DR.

MURALI KRISHNAMURTHY
What is Production Planning?
• Production Planning is the process of aligning demand with
manufacturing capacity to create production and procurement
schedules for finished products and component materials.
• SAP PP is an important module of SAP. It tracks and makes a
record of the manufacturing process flows, for example, the
planned and actual costs. Also, goods movements from the
conversion of raw material to semi-finished goods.
• It is fully integrated with the other SAP modules: SD, MM, QM,
FICO & PM
In any live Production Planning module, locations of
manufacturing plants and storage within the plants,
should be available in the system.
Importance of Plant and storage locations in Production
Planning-
• All Production master data is created at Plant level.
• Planning activities are also performed at Plant level.
• Production Confirmation process and related goods
movement occur at plant and storage location level.
Master data is generally static for any company and is
very rarely changed depending on the requirement.
There are 5 master data to be maintained in Production
Planning module.
Material Master
The material master contain information on all the materials that a
company procures, produces, stores, and sells. It is a number uniquely
identifies a material master record, and hence a material. Materials
with the same basic attributes are grouped together and assigned to a
material type such as finished, raw material, etc.
It is used for the following purposes:
• To purchase materials
• For Goods Movement postings such as goods issue or receipt in
inventory management and also for physical inventory postings
• In invoice verification for posting invoices
• In sales and distribution for sales order fulfilment process
• In production planning and control for material requirements planning,
scheduling, and production confirmation processes.
Bill of Material (BOM)
A bill of material is a complete, formally structured list of the
components together with the quantity required to produce the product
or assembly.
• BOM's are used in material requirement planning and product
costing.
• You can also create up to 99 alternative BOMs for a single product.
• For Products having variants, you can create Super BOM, which has
all possible types of components used to manufacture different types
of variants, and the appropriate component is selected based on
characteristic chosen in the sales Order.
• For example, Product Cycle can contain all types of frames (with
different colours and sizes) and desired frame is selected in
production order based on colour and size chosen in the sales order.
Work Center
A Work Center is a machine or group of machines where production
operations are performed. Work centers are used in task list operations
(Routings).
It contains the data for
• Scheduling
• Capacity
• Costing
Routing
Routing is nothing but a sequence of operation performed at the Work
Center. It also specifies the machine time, labour time, etc. for the
execution of operations.
It is also used for scheduling of operations and used in standard cost
calculation of the product.
Production version
• The production version is a combination of BOM and Routing
data for production. It is a linkage between BOM & Routing
and determines the manufacturing process.
• There can be multiple production versions as per different
manufacturing process to produce the product.
The Production Planning and Control consist of 2 obvious processes of Planning
and Execution.
Planning
• Production planning is generally done from budgeted sales plan. Planning is
based on the Sales plan to meet the sales requirements as per the
production cycle times. Demand for the Product is entered through demand
management in the form of planned independent requirement (PIR). This
data from demand management becomes the input to Material requirement
planning (MRP).MRP checks for the availability of various raw materials used
for production at different stages using the master data such as Bill of
material (BOM) and available current plant stocks.
• In case of material shortage, Purchase requisitions are created for materials
which are externally procured, and planned orders are created for in-house
produced materials.
• These purchase requisitions and planned orders initiate the Procurement
Cycle and the Execution Cycle of Production respectively.
• As MRP works with infinite capacities, capacity levelling must be done in
order to avoid any capacity bottlenecks.
Execution
These Planned orders are converted to Production orders, and are scheduled as
per the production timings using master data such as routings.
• Production Orders are released by the Production Supervisor on the shop
floor, and material availability checks can also be carried out to check if
there are any missing components.
• Production is carried out based on the activities maintained in the Routing
where the master data like Work Center is mentioned against each
operation in the Routing.
• Once the production is completed, the Confirmations of orders are executed,
and goods movement for material consumptions & goods receipt are posted
against the Order. Hence, the Order gets the Delivered (DLV) status, and the
material is received into desired storage location.
• Usually at the month end before doing order settlement, production order
needs to be set to technically completed status in order to calculate
production variances by the controlling personnel.
The function of Demand Management is to estimate requirement
quantities and delivery dates for finished products and important
assemblies. Demand Management uses PIR (planned independent
requirements) and customer requirements.
Planning strategies must be defined for a product. It represents
the methods of production for planning and manufacturing. There
are two methods by which we can do this.
• Make to Stock: Production of goods without having sales orders,
i.e., stock is produced independently of orders.
• Make to Order: This strategy applies to the production of
material for a specific individual sales order or line item.
