During the material requirements planning (MRP) process, the Bike Company ensures that they have the necessary materials available at the right time and in the right quantity. You will now learn more about the processes of this step.
Material Requirements Planning Types
First, the Bike Company needs to decide how they want to fulfill their demands of their products. This can be defined by the MRP type in the material master. There are two main MRP types: Deterministic planning and consumption-based planning. Watch the video to get introduced to these concepts:
Let’s get to know the 2 MRP types in more detail:
Deterministic Planning
Deterministic planning often relies on demand forecasts 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 subassemblies (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 work as anticipated demand.
Deterministic planning primarily focuses on high-value A parts. For instance, the Bike Company employs 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 apply this approach to manage items such as screws and nuts.
There are two main 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. You will learn now more about it.
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, 10 screw packages, a replenishment order is triggered to ensure that the stock is replenished in a timely manner.
Reorder point planning is particularly 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 stockouts.
- The replenishment lead time for procurement is known and remains constant.
First Step of the MRP Process – BOM Explosion and Multilevel Backward Scheduling
You control this type of planning using a manually entered reorder point (for example, 50 pieces). 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 useful for materials with the following properties:
The demand remains relatively consistent.
Replenishment of requested inventory is ensured.
The replenishment lead time for procurement is known and constant.
Process Characteristics
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 subassembly (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 should be 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.
Second Step of the MRP Process – Net Requirements Calculation and Lot Sizing
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:
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.
Third Step of the MRP Process – 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. Watch the following video to learn more:
The Bike Company can choose between 3 procurement types:
- E: In-house production
- F: External procurement
- X: Both procurement types
Fourth Step of the MRP Process – Scheduling
In addition to the procurement types, there are two options for scheduling
- Determination of Basic Dates for Planned Orders
- Lead Time Scheduling and Capacity Planning
For scheduling option 1 (Determination of Basic Dates for Planned Orders), 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.
Determination of Basic Dates
With determination of basic dates for planned orders, you set key milestones and deadlines for planned orders. Typically, you include the order start date and the order finish date. The system takes the in-house production times from the material master. This mode is fast, but imprecise.
NoteThe production times in the material master must be valid.
Lead Time Scheduling and Capacity Planning
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. Watch the following video to learn more: