Requirement Planning in SAP

Planning is needed to maintain optimum stock levels to guarantee material availability in most of the
scenarios while minimizing capital lockup due to excess inventory.

Below are the two broad divisions of planning procedures:

• Material Requirements Planning (MRP)

• Consumption Based Planning (CBP)

Before going into the details of the planning procedures and their differences, here are a few related
concepts:

• ABC is an inventory classification system based on Pareto’s principle.

The ABC principle is based on the observation that a small number of items often dominate the
results achieved in any situation. As applied to inventories, it is usually found that the relationship
between the percentage of items and the percentage of annual dollar usage( Based on business
companies may use different criteria other than annual dollar usage to classify their inventory)
follows a pattern in which three groups can be defined:’

Group A- About 20% of the items account for about 80% of the dollar usage

Group B- About 30% of the items account for about 15% of the dollar usage.

Group C- About 50% of the items account for about 5% of the dollar usage.

• The safety stock is an extra quantity of a product which is stored in the warehouse to
prevent an out-of-stock situation. It acts as a buffer against excess material consumption
within the replenishment lead time or any additional requirements that may occur due to
delivery delays.

Differences between MRP and CBP

Material Requirements Planning Consumption Based Planning

Process Material Requirements Planning is carried out Consumption-based planning procedures
explanation using current and future sales figures. use historical consumption data to
calculate future requirements with the help
This may include based on settings: Open of the material forecast or static planning
sales orders and Deliveries, Open Purchase procedures.
Orders and Purchase Requisitions, Open
Planned Orders and Production Orders.
Usage Case Material Requirements Planning is performed Consumption based planning is performed
for A parts for B and C parts and operation supplies
Safety Stock Net requirement calculation is triggered based Net requirement calculation is triggered
on the planned and the exact requirement. based on reorder points or by forecast
requirements calculated from past
consumption data.

Since net requirement is the exact Since net requirements are not the exact
requirement, hence low level of safety stocks is requirements, hence safety stock level
required. should be on a higher side to avoid out-of-
stock situation.
Configuration The MRP field in the MRP1 in the Material The MRP field in the MRP1 in the Material
Aspects Master should be anything between if using Master should be anything between if using
standard: standard:

ND: No planning (For procurement) VB – Manual reorder point planning

PD: MRP VM – Automatic reorder point planning

M0, M1,M*: MPS (which is a special type of VV – Forecast-based planning

MRP procedure)
R1,R2,R*,VS- Time phased planning

Here are some references if you want to learn detailed MRP and CBP processes:

Material Requirements Planning

Consumption Based Planning

Consumption-Based Planning
Purpose
The central role of MRP is to monitor stocks and in particular, to automatically create
procurement proposals for purchasing and production (planned orders, purchase requisitions
or delivery schedules). This target is achieved by using various materials planning methods
which each cover different procedures.
Consumption-based planning is based on past consumption values and uses the forecast
or other statistical procedures to determine future requirements. The procedures in
consumption-based planning do not refer to the master production schedule. That is, the net
requirements calculation is not triggered either by planned independent requirements or
dependent requirement. Instead, it is triggered when stock levels fall below a predefined
reorder point or by forecast requirements calculated using past consumption values.

Implementation Considerations
Consumption-based planning procedures are simple materials planning procedures which you
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 .

The prerequisites for implementing consumption-based planning are:

▪ If you use forecast requirements, the consumption pattern should be fairly constant or
linear with few irregularities.

▪ Your Inventory Management must function well and should always be up-to-date.

Integration
Consumption-based planning is integrated in the Materials Management component. You
can access the consumption-based planning functions from the SAP Easy Access Menu by
choosing Logistics Materials Management Materials Planning MRP.

See also: Overview of the Transaction Codes for Consumption-Based Planning

Features
MRP Procedures

In consumption-based planning, the following MRP procedures are available:

▪ Reorder point procedure

▪ Forecast-based planning

▪ Time-phased materials planning

Creation of procurement proposals

The type of procurement proposal to be created automatically in the planning run depends on
the procurement type of the material. For in-house production, the system always creates a
planned order. For external procurement, the MRP controller can choose between a planned
order and a purchase requisition. If the MRP controller chooses a planned order, it then has to
be converted into a purchase requisition in a separate step so that it is made available to
Purchasing.

The advantage of creating a planned order is that the MRP controller has more control over
the procurement proposals. The purchasing department cannot order the material until the
MRP controller has checked and converted the order proposal.If a purchase requisition is
created, it is immediately available to the purchasing department which then takes over the
responsibility for material availability and warehouse stocks.

