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What is SAP MRP - Material Requirement Planning


 
Study Material Contributed by Ulhas Kavle - Senior SAP Consultant
 
 

What is SAP MRP

 
SAP MRP
 

 

What is SAP MRP - Material Requirement Planning Overview

 

 

Material Requirement Planning (SAP MRP) is a tool which helps in planning the requirement quantities and schedules of a given material. It not only ensures availability of the material for which MRP is carried out, but also ensures availability of the components (of all the BOM levels) below in the BOM structure.  

 

 

Apart from assuring material availability, MRP also carries out scheduling of the procurement proposals using the lead times for the materials/components. When the material is an internally manufactured material, it will use the lead times or operation lead times from the routings/recipes and when the material is an external procured material, it will fetch the lead times or delivery times for the material defined at an appropriate place in the tool/system. Scheduling of the procurement proposals not only derives the capacity loading of the orders on the workcenter but it also calculates the delivery dates of the components that would be requried for manufacturing (delivery date = start date of processing).

 

 

The output of MRP proposes procurement proposals (planned order or purchase requests) so as to gaurantee material availability and at the same time schedule the procurement proposals using delivery lead times for the materials/components. Material requirement Planning can be run for purchased materials or finished saleable materials or subassemblies (semi-finished) used in production.

 

 

While the Material Requirement Planning in SAP ECC (SAP MRP), derives a plan for the materials and helps the planners and supervisors to purchase, produce or sell. It offers all the possible planning methods available in the market like the reorder point planning for the consumption based planned materials, lot for lot MRP planning for the demand based planning materials, forecast based planning methods which uses the past historical figures to extrapolate the future requirements (again a consumption based planning material).

 

 

SAP material requirement planning or SAP MRP, uses the following factors in its planing run:

 

 

a) planning strategies  - made to order or made to stock or its variations

 

b) planning types - type of the MRP run, i.e., consumption based planning methods or demand based planning methods and net requirement planing or gross requirement planning

 

c) lot sizing procedures set for the material

 

d) master data such as BOM or Routings/Recipes, quota arrangements, souce list, vendors, purchase info records. customer masters etc, and transaction data such as sales orders, forecast, planned independent demands (forecasted demand) 

 

 
 
 
 

Presentation of the SAP MRP Documentation

 

 

Presentation of the SAP MRP Documentation

 

 

The SAP MRP Documentation is presented in 11 Simple steps which will be explained in 11 different Links on this website.

 

 

Use the link to Learn SAP MRP in 11 Steps

 

 

 
 
 
 

Types of Demands in an Organization

 
Types of Demands in an Organization

 

 

The following are the various types of demands:

 

 

A) Planned indepedent Demand or Forecasted Demand:

 

 

An organization runs on external demands (visualized demands or forecasted demands) for its products. When you talk of a product that is usually stocked and delivered to the customer from their, it is a typical case of made-to-stock scenario. Since the sales are from inventory, a company has to pile up only a certain quantity enough to satisfy the demand, such type of organizations therefore forecast their future demands based on historical sales, current market popularity of the product, various environmental factors, seasons, etc. Production from such planned independent requirement is a usual characteristics of a made-to-stock scenario.

 

SAP also offers tools for forecasting the future demand using the historical data and playing various other fators on it. SOP (Sales and operation Planning) is one such tool in SAP, where you can forecast future demand using past historical information for a pre-selected organizational structure, for example, you could have the system pull in the historical information for a given organizational segment llike Sales oragnization, Sales Division, Distribution Channel, Material or for a Sales office, Sales division, Material group. The forecast carried out the sales information from specially defined sales information structure can be used as planned independent demand for production over the forecasted period.

 

 

 

B) Demand from Sales order or Customer orders

 

 

On the other hand, you could also have the demand coming in from sales orders and the production is initiated thereafter, such scenarios are typical make-to-order. Manfuacturing after an Order is booked is carried out for products of high value or for products whose design is supplied by the customer or as specified/requested by a customer. For Example, Manufacturing of Jewelry, Aircrafts, Special Purpose Pumps.

 

Note that Made-to-Order can also be initiated for a typical Made-to-Stock Product, in cases where a special customer places a huge order and the manufacturing is triggered seperately for them.

 

You should not be amazed to come across a product which is manufactured as both MTS and MTO.

 

All the above cases are typical make-to-order and such demands come in through sales orders.

 

 

Note - The Sales orders demand coming in for a made-to-stock material is fulfilled using the existing stock, whereas the sales order created for a make-to-order material can never be satisfied using any existing inventory as the inventory created for the material would have been produced for fulfilling other customer orders. 

