The material requirements planning process
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The Material Requirements Planning Process. What is MRP?. MRP answers the following questions: What materials are required? How many of the materials are required? When are the materials required?. A Few Key Terms. PIR – Planned Independent Requirements

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What is mrp
What is MRP?

  • MRP answers the following questions:

    • What materials are required?

    • How many of the materials are required?

    • When are the materials required?

A few key terms
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

Mrp and production
MRP AND Production

Mrp problems 1
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

Mrp problems 2
MRP Problems (2)

  • Too little inventory

    • Out of stock conditions

    • Backorder conditions

Cisco case
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

Mrp data dependencies
MRP Data Dependencies

  • Materials (Material masters)

  • Vendors (for acquisition)

  • Production (for estimates)

  • Warehouse (to get raw materials and store finished goods)

Production planning process overview
Production Planning Process (Overview)




Sales & OperationsPlanning

Strategic Planning


Detailed Planning






What causes an mrp
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

Mrp master data
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

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

  • MRP is relevant to both discrete, repetitive, and process manufacturing

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)

  • Mrp types of planning
    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

    Reorder point planning details
    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

    Material master mrp tabs
    Material Master (MRP Tabs)

    • MRP1 – Overall strategy

    • MRP2 – Scheduling

    • MRP3 – Material availability

    • MRP4 – BOM Selection

    Mrp 1 mrp procedure
    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”

    Mrp 1 lot size data
    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)

    Mrp 1 lot size data1
    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)

    Mrp 2 procurement
    MRP 2 (Procurement)

    • Procurement type

      • In-house production

      • External

    • In-house production time

      • This comes from production

      • It can be derived from product routing

    Mrp 2 scheduling
    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

    Mrp 2 net requirements
    MRP 2 (Net Requirements)

    • Safety stock

      • Desired

      • Minimum

    • Safety time ind. is used to enable safety stock calculations

    Mrp 3 forecast requirements
    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)

    Mrp 3 planning
    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

    Mrp 3 planning1
    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

    Mrp 3 planning2
    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

    Mrp 4 bom
    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

    Mrp 4
    MRP 4

    • Define repetitive manufacturing characteristics

    • Storage Location MRP is used to plan for a specific storage location

    Forecasting introduction
    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

    Forecasting models
    Forecasting Models

    • Trend

    • Seasonal

    • Trend and seasonal

    • Constant

    Strategy groups
    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)

    Strategy groups1
    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

    The process of consumption
    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

    Consumption types
    Consumption (Types)

    • Backward

      • CIRs consume PIRs dated prior to the CIR

    • Forward

      • CIRs consume PIRs dated after the CIR

    • Combination

    Consumption illustration
    Consumption (Illustration)

    Lot Size

    Reorder Point

    Safety Stock

    Replenishment Lead Time

    Product groups
    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

    Product group sap
    Product Group (SAP)

    • Transaction MC84, MC85, MC86 to maintain product groups

    Product groups other
    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

    Sales and operations planning sop
    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

    Sop planning
    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

    Sap planning table
    SAP Planning Table

    • It’s a tabular form containing sales, production, and stock-level estimates

      • Sales data derived from forecast

    Sales planning fields
    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

    Sales plan creating
    Sales Plan (Creating)

    • From profitability analysis in management accounting

    • From historical sales

    • From adjusted historical sales

    • Manually

    • From another product group sales plan


    • One the high-level product group plan is complete we disaggregate to the raw material level

    Mrp the final step
    MRP – The final step

    • MRP plans for all elements in the BOM