Outlining Basic Concepts of Production Planning

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 two MRP types in more detail:

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.

The MRP planning can be executed for a specific header product as well as for a huge number of materials in a background process (MRP-Run). The main goal of the Material Requirement Planning (MRP) is to cover relevant requirements in time. Coming back to our example of the Bike Company, the company produces its own bicycles consisting of assemblies and individual parts. In case of a Deterministic Planning the process starts based on the demand (date) of the customer order, that means the requested material availability date. Taken into account that date the first internal step will be executed, the 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 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 should be available by the requested date.

This process considers parameters such as procurement lead times, production lead times, transit times, and any other relevant durations 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:

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.

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

In addition to the procurement types, there are two options for scheduling

1. Determination of Basic Dates for Planned Orders
2. 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 every planned order as a basis for capacity planning.

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.

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: