Posted by: ahmedashfaque | August 25, 2014

What is SAP – material requirement planning


In the previous post, we have seen how inventory planning can be done if we can get future information about goods receipts and goods issue. In this post we will see how material requirement planning works in SAP.

Material requirement planning (MRP) is a well known term which is used to know how much quantity of materials needs to be procured from external sources or internal sources so that manufacturing activities can be carried out. There are many ways in which required material quantities can be calculated.

One way is to find out how many sales orders are in hand for which required material quantities needs to be calculated. For doing this method, you need to be working in such an environment where sales orders are taken much in advance for example, 15 days. Now you do calculations for all materials required including raw materials, semi finished materials etc. You deduct any material quantities which are already in inventory. Now you get your required material quantities. You can also calculate when each material is required based on production lead times. The problem with this approach is that, not many industries work in this way. They take some forecast figures along with firmed orders to calculate required quantities of materials.

To take care of forecast data also, the required material quantities can be calculated. But the main problem with each of these 2 approaches mentioned here is that no finite capacities are taken into consideration. For example, it is assumed that all the machines in the plant will produce all the required materials as per sales orders but in reality, each machine has its own capacity limit to produce. Suppose a machine has a capacity to produce 100 kgs of a material per week but as per calculation it is required to produce 200 kgs of that material. This is not possible.

To take care of this problem some developers used some operations management algorithms to calculate material required based on finite capacity constraint. Even SAP has this capability in its mySAP SCM solution. But these solutions still work with some limitations in computations.

The more practical solution for MRP calculations are to use historical consumption patterns along with safety stock. In SAP ERP, this method is used. You can define reorder point, safety stock and other parameters and then run MRP. System will calculate required material quantities. these quantities are in terms of orders.

You have options to convert these orders into purchase requisitions automatically or you can manually convert them.

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Responses

  1. […] the last post we have seen what is MRP and how it is done in SAP. In today’s post we will see how stocks […]


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