1. The Material Requirements Planning Process

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?

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

4. MRP AND Production

5. MRP Process Flowchart

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

7. MRP Problems (2) Too little inventory Out of stock conditions
Backorder conditions

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

9. MRP Data Dependencies Materials (Material masters)
Vendors (for acquisition)
Production (for estimates)
Warehouse (to get raw materials and store finished goods)

10. Production Planning Process (Overview)
SIS
Forecasting
CO/PA
Sales & Operations Planning
Strategic Planning
Demand Management
Detailed Planning
MPS
MRP
Manufacturing Execution
Procurement Process
Order Settlement

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

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

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

14. MRP vs MPS Master Production Scheduling Material Requirements Planning
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)

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

16. MRP Reorder Point Planning

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

18. MRP (Types of Planning – Illustration)

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

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”

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)

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)

23. MRP 1 (Illustration)

24. MRP 2 (Procurement) Procurement type In-house production time
External
In-house production time
This comes from production
It can be derived from product routing

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

26. MRP 2 (Net Requirements)
Safety stock
Desired
Minimum
Safety time ind. is used to enable safety stock calculations

27. MRP 2

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)

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

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

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

32. MRP 3 (Planning

33. MRP 4 (BOM) BOM Selection Method Requirement Group
Determines which bill of material to use based on
Production version
Date
Order quantity
Requirement Group
Combine or display requirements individually

34. MRP 4 Define repetitive manufacturing characteristics
Storage Location MRP is used to plan for a specific storage location

35. MRP 4

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

37. Forecasting Models
Trend
Seasonal
Trend and seasonal
Constant

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)

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

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

41. Consumption (Types) Backward Forward Combination
CIRs consume PIRs dated prior to the CIR
Forward
CIRs consume PIRs dated after the CIR
Combination

42. Consumption (Illustration)
Lot Size
Reorder Point
Safety Stock
Replenishment Lead Time

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

44. Product Group (SAP)
Transaction MC84, MC85, MC86 to maintain product groups

45. GBI Product Groups

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

47. Global Bike Product Groups

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

49. Top-Level Product Group

50. Second Level Product Group

51. SOP Planning (SAP)

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

53. SAP Planning Table
It’s a tabular form containing sales, production, and stock-level estimates
Sales data derived from forecast

54. Sales Planning Table (Illustration)

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

56. Sales Plan (Creating)
From profitability analysis in management accounting
From historical sales
From adjusted historical sales
Manually
From another product group sales plan

57. Disaggregation
One the high-level product group plan is complete we disaggregate to the raw material level

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