 

 

 
 
 
 

Evolution of MRP - Material Requirement Planning

 
Evolution of MRP - Material Requirement Planning

 

 

The concept of Material Requirement planning (MRP I) was designed as a tool to help planners with the derivation of the quantities of various material or components that would be required for satisfying a demand and at the same time for deriving the capacity based plan for loading the orders for production on the shop floor. The concept which started as a less integrated mainframe tool has evolved over the years since 1960, from the time it was first designed, to now, where it is tagged as Material Resource Planning (MRP II), a much stronger integrated version of the first MRP, integrating it with the finance, human resource, purchasing and production modules of a business. It also had much stronger and complex codes to take care of a few constraints in capacity and material planning.

 

 

The MRP II jargon later took on to be called as ERP or Enterpise resource planning with the greatest possible integration with a central database server, storing all the integrated data there for making the information and data available across the business, across business modules and across its vendors/suppliers and customers. With the evolution of  ERP (a superior clone of the evolved MRP II) businesses took it as the most wildest tool that they could have to make their business run smoothly, in a much integrated fashion without loosing any information or spoling the intension of the information when it flows across the business.

 

SAP came across as the very first few companies which evolved the concept of MRP II in to ERP and earning for themselves a growing business by selling this new concept. Companies and businesses across the world made use of this ERP tool and the standard processes offered to profit themselves.

 

 

 

 

Material Requirement Planning in SAP Vs SAP SCM:

 

 

The SAP R/3 or ECC has a MRP system that plans for material and capacity (schedules) without considering any constraint and by assuming availability of infinite capacity for the work centers. This gap of SAP ECC was later-on removed with the help of an add-on or a plug-in introduced  by SAP for the advanced planning of requirements; it was called SCM - APO (Supply Chain Management - Advanced Planning Optimizer). This tool worked on much complex and much supreme heuristics with the capability of planning based on finite capacity and constraints. The SCM - APO had modules such as Demand planning which was a superlative version of Sales and Operation Planning (SAP - SOP) in SAP ECC, Supply Network Planning which allowed planning across plants and across geographical locations and allowing businesses to place orders for production or procurement across the global based on time and cost contraints and the PPDS module (Production planning and detail scheduling) which was a detailed version of SAP ECC plant level MRP based Production planning with more brainy heuristics codes which could consider multiple contraints and finite based planning situations in one planning run. 

 

 

 
 

Difference between Made-to-order and Made-to-stock

 
Difference between Made-to-order and Made-to-stock 

 

 

Made-to-stock Scenario:

 

 

If a material is defined as a made-to-stock material, i.e., materials which are not marked with any strategy types or strategy groups in the SAP material master MRP 3 view or materials which are marked with collective requirements in the MRP 4 screen, the system calculates the material requirements through the use of a pretty simple algorithm; where it takes into account the stock in the storage locations, the receipts expected for the materials through purchase or production and the incoming demands.

 

In a made-to-stock scenario, the incoming customer requests are fulfilled from the inventory. The made-to-stock products are normally the consumer products or products which have a monopoly market and are sold out of the existing inventory. Such products are developed and produced continuously over the years till the product comes to the end of its life cycle.

 

In such scenarios, the shop floor or the production team never knows, for whom the product is being produced. The customer demands and the market situations can only be forecasted and used as a basis for future production. In SAP the forecasted quantity is evidently used in a form of planned-independent-requirement.

 

Made-to-stock production quantities are entered in SAP through the use of “Planned independent requirements” (transaction code MD61) which are subsequently planned by SAP MRP run. The planned independent requirements can be entered manually or the requirement can be pulled in from forecast or it can be pulled in from the sales and operation information structures (information structures which carry the sales information at levels defined by the organization).

 

 

Made-to-order Scenario:

 

In cases where the material is defined as made-to-order, i.e., materials which are marked with a made-to-order strategy in the MRP 3 view of the SAP material master and marked with individual requirements in MRP 4 view, the system calculates the material requirements through the use of an algorithm which takes in to consideration the receipts expected for the material through purchase or production and the incoming sales order demands. Here the system does not take into account the storage location stock of the material (since the stock in the storage location for the material is always tagged for a customer order and cannot be used anywhere else).

 

In a made-to-stock scenario, the incoming customer requests are accepted and produced thereafter and ultimately delivered to the very customer. The example of such a scenario can be high end products like jewelry or high end equipments or very costly product. These products are normally configured by the customer and the order is produced according to the customer requirements or by the design provided by the customer. The Sales order is created or configured according to the customer requirements and passed on to the production team.

 

In such a scenario, the tracking of the sales order from its creation to planning to production to inventorying to delivery can be easily tracked unlike in made-to-stock scenarios, where the incoming sales orders are not tracked in the plant, but are fulfilled by the existing stocks.

 

 

 
 
 
 
                                                                                                                                                                                                                                                                                                                                                

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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