Planning at plant level or for MRP areas

As materials planning is usually carried out at plant level, all available stock in the plant
(from now on described as available warehouse stock ) is taken into account during planning.
However, stocks from individual storage locations can be excluded from requirements
planning or they can be planned independently. These stocks are then not included in material
requirements planning at plant level. On the other hand, consignment stocks from the vendor
are always included in MRP.

You can also carry out MRP for individual MRP areas.You can define the MRP areas. This
means, for example, that you can group several storage locations into one MRP area and
carry out MRP for this MRP area.

Lot-sizing procedures

The standard lot-sizing procedures are available in the SAP system. However, you can quite
easily integrate your own formulas without much effort.

Automatic planning run

The automatic planning run determines shortages and creates the appropriate procurement
elements. The system creates notes for critical parts and exceptional situations providing you
with the necessary information for processing the planning results.
Overview of the Main Transaction
Codes for CBP
Transaction Activity

MD01 Carry out total planning online

MD03 Carry out single-item, single-level planning

MDBT Carry out total planning in background mode

MD05 Display MRP list

MD06 Access collective display of MRP list

MDLD Print MRP list

MD04 Display current stock/requirements list

MD07 Display collective display of current stock/requirements list

MD11 Create planned order

MD12 Change planned order

MD13 Display planned order (individual)

MD16 Access planned order (collective display)

MD14 Convert planned order to purchase requisition (individual conversion)

MD15 Convert planned order to purchase requisition (collective conversion)

MD20 Create planning file entry

MD21 Display planning file entry

MDAB Set up planning file entries

 MDRE Consistency check of planning file entries

MRP Procedures in Consumption-Based Planning

Use

In consumption-based planning, the following MRP procedures are available:

▪ Reorder point procedure

▪ Forecast-based planning

▪ Time-phased materials planning

Reorder Point Planning

Use
In reorder point planning, procurement is triggered when the sum of plant stock and firmed
receipts falls below the reorder point .

Features
The reorder point should cover the average material requirements expected during the
replenishment lead time.

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 reorder point:

▪ Safety stock

▪ Average consumption

▪ Replenishment lead time

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

Manual Reorder Point Planning

In manual reorder point planning, you define both the reorder level and the safety stock level
manually in the appropriate material master.

Automatic Reorder Point Planning

In automatic reorder point planning, both the reorder level and the safety stock level are
determined by the integrated forecasting program.

The system uses past consumption data (historical data) to forecast future requirements. The
system then uses these forecast values to calculate the reorder level and the safety stock level,
taking the service level, which is specified by the MRP controller, and the material's
replenishment lead time into account, and transfers them to the material master.

Since the forecast is carried out at regular intervals, the reorder level and the safety stock
level are continually adapted to the current consumption and delivery situation. This means
that a contribution is made towards keeping stock levels low.

Reorder Point Planning Procedure

Prerequisites
▪ You have set an MRP type for reorder point planning in the material master (MRP
1 view).

Note

You define MRP types in Customizing for MRP in the IMG activity Check MRP Types.

▪ In the material master, you have entered or let the system automatically calculate and
enter the values for the reorder point (MRP 1 view) and for the safety stock (MRP
2 view).
Process Flow
1. The continuous monitoring of available warehouse stock within reorder point
planning is carried out in Inventory Management.

2. Every time a material is withdrawn from the warehouse, the system checks whether
this withdrawal has caused stock levels to fall below the reorder level. If this is the
case, the system makes an entry in the planning file for the next planning run (see
also Checking the Planning File).

If a material is returned to the warehouse, the system checks in exactly the same
way whether the available warehouse stock exceeds the reorder level again. If this is
the case, an entry is made in the planning file, which acts as an indicator for the
planning run to delete any unnecessary procurement proposals.

If planned receipts are no longer required due to material returns, for example, then
the system will suggest that these receipts should be cancelled. In this case, the MRP
controller in cooperation with Purchasing or Production must check whether the
purchase order or the production order can be cancelled.

3. The system then calculates the net requirements. The system compares the available
stock at plant level (including safety stock) plus the firmed receipts that have already
been planned (purchase orders, production orders, firmed purchase requisitions and so
on) with the reorder point. If the sum of the stock plus receipts is less than the reorder
point, a material shortage exists.

4.
5. The system then calculates the procurement quantity according to the lot-sizing
procedure defined in the material master.

6. For reorder point planning, the system supports the Fixed lot size and Replenish up
to maximum stock level lot-sizing procedures.

You can also use period or optimum lot-sizing procedures for reorder point materials.
In this case, you must calculate future requirements using the forecasting functions.
The forecast values are then interpreted as requirements.

7. The system then schedules the procurement proposal, that is, the system calculates
the dates on which the purchase order has to be sent, or when production has to begin
and the date on which the vendor has to deliver the goods or by which production has
to have the goods ready.