Introduction
Using a material requirements planning (MRP) process, the Bike Company tries to ensure that they have all necessary materials available at the right time and in the right quantities to fulfill their demands.
This can be achieved using several different approaches to planning. In SAP S/4HANA, this is defined by the MRP type assigned to a material in the material master. There are two main groups of MRP types: one group of types for deterministic planning, and one group of types for consumption-based planning.
Deterministic Planning
Deterministic planning often relies on demand forecasts (and/or sales orders) to calculate material requirements. MRP is executed for the entire bill of material (BOM) structure of a product, including its components and sub-assemblies (multilevel).
Customer orders and independent requirements, such as forecasted demand, serve as the starting point for the requirements calculation. Customer orders specify the desired quantity and delivery dates requested by customers, while independent requirements represent anticipated demand.
Deterministic planning primarily focuses on high-value A parts. For instance: the Bike Company could employ deterministic planning for their high-end bikes.
Consumption-Based Planning
Consumption-based planning provides a simpler and more automated approach to materials planning by relying on historical consumption data and triggering replenishment based on predefined thresholds.
During MRP, procurement proposals are generated based on the consumption-based planning approach. This approach mainly focuses on managing less critical low-value B parts and C parts. The Bike Company can for example use this approach to manage items such as screws and nuts.
There are two main sub-approaches within consumption-based planning. The first approach involves forecasting techniques or statistical procedures to predict future requirements based on historical consumption data. The second approach is known as "reorder point planning".
Reorder Point Planning: One Solution for Consumption-Based Planning
Within consumption-based planning, the second approach is known as reorder point planning. The following image illustrates how this method works:
In reorder point planning, a predefined reorder point is established for each material. When the stock level of a material falls below the reorder point, for example, 500 screws, a replenishment order is triggered to ensure that the stock is replenished in a timely manner.
You control this type of planning using a manually entered reorder point (for example, 500 screws). In case the system recognizes a stock lower than this reorder point, the system triggers a receipt element taken into account the settings for lot sizing.
Reorder point planning is suitable for materials with the following properties:
- The demand for the material remains quite consistent.
- The replenishment of the requested inventory must be ensured to avoid shortages.
- The replenishment lead time for procurement is known and remains constant.
Overview of Steps in MRP Planning
Step 1: BOM Explosion and Backward Scheduling
Backward scheduling is a key concept in material requirements planning (MRP) that helps to determine the start and finish dates for the procurement or production activities of materials based on the requested availability date for the finished product. In the following image, you can learn more about backward scheduling:
In backward scheduling, the system starts with the requirement date of the finished product, which is derived from a sales order. Based on this date, the system executes a backward scheduling through the whole bill of materials (BOM), considering the lead times and dependencies of each component and sub assembly (multilevel backward scheduling).
The goal of backward scheduling is to calculate the appropriate start and finish dates for each production or procurement activity following the main goal: the finished product is available by the requested date.
This process considers factors such as procurement lead times, production lead times, transit times, and any other relevant factors that impact the availability date of materials.
The initial point for MRP is a net requirements calculation. The system only carries out an MRP planning in the case of a net requirement. The following image shows how the system executes a net requirement calculation, taking into account all relevant demand and supply elements:
Steps 2 and 3: Net Requirements Calculation and Lot Sizing
In the case of a net requirement (shortage), the system calculates the quantity of the necessary receipt element to resolve this shortage. Therefore, it takes into account the lot procedure specified in the material master. The lot procedure defines how the lot size is calculated for procurement or production orders. There are various lot-sizing methods available, such as exact lot size, fixed lot size, or weekly lot size, among others.
For every requirement for which the available stock for planning is insufficient, the system creates a procurement element to procure (at least) the quantity that the available stock for planning is unable to cover.
You can define the safety stock level per plant in the MRP 2 view of the material master or per MRP area in the MRP area segment. Safety stock reduces the stock available for planning. When the inventory is lower than the defined safety stock level, the system replenishes the safety stock during the planning run. Note that this is also the case if the safety stock is only slightly below the defined safety stock level.
This type of safety stock is independent of the requirement quantities and is therefore static.
If there is a material shortage, the system determines the net requirement (shortage quantity).
In the net requirements calculation, the system determines the shortage quantities on the respective requirements dates. These shortage quantities must be covered by receipt elements. The system specifies the number of receipts during a planning run in the lot size calculation.
You can define how the lot sizes are calculated by selecting a lot sizing procedure when maintaining the material master record (MRP 1). The result of the lot size calculation is the quantity to be produced or procured, which you can change and display in the order proposal.
The net requirements calculation is the first step in the material requirements planning run and is executed at plant level or at MRP area level. During this process, the system checks whether the requirements can be covered by the available warehouse stock and fixed dispatched receipts. If shortages exist, the system creates a procurement proposal.
Based on that quantity, the system carries out the planning, taking into account the procurement type from MRP 2 view of the material master.
