List -- MRP List Comparison Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.7 Review MRP List Review MRP list Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Planning Result Report Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 8.8 Review Planning Result Report Magal and Word | Integrated Business Processes with ERP Systems | © 2011