The Material Requirements Planning Process

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 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

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

7. 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

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

9. Production Planning Process (Overview) SIS Forecasting CO/PA Sales & OperationsPlanning Strategic Planning DemandManagement Detailed Planning MPS MRP ManufacturingExecution ProcurementProcess OrderSettlement

10. 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

11. 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

12. 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

13. 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)

14. 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

15. MRP Reorder Point Planning

16. 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

17. MRP (Types of Planning – Illustration)

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

19. 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”

20. 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)

21. 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)

22. MRP 1 (Illustration)

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

24. 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

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

26. MRP 2

27. 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)

28. 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

29. 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

30. 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

31. MRP 3 (Planning

32. 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

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

34. MRP 4

35. 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

36. Forecasting Models • Trend • Seasonal • Trend and seasonal • Constant

37. 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)

38. 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

39. 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

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

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

42. 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

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

44. GBI Product Groups

45. 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

46. Global Bike Product Groups

47. 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

48. Top-Level Product Group

49. Second Level Product Group

50. SOP Planning (SAP)