MRP Planning Strategy for SAP

MRP Planning Strategy for SAP 

and 

Difference between Make to Order and Make to Stock

10 - MTS (net requirement calculation)

11 - MTS (Gross requirement calculation)

20 - MTO (Make to Order)

30 - Production by lot size

40 - Planning with final assembly

50 - Planning without final assembly

 Strategy 10 - MTS (net requirement calculation)

Ø  Net requirements planning. That is even the warehouse/storage location stock is also taken into account besides planned receipts / issues during planning for calculating the order quantity. Planned Independence Requirement quantity is reduced at the time of Goods Issue for delivery.

Strategy 11 - MTS (Gross requirement calculation)

Ø  Gross requirement planning. Warehouse / storage location stock is not considered, and only planned receipts / issues are considered. Also Planned Independent Required quantity is reduced during Goods Receipts for production / planned order (Repetitive).  It is generally recommended for mass production industries and process oriented industries where the production has to be carried on, regardless of the stock available. The constraint in such industries is that it is not economically viable / possible to stop production.

Strategy 20 - Make to Order (MTO):

Ø  In the scenario where the material is subjected to MTO, every time when MRP runs and plan for you, the produced quantity is tied to the Sales Order.

Ø  In the MTO scenario, we can see the SO number in the production order.

Strategy 30 - Production only with sales order

                    (Demand Management entry are ignored during MRP run)

Ø   Maintain the following master data for the finished product:

o    Strategy group 30 on the MRP screen

o    Availability check field (on the MRP screen and the Sales: General/Plant screen) so that you can perform an availability check with replenishment lead times (01 in the standard system)

o    Item category group (for example, NORM) on the Sales Organization screen

 Strategy 40 - Make to Order Production

                    (Production triggered by sales order)

Ø  Planned Independent Requirements will be reduced by sales order delivery to reflect the current  stock requirement. (depending on your configuration, sales order will consume the VSF (planned independent requirement) quantity on the same date or two to three days away from it)

Ø  You can set up the consumption parameters in the material master on the MRP screen.

Ø  Check whether the fields Consumption mode, Bwd consumption, Fwd consumption contain entries. If empty, default values are taken from the MRP group parameters in Customizing. If these fields are filled in the material master, they override the MRP group parameters.

Ø  In MD04, VSF will disappear once it is consume by the sales order.

Strategy 50 - Planning without final assembly

Ø  Use this planning strategy when the main value-added process is final assembly.

Ø  This strategy and Planning with a Planning Material (60) are probably the most widely-used strategies in a make-to-order environment. Like all make-to-order strategies, you should use strategy 50 if production is unique for each and every customer; in other words, it is not possible to change the stock for different sales orders. 

Difference between Make to Order and Make to Stock

1. Make to Order (MTO):

In the scenario where the material is subjected to MTO, every time when MRP runs and plan for you, the produced quantity is tied to the Sales Order.

In the MTO scenario, you can see the SO number in the production order.

2. Make to Stock (MTS):

In the scenario where the material is subjected to MTS, there is no assignment/tying of produced quantity to any SO.

The produced quantity will not be tied to any Sales Order and free to be used by any sales order.

If the material strategy group is Make to Order (20) , The stock must be issued from sales order stock

If the material strategy group is Make to Stock (10) , The stock can be issued from unrestricted stock

Example:

SalesOrder  LineItemNo           Material           Strategy Group

01                     10                     ABC000001                    20

02                     20                     ABC000002                    20

03                     30                     ABC000003                    10

04                     40                     ABC000004                    10

Note:

If the material Strategy group is Make to Order (20), but the production order created the stock without sales order reference.

During delivery we have to assign stock to sales order.

Complete Overview of MRP Cycle

                    The main task of Material Requirements Planning is to ensure material availability, that is, to procure the requirement quantities for in-house production and for sale on time.

                    The logistics chain starts off with sales and distribution and demand management. Sales and distribution receives requirements in the form of customer requirements from the market and demand management will plan sales via a sales forecast. The resulting independent requirements trigger materials planning.

