You should read previous post about materials planning overview before reading this post. In this article we will explain in detail about materials planning procedure in SAP R/3. Its basic concept is similar with other inventory control software, but SAP R/3 has its own unique procedures for materials planning.
Basically, there are two types of standard materials planning procedures in SAP, which are:
1. Traditional Material Requirements Planning (MRP)
In traditional SAP MRP system, 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”.
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.
We will write another post about how to configure MRP in SAP R/3 System. Please come back later.