MRP determines any shortages and creates the
appropriate procurement elements. It does net
requirement calculation and generate planned orders
for in-house produced materials and purchase requisition
for raw materials.
It does lead time scheduling and calculate production
dates in planned orders.
It explodes the BOM and generates procurement
proposals at each BOM levels.
• Capacity Planning is used to analyze the capacity
overloads at work center and shift the orders to avoid
any capacity bottlenecks.
• Capacity requirements are generated via MRP on
Work Center and since MRP works with infinite
capacity and plans everything on work center without
considering any capacity constraints. It is required to
level the capacity at the work center.
• Capacity can be leveled at each work center through
planning table in order to create constraint production
plan.
• The output of MRP will be "Planned Orders", which
needs to be converted to production orders for further
execution of the process.
• The Production Order is firmed receipt element, which
is not affected by MRP run, unlike Planned Orders.
• Production Order is a document which specifies what
material needs to be produced and in what quantity. It
also contains the BOM components and routing
operation data to be performed at the work center.
• Production Order is released for execution, and
material availability checks can be carried out which
determines if there are any missing components.
• When goods are produced physically at the shop floor, then
production order must be confirmed.
• During confirmation, components materials can be consumed
automatically via back flush mechanism and Goods receipt of
material can be performed automatically via operation Control key
in Routing.
• However, instead of auto goods movement, manual Goods Issue and
receipt can be performed separately from confirmation.
• Any failed goods movement due to a deficit of component stock can
be reprocessed manually.
• Activity costs such as machine, labour, etc. will also be updated in the
production order during confirmation on an actual basis.
• The order gets CNF (Confirmed) and DLV (Delivered) status after
final confirmation and final Goods receipt.
• If confirmation is posted wrongly, then we can cancel the confirmation
and post it again with correct data.
• After the production order is delivered completely or
we don't want to execute the order further then Order
should be technically completed.
• After Order gets TECO status, it gets deleted from
stock/requirement list and is no longer considered in
material requirement planning run. All dependent
reservations also get deleted from the system.
• Next, we will look into each phase of SAP PP and
learn how to operate SAP PP module.
What is Bill of Material (BOM) and its role?
• A bill of material is a complete, formally structured list of
the components that make up a product or assembly. The
list comprises of the material number of each component,
together with the quantity and unit of measure.
• BOM can be single level and multi-level. For example,
finished material would contain semi-finished materials as
components which in turn would contain raw materials as
components in next level.
• There can be different alternative BOMs for a product
depending upon the lot sizes, validity dates, and different
production methods.
• BOM is used in production planning for semi-finished
and purchase planning for raw materials.
• BOM's are also used in standard cost calculation for
finished Product by rolling up the cost from raw to
semi-finish and then to finished Product.
• Material BOM can be made for material in PP module
and equipment BOM are used in Plant Maintenance
module.
• Work center is an organization unit where
manufacturing activities are performed.
• In other words, Work Centers are the master data
which represent real machines, Production Lines,
Assembly Work Center, etc. Manufacturing activity or
Operations are carried out at Work Center.
• Work Centers are used in task list (routing) operations
and is copied to production orders or process orders
for the shop floor planning and execution.
Work center data is used for
• Scheduling
When a production order is created, the duration of an operation can be
calculated based on operating times in routing and formulas which are entered
in the Work Center.
• Costing
The costs of an operation can be calculated in the production Order based on
the formulas which are entered in the Work Center. Work Center is also linked
to a cost center.
• Capacity Planning
The available capacity and formulas for calculating capacity requirements are
stored in the Work Center.
• Work Centers are used in routing operation data.
• Work Center is created for a manufacturing plant and is identified by a
code.
• Group of similar machines can also be created as a single Work Center. For
example, 5 similar machines can be created as 1 Work Center with a
number of capacities as 5.
• A routing is a description of which operations or list of activities has to be
carried out during the production and planning process.
• It also tells what order or sequence the activities/operations needs to be
carried out at work centers or machines.
• There may be several alternative routings for a product. For example, product
can be manufactured on 2 manually operated machines (drilling and grinding)
and simultaneously manufactured on 1 automatic machine (which has both
drilling and grinding functions).In this case, Material has 2 alternative routings
viz., automatic machine and manual operated machine.
• Multiple materials can follow same routing group which means a group of
materials can have single routing.
• Routing is used in Production for scheduling and costing of operations for
finished and semi-finished materials.
• Routing's are also used in standard cost calculation for finished Product by
calculating operational cost of finished product.
• Before creating the routing, it is mandatory that Work Centre should be
available in the system.
