SAP PP What is MRP & its Process flow

The MRP is useful to give an idea of material availability for requirements. The requirements can be two types such as internal requirements and external requirements.

Here the external requirements are specified from customer requirements that may enter into SAP as a sales order. Where internal requirements are defined as manufacture components on the plant that are supplied as components to finished goods or for satisfying the customer requirements.

This will check the stock level of the material and produce the processing proposals or planned orders that may either converted to purchase requisitions or production orders according to MRP settings.

Master Data for MRP –

The below data is required to carry out a MRP process –

  • Material master
  • Bills of material
  • Work center (in-house production)
  • Routings (in-house production)
  • Demand management
  • Sales and distribution (only if required)

To carry a MRP process the material master is need to maintain accordingly. Because a Material master has several views related to MRP i.e., MRP1 to MRP4.

SAP MRP Process Flow –

The MRP process flow starts with customer requirement that generates from the sales department or marketing department. The customer requirements are entered in SAP by the sales orders and as demand in demand management system.

The output of demand management is Planned Independent Requirements that used in long-term planning.

Now, materials requirement planning is considered. The input to MRP is get from sales order and planned independent requirement if it is applicable. If the MRP run is carried out then the planned order or purchase requisition is generated as per planning run settings.

A Planned order can be converted to a purchase requisition or Production order. The purchase requisition is for external procurement and production order is for in-house production. The SAP then convert all the dependent requirements of planned order to reservations in the production order.

If a planned order is created for external procurement then it need to be reviewed by planners and then required planners convert the planned order to purchase requisition. Otherwise, the purchase requisition is generated automatically and is available for purchasing.

In MRP process a system calculates the net requirements while considering available warehouse stock and scheduled receipts from purchasing and production. During MRP process all levels of the BOM are planned.

The MRP Planning run can be executed at plant level or MRP area level. The planning run is executed for a single material or a material group. The system creates procurement proposals that may be planned orders, purchase requisitions, schedule lines as per the planning run settings. The planning run is total planning for a plant that may single-item single level planning or multi-level single item planning. Planning file entry consists the details of the materials that are included for the MRP run.

The MRP Planning run type based on the processing key in the MRP run screen. There are three types of processing keys –

  • NETCH – Net change planning in total horizon.
  • NETPL – Net change planning in the planning horizon.
  • NEUPL – Regenerative planning.

The production process takes place as follows –

  • Forecasting of the future demand.
  • Demand Planning (Flexible planning / Standard SOP).
  • Transfer Demand Planning data to Demand Management.
  • Demand Management.
  • MRP - Material requirement planning will be done as explained in following steps –
    • The Net requirements are calculated.
    • depending on the various configuration parameters like the requirement type, planning strategy and MRP type etc the planned orders are generated with schedule dates and the quantities.
  • Capacity Planning.
  • Conversion of Planned Orders to Production Orders and execution.

SAP MRP Planning Run –

There are various fields that comes under MRP control parameters control data.

  • Processing key field – net change in the planning horizon.
  • Create Purchase Requisition – has an option for creating purchase requisitions or planned orders.
  • Scheduling Agreement (SA) delivery schedule lines – has an option for creating schedule lines / no schedule lines. For creating a scheduling agreement there should be settings maintained in a source list.
  • Create MRP list – A MRP list is created and displayed when the planning run is executed and saved.
  • Planning mode – Here the planning mode is maintained whether to run normally or delete and create all planning data or re-explode bill of material and routing, if any changes made to master data.

Transactions for SAP MRP Planning Run –

Transaction code: MD01

SAP Menu -> Logistics-> Production-> MRP -> Planning -> Total Planning -> Online.

By using the above transaction code, it enables to carry out the planning run at a plant level. Since this would takes a lot of time for the output to display, it is executed as a background job.

Transaction code: MD02

It is useful to execute a planning run for a material and to explode multi-level materials.

In planning run the MRP is carried for the material and first level of BOM and the other components are not included for planning.

Transaction code - MD04

In this it gives the recent stock/requirement list for a particular material and plant wise. By entering the material and plant, it will give the current stock with requirements or receipts.

Why is MRP important? –

A MRP is done primarily by a specialized software and helpful to ensure the right inventory is available for production process exactly when required and at low possible cost. Because such MRP improves the efficiency, flexibility and profitability of manufacturing operations. It will helps to make factory workers more productive, improve product quality and minimize material and labor costs. It also helps manufacturers react more quickly to increased demand for the products and avoid production delays and inventory stockouts that may result in loss of customers, which otherwise contributes to revenue growth and stability.

It is broadly used by manufacturers and be the key enablers in the growth and wide availability of affordable consumer goods. It also consequently raised the standard of living in so many countries. If it is not possible to automate the complex calculations and data management of MRP processes then it is impossible that an individual manufacturers can increase the operations quickly as they have in a half century from the MRP software is arrived.

How does MRP work? –

A MRP includes the information from the bill of materials, inventory data and master production schedule for calculating the required materials and when they are required in manufacturing process.

A bill of material is a hierarchical list of all materials, subassemblies and other components required to process a product with the quantities that each generally shown in a parent-child relationship. The finished good will be the parent at the top of the hierarchy.

The inventory items in the bill of materials is classified as independent demand or dependent demand. In this an independent demand item is a finished good at the top of the hierarchy. The manufacturers decides its amount by considering the confirmed orders and checking the market conditions, previous sales and other indicators for creating a forecast then decide how many are needed to meet the expected demand.

