Inventory Planning

Friday, 19th June 2015

MRP and Consumption-based planning are two fundamental SAP

planning types that can be used to determine a products
requirements.

MRP
When you plan a material according to MRP logic it means that its requirements (i.e. how
much of this product do I need in the future) are dependent on:
1. independent requirements determined by a Sales and Operations Planning process
(S&OP or SOP), or;
2. dependent requirements coming from another material of which the material in question
is a component (part of BOM).
The key-word here really is: dependency. The dependency of one materials future demand
to requirements determined else where. MRP is commonly used in a production
environment.

Consumption-based

planning

When you plan a material according to Consumption-based planning logic, the future demand
of the product is always determined by its historical demand. In SAP there are two ways to
approach this:
1. Forecast-based planning: on the basis of historical demand you estimate future
requirements and you procure according to this estimate. This is suitable for materials that
are sold or produced with higher volume. Only then a decent statistical forecast makes
sense.
2. Re-order point procedure: when your stock falls below a pre-determined stock level the
system issues a procurement proposal. This is generally applied to low-volume or bulk
materials. Forecasting on low-volume materials is too error-prone. Forecasting low-volume
materials will result in unreasonably high safety stocks
3. The key-word here is: independency. The materials requirements are determined
independent of another material or process. Consumption-based planning is commonly
used in a wholesale environment, but also in a production environment for some raw
materials, additives and bulk materials.

General
Reorder point planning should be used with relatively constant
consumption materials
If the materials consumption is not constant over time, this
method might result in excess stock (the need to keep high
safety stock) or stock shortage (fluctuations)

procedures in Consumption Based Planning (CBP).

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.
Formula= (procurement processing time + planned delivery time + GR
Processing time) + Safety stock
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.

Methodology

Reorder point quantity

includes safety stock. The PO
quantity depends on the lot
size (e.g., fixed).
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Calculation

MRP
compares the
quantity in
stock + PRs
+ POs to the
reorder point.
There is a
shortage if
the total
quantity is
lower than
the reorder
point.

Add External Requirements to MRP

calculation

Forward Scheduling

CBP calculates the availability date

depending on lead times from todays date
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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.

Backward Scheduling
Forecasting calculates the date when we
should start purchasing according to the
requirement date

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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.

General
Time-phased planning should be used for materials that
are delivered on specific dates
This method works similarly to reorder point planning
the difference is that specific delivery dates are taken as
parameter
To run this method, a specific calendar must be created
and maintained

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Planning Based on Past

Consumption
Planning based on past consumption should be used for
materials whose future behavior can be predicted by
their past consumption
Materials with short life cycle would therefore probably
not be a good choice for planning using this method
Good candidates for planning using this method might
be materials with relatively many consumption periods

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NOTE 1: Planning Based on Past Consumption

Planning based on past consumption should be used for
materials whose future behavior can be predicted by their past
consumption
Materials with short life cycle would therefore probably not be a
good choice for planning using this method
Good candidates for planning using this method might be
materials with relatively many consumption periods

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NOTE 2: Planning Based on Past Consumption

Planning based on past consumption should be used for
materials whose future behavior can be predicted by
their past consumption
Materials with short life cycle would therefore probably
not be a good choice for planning using this method
Good candidates for planning using this method might
be materials with relatively long consumption periods

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Master Data Settings

1. MRP 1
2. MRP 2
3. MRP 3
4. MRP 4
MRP Types:

MRP Types
1. VB (manual reorder point planning)
Reorder Point: for example 100 ( the level of stock at which u want to trigger
replenishment)
MRP type VB just works based on stock levels with reference to Reorder point. If
the stock falls below the reorder point then only the next procurement proposal is
created.
2. VM: automatic reorder point planning
3. V1: Automatic reorder point planning including external requirements
4. V2: Automatic reorder point planning without external requirements
5. ND: no MRP

MRP Planning File

The planning file contains a list of all materials relevant to the planning run. As soon as a material master record is created
with MRP data and a valid MRP type, this material is then automatically included in the planning file.
During MRP run at plant level system checks for the materials which are having indicator activated in planning file and plans
those materials and will not plan the materials for which this indicator is not activated.this reduces the run time of the MRP..
Entry in planning file is deleted immediately after MRP run.
Entry in planning file is again activated when there is change to material with respect to MRP like below.
Change in stock
Change in requirement
Change in MRP data in material master
Change in receipt elements like Planned orders or purchase requisitions
How to see the planning file indicatorgo to transaction MD21
For a planning file entry existing or being updated at all, it is essential that the material requirements planning is active in the
corresponding plant (Transaction OMDU).If you want to set up the planning file later, you can execute this via Transaction
OMDO.
You can execute a consistency check of the planning file entry using Transaction MDRE.

MRP Processing Keys

One of the main settings for the MRP planning run within SAP is the Processing Key. This setting
is the main indicator for which the MRP planning run will execute. There are three processing
keys to choose from are net change planning (NETCH), net change planning in the planning
horizon (NETPL), and online regenerative planning (NEUPL). So the usual question on this option
is when is it best to utilize each of the options?

Net change planning (NETCH)

This is where the MRP planning run checks the planning file and executes for only those materials with the net change
indicator. This is used on your more frequent planning runs as it only runs on planning file entries with the net change
indicator, thus being a very efficient planning run. Typically this is used as your nightly planning run so that it runs quickly
to afford other programs within your organization to also complete in off hours.
Net change planning run in the planning horizon (NETPL) works the same way as the net change planning but it is limited
to the planning horizon. The planning horizon is configured at the plant level, or if you are using MRP Groups, then it can
be set there as well. The planning horizon is the number of days for which MRP will consider requirements for planned
replenishments. Therefore this type of planning run should execute faster than the net change for it is limited to those
materials to be planned within that planning horizon range. For any long cycle time products, this is not a recommended
setting.
The final processing key is the online regenerative planning (NEUPL). This is usually known as a regen, meaning a
regeneration planning run. This is useful to run periodically, weekly or monthly, so that all planned orders are replaced
with a more up to date planning situation. Regeneration planning will ignore the net change indicators and run against the
entire planning file. One of the best reasons for this processing type is that it will eliminate those planned orders that have
aged in place. Aging in place is where planned orders that had not had any further net change indicators being set after
it had been planned.
These explanations for the processing keys should help clarify the differences a little better than is found in the standard
SAP F1 help. This is additional information you can utilize for own organizations documentation of the MRP planning run.

MRP Process

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Richard Opiyo

MM consultant:
ricd2002@gmail.com