• The production version is the link between a product BOM (Bill of
Material) and the process Routing. It determines which alternative BOM is
used together with which routing to produce a material or plan a material.
• There may be different production versions based on the lot sizes and
validity dates.
• For example, there may be different versions if you want to produce 1 –
100 litres of paint than 100 – 1000 litres of paint, as such the different
composition of BOM may be required in both cases.
It comprises of the following data:
• The assignment of routings to the production version
• The assignment of the alternative BOM to the production version
• Production versions are used in material requirements planning (MRP),
production order creation, and product costing to select the most suitable
routing and the corresponding bill of material.
What is Planned Independent Requirement(PIR)?
• Planned Independent Requirements (PIR) are used to perform
Demand Management functions.
• A Planned Independent Requirement contains one planned
quantity and one date for a material, or one planned quantity
split over time according to dates.
• PIR version "00" has an active indicator, which specifies that
requirements would be considered in Material Requirement
Planning (MRP).
• If you want to maintain a number of versions of planned
independent requirements, but do not want to include all versions
in the material requirement planning run, you can set some
versions to active and others to inactive, which could be used for
simulations in Long term Planning.
• PIR's are associated with requirement type which is driven from
planning strategies in the material master, which determines
methods of planning – Make to Stock or Make to Order.
• PIR's are displayed in stock requirement list so that Planner can
see and plan the production based on it.
• PIR's are generally used in Make to stock environment where
business wants to build the stock based on the forecast and not
on sales orders.
Planning strategies are broadly categorized into Make to Stock (MTS) and Make
to Order (MTO).
Make to Stock
• Make-to-stock production is implemented if you produce stock without waiting
for sales orders to arrive because you want to deliver your customers
immediately with materials from that stock later on. You might even want to
build stock without having sales orders, if you predict that there might be
customer demand in the near future.
• Make-to-stock strategies are usually associated with a lot-size key or a
rounding value. For example, you may want to produce the entire amount for
the whole month once in a month only, or you may want to produce for the
exact PIR quantity.
• In Planning Strategy 10, only PIR quantity is considered for MRP run and sales
orders are completely ignored. PIR is reduced when you deliver the stock to
the customer. PIR has requirement type LSF – Make to Stock Production
• In Planning Strategy 40, Max of 2 (PIR and sales orders) are considered for
MRP and PIR is reduced as soon as sales orders are entered. PIR has
requirement type VSF – Planning with final assembly.
Make to Order
• You do not want to produce finished products until you receive a
sales order from the customer.
• PIR are not considered in MTO, and only sales orders are
considered in MRP.
• You produce sales order stock and can deliver to the specific
customer only unlike in MTS scenario.
• Planning strategy (20) is widely used for make to order process
and strategy 25 is used for MTO with variant where customer
asks for variants in products.
• The main function of MRP is to guarantee material availability on
time.
• MRP is required to procure or produce the required quantities on
time for in- house purpose or for fulfilling customer demand.
• The main objective is to plan the supply based on requirements
and considering the current stock in hand and meets the
shortages.
With MRP, inventory can be optimized via planning receipts according to the needs so that surplus
inventory could be avoided. Sales and distribution give concrete customer requirements from the
market.
• In Demand Management, sales are planned in advance via a sales forecast. The sales forecast is
entered in demand management in the form of Planned Independent Requirement (PIR), i.e., the
requirement for the finished product. In order to cover these requirements, MRP does net
requirement calculation and plans procurement quantities and dates on which the material needs
to be procured or produced. If a material is produced in-house, the system explodes the BOM
and calculates the dependent requirements, that is, the quantity of components required to
produce the finished product.
• If a material shortage exists, planned orders are created at every BOM level to fulfill the
requirements and purchase requisitions are generated for externally procured raw materials. You
can also create planned orders for externally procured materials which can be converted to
purchase requisition.
• MRP does lead time scheduling and calculates planned order dates based on routing times.
Basically, it does backward scheduling starting from requirement date minus (GR processing times,
in-house production time, float time before production ) and calculates the duration of planned
orders.
• Production orders or Purchase orders are created after conversion of planned orders and
purchase requisition respectively.
• It is used specifically for critical materials usually high valued products where
you do not want changes in your production plan within planning time fence in
next MPS run, and production plan gets firmed automatically as soon as it
comes within planning time fence unlike MRP run.
• A separate run occurs for the MPS items; they are not included in the MRP run.
• Basically, it ensures the availability of the critical resources, which should not
hamper the production by maintaining the stock.
• Planning time fence (number of days starting from current date) is useful in
case of MPS scenario where one can save the procurement proposals
(planned orders) from undergoing any change since the last MRP run.
