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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 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
  • 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
  • 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