In other hand the Dependent demand items are the raw materials and components required to make the finished product. For every of these items the demand depends on how many are needed to make the next-highest component in the bill of materials hierarchy.

The MRP is a system that is used to track and manage all the dependencies and for calculating the number of items required as per dates mentioned in master production schedule. In other words a MRP is an inventory management and control system for ordering and tracking the items required for making a product.

The Lead time is said to be the period from when an order is placed and the item delivered. It is another key concept in MRP. The lead times are of many types. The common two types are material lead time i.e., time takes to order materials and receive them and factory or production lead time i.e., how long it takes to make and ship the product after the materials are in. The customer lead time indicates the time between the customer order and final delivery. The MRP system calculates many lead times but some of them are selected by the operations managers and entered manually.

MRP in manufacturing –

The MRP is necessary to the effectiveness, efficiency and finally in the profitability of a manufacturing operation. If there is no proper raw materials and components in time then the manufacturers should not hope to keep with the demand for the products at the optimal cost and quality. They are also less able to react to the fluctuations in demand by adjusting production.

It also make the next stages of production like assembly and packaging may move as smooth and predictable by removing uncertainty over inventory and reducing the time required to manage it.

The MRP is useful in discrete manufacturing i.e., the final products are different items that are counted example bolts, automobiles and process manufacturing that results in huge products including chemicals, detergent which are not separately counted or broken down to their constituent parts.

Benefits of MRP –

Its main objective is to make sure the availability of the materials and components required in production and that manufacturing carried out on schedule.

The additional benefits are –

  • It reduces customer lead times to improve customer satisfaction.
  • It reduces inventory costs.
  • It helps in effective inventory management and optimization through acquiring or manufacturing the optimal amount and type of inventory, companies reduce the risk of stock-outs, their negative effect on customer satisfaction, sales and revenue, by not spending more than required on inventory.
  • It helpful in improved manufacturing efficiency through accurate production planning and scheduling to optimize the use of labor and equipment.
  • It helps in improved labor productivity and more competitive product pricing.

Advantages of MRP –

The advantages of MRP is –

  • It will give assurance that the materials and components are available when required.
  • It will reduce inventory levels and costs associated.
  • It will helps in optimized inventory management.
  • It reduces customer lead times.
  • It will helps in increased manufacturing efficiency.
  • It will helps in increased labor productivity.
  • It will helps in increased overall customer satisfaction.

Disadvantages of MRP –

The disadvantages of the MRP are –

  • Increased inventory costs –
    Since MRP is designed to establish the adequate inventory levels at required times the companies are tempted to hold more inventory than required by driving up inventory costs. The MRP system expects shortages sooner that may lead to over estimating inventory lot sizes and lead times specifically in early days of deployment before users get experience to know the actual amounts required.
  • Lack of flexibility –
    It is also someway rigid and simplistic by how it accounts for lead times or details that impact the master production schedule like the efficiency of factory workers or the issues that may delay delivery of materials.
  • Data integrity requirements –
    It is highly dependent on having the accurate information about the main inputs specifically demand, inventory and production. In case if one or two inputs are inaccurate then the errors can be magnified at later stages. So data integrity and data management are essential for an effective use of MRP systems.

MRP vs. ERP –

An extension to MRP is developed by Wight in 1983 as MRP II i.e., manufacturing resource planning that expand the planning process to include other resources in a company like financials, added process for designing a product, capacity and operations planning, shop floor control and sales planning over many others.

In 1990 the analyst firm Gartner invent term ERP i.e., enterprise resource planning to indicate a still more expanded and generalized type of MRP II that took into account other major functions of a business like accounting, human resources and supply chain management all of them managed in a centralized database. Both the MRP and MRP II are considered as direct antecedent of ERP.

The ERP is quickly broaden to other industries including services, banking and retail that did not need an MRP component. But the MRP is still considered as an important part of the ERP software used by manufacturers.

Steps of Material Requirements Planning (MRP) –

The MRP process is explained four basic steps –

  • By estimating the demand and materials needed to meet the demand. The first step in MRP process is to determine the customer demand and requirements to reach the demand. In this the bill of materials is used to get the information about list of raw materials, assemblies and components required to manufacture the final product. The MRP breaks down the demand into certain raw materials and components.
  • Checking the demand against inventory and assigned resources. In this step it involves checking the demand against that already in inventory. The MRP then distributes resources available accordingly. In other words the MRP assigns inventory to the exact areas it is required.
  • Production scheduling. The next step is to calculate the amount of time and labor necessary for completing the manufacturing. Here a deadline is also provided.
  • Monitor the process. The final step is to monitor it for any issues. The MRP will automatically alert managers for any late and even suggest eventual plans in order to reach the build deadlines.

Types of Data Considered by Material Requirements Planning (MRP) –

The data should be considered in an MRP is –

  • Name of the final product that is creating –
    It is also termed as an independent demand or Level "0" on BOM.
  • What and when info –
    How much quantity is required to reach the specified demand? and When is it needed?
  • The shelf life of stored materials.
  • Inventory status records –
    The records of the net materials available for use that are already in stock and materials on order from suppliers.
  • Bills of materials –
    It includes the details of the materials, components, and sub-assemblies required to manufacture the product.
  • Planning data –
    The planning data includes the restraints and directions like routing, labor and machine standards, lot sizing techniques, quality and testing standards and other inputs to produce items.