• No automatic changes happen to the procurement proposals once they enter
in the planning time fence (PTF is maintained in material master). So, all
planned orders in planning time fence get automatically firmed by the system.
• Long term planning (Simulative MRP) is used to simulate the
future demand and supply situation in all BOM levels. The main
function is to check the capacity situation, material requirement
and vendor ability to provide the material in desired time.
• This is not an actual run but a simulative run where actual
planning situation is not being affected, and we can see the
capacity situation of the work centers well ahead in time. If such
information is available in advance, then we can decide at an
early date whether additional machines will be required to cope
with capacity bottlenecks.
• LTP (Long Term Planning) is nothing but MRP run in simulation
version to simulate the production plan for the future.
• It is possible to transfer the plan from simulative version to
operative version "00"(actual planning) if through simulation it is
found that all capacity and requirement can be fulfilled.
• The purchasing department can also utilize the outcome of long-
term planning. They use the information on the future requirement
quantities to estimate future purchase orders. This provides them
with an opportunity to negotiate delivery schedules and contracts
with vendors.
• Vendors also have an advantage from long-term planning results
as they are sent a preview of future estimated purchase orders
and delivery schedules.
• Generally, Planned Independent Requirement (PIR) version can be
either active or inactive. For LTP planned independent version should
be inactive as it is a simulative version. Only active PIR version is being
taken for operative planning (MRP).
• Existing master data can be used for LTP. But to have a different
master data (BOM and Routing) for LTP is also possible.
• If you want to delete the Long term planning data, then you need to
delete the planning scenario and you can re-run whole cycle again
with new requirement again in another inactive version.
• Long term planning data can also be utilized to transfer routing
activity quantities to the respective cost centers. Controlling
department can calculate activity price calculation by dividing the cost
center budget value and activity quantity (calculated by LTP run) which
is used for standard cost calculation.
• The main function of capacity planning is to check the load at
Work Center and do the capacity leveling i.e. balance the load
at Work Center. It helps to calculate the production capacity
based on the requirement of the product against the available
capacity of the work center.
• MRP works with infinite capacity and creates planned orders at
the Work Center at the same time since it assumes that Work
Center is available all the time. So, it creates planned orders on
the same date based on the requirements despite capacity
shortages. You can execute those orders on that Work Center in
the system which is not practically feasible in the shop floor.
• The main objective of the capacity leveling includes leveling
overloads at Work Center and to achieve optimum utilization of
Work Centers.
• MRP generated planned orders are converted to production
orders which determine which Work Center is to be used, and
accordingly the capacity requirements are generated on that
Work Center.
• Capacity leveling at production order level is used for detailed
production planning purpose. This is done through planning table
which is used to carry detailed planning of capacity
requirements over time in future.
• The capacity load needs to be checked at Work Center, and if it
is overloaded, then we need to shift the orders ahead to the
same Work Center or plan it in different Work Center to
eliminate any capacity constraints.
• A production order defines which material is to be processed, at
which location, and at what time and how much quantity is
required. It also defines which components and sequence of
operations are to be used and how the order costs are to be
settled.
• Planned orders are results of running MRP. Shortages of
materials that are set to internal procurement will create planned
orders, which can be converted into production orders.
Production orders are "hard copies"; they cannot be adjusted by
an MRP run anymore.
• BOM and routing data of the materials are copied into the
production order which determines the list of components and
operational data in the order.
• Planned Costs also gets updated in the production order via
component price and routing activity price.
• You can run an availability check on production orders which
determines any missing components in the order so that you can
bring that missing component for the order execution at shop
floor.
• You can print the production order for shop floor which indicates
the list of components to be consumed and what kind of
operations to be performed in sequence at the work center.
• After you have physically produced the material, you can
declare the production through order confirmation which updates
the activities cost such as machine running price, labour price on
the order.
• You can decide to automatically do the backflush (consumption) of components
during order confirmation according to the BOM. The consumption will reduce
the inventory of components and it is carried out with movement type 261 in
SAP.
• You can also post goods receipt of the material automatically during order
confirmation. Goods receipt would increase the inventory of the material, and
it is carried out with movement type 101 in SAP.
• After Order Confirmation, all the cost such as the cost of components and
activity cost will be debited on the order, and once you post goods receipt,
costs will be credited on the order.
• Once, production order is fully confirmed and delivered, or business has
decided not to execute that order, then it needs to be technically closed which
means order will no longer be considered in MRP run and will be deleted
from stock/requirement list. Order reservation on components will also be
deleted.