Step 4: Sourcing and Procurement Types
As a result of the previous step, we have now determined the quantity we want/need to replenish. After lot sizing has determined the quantity needed to be replenished, the next step is to determine whether the material will be produced in-house or procured externally. This determination is based on the procurement type assigned to the material.
After lot-sizing has determined the procurement quantity, the procurement type is used to determine whether the material is to be produced in-house (that is: E), or procured externally (that is: F). This also then determines whether planned orders or purchase requisitions need to be created.
The procurement type depends on the material type. If the procurement type permits, both in-house production and external procurement can be allowed (that is: X).
Material requirements planning (MRP) starts with in-house production. Special procurement types can define the procurement type more precisely, if required. Based on the procurement type, the master data settings and the MRP parameters, planned orders or purchase requisitions are scheduled.
The Bike Company can choose between three procurement types:
- E: In-house production
- F: External procurement
- X: Both procurement types
Step 5: Scheduling and Scheduling Types in Production Planning
Scheduling takes place for materials produced in-house and procured externally using the corresponding time elements. With products that are produced in-house, you can take the supply planning across all BOM levels into account.
During scheduling, the system calculates the start and finish dates of the procurement elements for materials produced in-house or externally. To calculate these dates, the system uses the in-house production time for parts produced in-house and the delivery time in the material master or purchasing info record for parts procured externally.
There are two methods for scheduling in production planning that are applied differently. If material requirements planning is carried out without lead-time scheduling (as shown in the upper part of the figure above), capacity requirements are not determined for the planned orders.
Production orders are always scheduled with lead time scheduling using the operations. Lead-time scheduling can also be used to determine capacity requirements for planned orders in MRP. The production order always has both sets of dates (basic dates and production dates). The production dates are dates relevant to production.
To ensure smooth material requirements planning, it is essential to schedule the routing and to update the scheduling result in the material master.
Normally, MRP tries to cover demands using backward scheduling. Backward scheduling is based on the following principles:
The starting point is the requirement date of the finished product (for example, received as the material availability date of a sales order). Based on this material availability date of this element, the system carries out a backward scheduling over the whole BOM structure.
Proposals are created to cover the net demand on each level of the BOM. The system calculates the start and finish dates of the dependent requirements for the components and sub-components during the BOM explosion. The start date of a component defines the end date of the related sub-components.
For scheduling option 1 (basic date scheduling), in combination with in-house production, the following time elements are involved in backward scheduling of basic dates:
- Goods receipt processing time: With backward scheduling, the system calculates the order finish date by subtracting the goods receipt processing time from the desired availability date. This gives the number of workdays that are required for checking the material and placing it in storage after the goods are received.
- In-house production time: The system calculates the order start date by subtracting the in-house production time from the order finish date. The in-house production time comprises the lead time and floats (safety time, float before production, and so on).
- Opening period: The opening period reflects the processing time the MRP controller requires to convert planned orders into production orders. It is then subtracted from the order start date. This gives the opening date.
After scheduling, the order start date is determined. If this leads to a start date in the past, it is possible to execute a forward scheduling automatically, if allowed.
Executing planning using parameter 2 (Lead Time Scheduling and Capacity Planning), the system calculates more detailed figures, taking into account the detailed durations maintained in the related routing. In addition, it determines the required capacity for this planned order.
If an order start date is calculated during backward scheduling with a start date in the past, the system automatically switches to forward scheduling, using the current date as the order start date.
The time elements involved in forward scheduling are the following:
In-house production time
The in-house production time is added to the current date and leads to the order finish date. The system calculates the availability date by adding the goods receipt processing time to the order finish date.
Goods receipt processing time
The number of workdays required for checking the material and placing into the storage.
As stated, in addition to the scheduling of basic dates, you can also trigger lead-time scheduling in MRP for in-house procured materials to calculate production lead times, capacity requirements, and material staging information for the components. The system calculates these dates based on master data information (material master, routing, work center, BOM). The order start and finished date results from backward scheduling of basic dates are involved in lead time scheduling. The basic date scheduling is a prerequisite for lead time scheduling. It runs implicitly if you have not processed it before.
In backward scheduling, the system first calculates back from the requested order finish date to calculate the float after production date, which is equal to the production finishing date. The individual operations of the task list are scheduled backwards, starting from the production finishing date. This leads to the production start date.
Scheduling for External Procurement
In lead time scheduling and capacity planning, the system determines the in-house production times from master data information (material master, routing, work center, BOM) to calculate production lead times, capacity requirements, and material staging information for the components.
In the case of externally procured materials, the scheduling follows a similar approach to basic date scheduling.
Results of Material Requirements Planning (MRP)
If MRP identifies shortage quantities, procurement proposals (planned orders/purchase requisitions) are generated during MRP planning. For execution, they are converted. Planned orders can be converted into production orders, process orders, or purchase requisitions. Purchase requisitions, planned orders, and scheduling agreement scheduling lines are still planning elements that can be changed, rescheduled, or deleted at any time. After the conversion of planned orders or purchase requisitions, production orders, process orders, and purchase orders will be created and will not be changed during further planning runs.