                     In order to satisfy demand, the order quantities and dates have to be determined and the appropriate procurement elements need to be dispatched. The procurement elements of materials planning and of external procurement are the planned orders and the purchase requisitions (for external procurement). Both are only internal elements.

                   For materials produced in-house, the dependent requirements are determined by BOM explosion. Dependent requirements are the quantity of components necessary for the production of a finished product or an assembly.

                   When materials’ planning has finished volume planning and time scheduling, the internal procurement elements must be converted into real procurement elements: the procurement element for production is the production order, the one for external procurement is the purchase order.

Materials Planning Procedures in SAP MM (MRP & CBP)

Basically, there are two types of standard materials planning procedures in SAP, which are:

1. Traditional Material Requirements Planning (MRP)

In traditional Material Requirements Planning (MRP), sales order, planned independent requirements, reservations, dependent requirements that are created by BOM explosion, and so on are planned directly as requirements. The materials planning procedure will create procurement proposal only if these requirements will result in shortage of material stocks at a certain time. There are no other requirement that can trigger a procurement proposal. This procedure is used in “PD-MRP” MRP Type in standard SAP R/3. 

MRP is especially useful for the planning of finished products and important assemblies and components (A materials). 

2. Consumption Based Planning (CBP)

Consumption-based planning (CBP) is a materials planning procedure based on past consumption values that determine future requirements by using forecast or other statistical procedures.

Originally, in CBP, planned independent requirements or dependent requirement will not be considered in the net requirements calculation. Instead, it is triggered when stock levels fall below a predefined reorder point or by forecast requirements calculated using past consumption values. So, all the planned independent or dependent requirements in a certain period of time should have been considered before (when set the reorder point or calculate the requirement forecast).

Consumption-based planning procedures are simple materials planning procedures which we can use to achieve set targets with relatively little effort. Therefore, these planning procedures are used in areas without in-house production and/or in production plants for planning both B- and C-parts and operating supplies.

There are three procedures in Consumption Based Planning (CBP), which are:

a.Reorder point planning

In reorder point planning, SAP checks whether the available stocks are below the reorder point that has been set for the material. If they are, SAP will create procurement proposal.

We can determine the reorder point manually (“VB-Manual reorder point planning” MRP Type in standard SAP R/3) or, it can also be calculated automatically using the material forecast (“VM-Automatic reorder point planning” MRP Type in standard SAP R/3).

The reorder point should cover the average material requirement/consumption expected during the replenishment lead time (procurement processing time + planned delivery time + GR processing time). Besides the average consumption, we also should consider safety stock. The safety stock exists to cover both excess material consumption within the replenishment lead time and any additional requirements that may occur due to delivery delays. Therefore, the safety stock is included in the reorder level.

The following values are important for defining the safety stock:

•Past consumption values (historical data) or future requirements

•Vendor/production delivery timelines

•Service level to be achieved

•Forecast error, that is, the deviation from the expected requirements

In standard SAP R/3 system, besides “VB – Manual Reorder Point” and “VM – Automatic Reorder Point” MRP Type, there are also other MRP Types that have reorder point as its basis to calculate requirement with additional procedure which count external requirement (sales order and manual reservation) as a requirement. The MRP Type are: “V1-Manual reorder point with external requirements” and “V2-Automatic reorder point with external requirements”.

b.Forecast-based planning

In forecast-based planning, historical data is used in the material forecast to estimate future requirements. These requirements are known as forecast requirements and are immediately available in planning.

The forecast, which calculates future requirements using historical data, is carried out at regular intervals. This offers the advantage that requirements, which are automatically determined, are continually adapted to suit current consumption needs.

This procedure is used in “VV-Forecast-based planning” MRP Type in standard SAP R/3.

C.Time-phased materials planning

In time-phased planning, historical data is also used in the material forecast to estimate future requirements. However, in this procedure, the planning run is only carried out according to predefined intervals. If a vendor always delivers a material on a particular day of the week, it makes sense to plan this material according to the same cycle, in which it is delivered.

This procedure is used in “R1-Time-phased planning” MRP Type in standard SAP R/3.

Besides all procedures that have been explained above, in SAP R/3 system we can create other procedures according to our own needs. We can do it through configuration with SPRO T-code.