Understanding SAP Consumption Based Planning – MRP (Part I)

Amazon's warehouse

Amazon's warehouse

Companies face the problem that their customers want finished goods available in less time than it takes to produce them. In order to achieve this, they need to adopt a planning strategy, and this is found in Materials Requirement Planning (MRP).

The main objective of  MRP is to guarantee material availability. Thanks to the MRP the company is able to:

  • Make sure that material is available for production and delivery to customers
  • Mantain the lowest possible level of inventory
  • Plan manufacturing activities, delivery schedules and purchasing

MRP can be done at plant or area level. MRP area planning is useful if want to restrict the planning to certain storage locations, whereas with MRP at plant level the system considers stocks from the storage locations within the plant, excluding stocks already reserved.

Basically, the MRP process starts with the requirements given directly by customers and with those planned in advance via sales forecast by Demand Management. In order to cover these independent requirements, MRP runs and calculates procurement quantities and dates. If a material is produced in-house, the system also calculates the dependent requirements, that is, the quantity of components required to produce the finished product or the assembly, by exploding the Bill Of Materials (BOM). If a material shortage exists, planned orders are created at every BOM level to cover requirements. These planned orders,  will be converted into Production Orders or Purchase Requisitions (PurReq). Normally, PurReq will generate Purchase Orders (PO).

MRP Procedures

In Consumption Based Planning, SAP uses the past consumption data to calculate the future requirements. There are three procedures within MRP:

  • Re-order point planning
    • Procurement is triggered when the sum of plant stock and firmed receipts fall below the reorder point
    • The reorder point is calculated as the material demand during replenishment lead time
    • The Safety Stock (SS) takes care of both excess material consumption within the replenishment lead time and additional requirements that may occur due to supply delays.

      Where:
      z = service factor based on desired service level
      L = average lead time
      σD =standard deviation of demand
      D = average demand
      σL = standard deviation of lead time
    • We can use Manual Reorder Point or Automatic Reorder Point
      • Manual Reorder Point: The planner manually enters the reorder point and the safety stock in the individual material master record. It corresponds to the MRP type VB.
      • Automatic Reorder Point: The system calculates the reorder level and the safety stock level using past consumption data of the material to forecast future requirements. It corresponds to the MRP type VM.
  • Forecast based planning
    • It is also based on historical data -the past material consumption data- and future requirements are determined by the forecasting program
    • Here the forecast values are used in MRP as the forecast requirements
    • Based on the consumption pattern the system changes the forecast requirements for future
    • MRP type needs to be entered as VV
  • Time phased planning
    • In this MRP procedure, the date of the planned requirement should coincide with a known date, such as the date when the supplier delivers
    • Requires that the material forecasting be completed for the material
    • MRP type needs to be entered as R1

The Planning file and running MRP

The Planning file contains the details of the materials that are to be included for the MRP run. MRP is to be activated for the plant, an entry for the material is to be made in the planning file for the specific plant for the MRP to happen.

  • MD20: T-Code for creating planning file (MDAB in the background)
  • Activate MRP & setup planning: Navigation path IMG → Materials Management → Consumption-Based Planning → Planning → Activate Material Requirements Planning

These are the SAP transaction codes to run MRP:

  • MD01: MRP Single Plant
  • MD02: MRP Single-Item, Multi-Level
  • MD03: MRP Single-Item, Single-Level

But planning run type depends on the processing key in the MRP run screen:

There are three types of processing key:

  • NETCH (Net change planning in total horizon)
    In this run, the system considers those materials in the planning run from their last MRP run in the total horizon. It depends if there was any change in stock, PurReq’s, PO’s, etc.
  • NETPL (Net change planning in the planning horizon)
    In this run, the system considers those materials in the planning run which have undergone any change in the planning horizon defined. Therefore, the number of materials to be taken for MRP Run can be restricted by defining the planning horizon.
  • NEUPL (Regenerative planning)
    It plans all the materials for the MRP Run irrespective of the changes they have undergone. This plan takes a long time to obtain the final result.

In the next article (MRP part II), I will explain in detail the planning process, stock requirement list, lot sizing procedure and how to analize and manage MRP traffic lights.

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About Darío Franco
I enjoy reading science books and making photos. Passions: Technology, websites, management, running, MTB, nature, adventure sports and snowboarding. Favourite quote: “Whatever you are, be a good one.” Abraham Lincoln.

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