What is SAP MRP - Material Requirement Planning

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

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.