The materials requirements planning (MRP) is the process in which the finished goods requirements are exploded down to the lower levels of bills of materials in order to determine when it will be necessary to procure (either internally or externally) the different materials in them.
Each material can be procured internally (through production orders) or externally (through purchase orders).
Exceptionally, there are some materials which could be procured in both ways. Imagine a product that normally is produced in house, but that sometimes, as there is no enough capacity it is bought or subcontracted to a vendor.
The procurement type is setup in the material master and it will define which kind of MRP elements will be created.
For those materials with procurement type “E” (in-house produced), the MRP will create planned orders, which later will be converted into production orders.
For those ones, with procurement type “F” (externally procured), the MRP will create purchase requisitions, which eventually will be converted into purchase orders.
And for those ones, with procurement type “X” (both types), the MRP will create planned orders which can be converted into production orders or purchase requisition depending on how is decided to procure any of them (decided case by case).
In addition to the procurement type parameter, with the special procurement type we can define other different and not so common functionalities.
For instance, we can define in this field if the material will be procured with subcontracting (especial type of purchase order where we send some components to the vendor for its manufacturing).
We can also define if the material is to be manufactured in a different plant, or if it should be transferred from it.
The MRP type parameter is also setup in the material master (MRP 1 view).
It will define how the MRP will plan this material.
It could be that we don’t want to plan this material with the S/4 HANA MRP so we can enter into it the value “ND”.
The rest of values will plan them and generate MRP proposals if non-covered requirements are found at any time in the future.
There are two main groups of MRP types:
- From the finished good requirement date (customer order or forecast), dates and quantities are calculated to procure the lower BOM levels requirements
- It is used for the materials that are of more value and difficult to obtain
- MRP will make the requirements explosion
- The procurement process is triggered when the stocks goes below a defined threshold
- It is used for cheap materials (stock levels value are not relevant)
- For this type of planning either reorder point or kanban can be used
In order to determine which planning type to use in each material, it is common to make an ABC analysis.
This analysis is not done automatically by S/4 HANA, although there is a field also in the material master where the result can be entered.
In the ABC analysis, materials are classified by cost. For instance:
- A: 20% materials with the highest cost
- B: Next 30%
- C: Rest of materials
Depending on that classification, it is usual to plan them in the following way:
- A: Planned by MRP
- C: Planned by reorder point or kanban
- B: To study case by case
In this classification we must also take into account the obsolescence, the storage costs and the delivery time (among other characteristics specific of each organization).
With the reorder point way of planning, a replenishment proposal will be created once the stock level is below a predetermined quantity.
There are two main ways of implementing it:
- Visual control or kanban cards
- The user enters manually a purchase order in the system when he sees the stock level is below the predefined threshold.
- If kanban cards are use, when a container is depleted, the card is taken to the procurement department for requesting a replenishment.
- SAP control
- The MRP type “VB” is entered in the material master (view MRP 1).
- The reorder point quantity (threshold stock level) is also entered in the MRP1 view.
- When the MRP is run, if the stock at the end of any future day is planned to be below the reorder point, a purchase requisition is automatically created.
In the picture below, we can see how to calculate the reorder point quantity:
In it we can see how the stock level will behave through the time (red lines).
Of course, it won’t follow normally a straight line, but this is just an approximation for understanding the concept.
The reorder point quantity must provide enough stock for the consumption while the replenishment is done. And this will depend on the time our vendor needs to deliver this requested quantity.
As there might be some excesses in the consumption or some delays in the delivery, a safety stock can be added. It will work as a cushion avoiding being run out of stock.
The MRP will go through each of the BOM levels (from the top one to the bottom ones).
For each of the materials in the bill of materials and for each day, it will calculate the balance taking into account the inputs and outputs. And if at the end of the day, taking into account the existing levels, we would run out of stock, it will propose an MRP element in order to avoid it (either a planned order or purchase requisition).
On the other hand, if at the end of the day, there is a surplus of stock, it will remove existing planned orders and purchase requisitions till the end stock is 0.
It won’t move or remove any other MRP element, and even firm planned orders and purchase requisition won’t be touched automatically.
The main inputs and outputs we can have are:
- Demand (sales order or planned independent requirements).
- Dependent requirements (required quantities to fulfill upper level orders).
- Stock in hand.
- Planned or production orders (for internally procured materials).
- Purchase requisitions or purchase orders (for externally procured materials).
Later on, the created MRP elements will be converted:
- Planned orders → Production orders
- Purchase requirements → Purchase orders
A special case of the MRP is the MPS (material production schedule).
It will be used only for the top level and it won’t be exploded to the bottom.
It will allow to work in the production planning without affecting all the lowest level till that production planning is agreed and fixed. Avoiding additional noise in the lowest BOM levels.
It is also possible to run the MRP in simulation mode, verifying the planning at each level and saving it before going on.
The downward explosion will follow a process like this:
Starting from the sales order date, the MRP will go down the BOM and back in time (taking into account the lead times at each level), till calculating the dates in which we must start the procurement and manufacturing of each of the involved materials.
At each of the levels, the MRP will follow these steps:
First of all, in the net requirements calculation, it will calculate if we need to create new MRP proposals for each material.
Next, in the lot size calculation, once it knows it is needed to create additional proposals, it will calculate the quantity.
The lot size calculation, will take into account, for instance, if it is necessary to round up the requirement quantity or if we want to cover the aggregation of the requirements for a period (for instance weekly, monthly, …).
The scheduling will calculate how long the MRP proposal is going to take, so it will get when the requirements must be transfer down to the lower level.