Material Planning Data

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Learning Objectives
1. Explain the master data associated with the
material planning process.
2. Analyze the key concepts associated with
material planning
3. Identify the basic steps in the material
planning process and the data, documents,
and information associated with them.
4. Effectively use SAP® ERP to execute the basic
steps in the material planning process.

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Organizational Data
• Client
• Company code
• Plant
• Storage location

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Material Master
• Views discussed for other processes
• Basic data
• Purchasing related
• Sales related
• Accounting related
• Views highly relevant to material planning
• MRP views – plant specific
• Work scheduling – plant specific

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Material Master Data for Material
Planning

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Material Master: Procurement
Type
• In house or internally (production process)
• Externally (procurement process)
• Both
• None
• GBI
• Finished goods: both
• Raw materials: externally
• Semifinished goods: internally
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Material Master: MRP Type
• Identifies which production planning
technique to use
• Consumption-based planning
• Materials requirements planning (MRP)
• Master production scheduling (MPS)

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Material Master: Consumption-Based
Planning
• Derives requirements based on historical
consumption data
• Reorder point planning
• Replenishment lead time
• Safety stock
• Forecast-based planning
• Time-phased planning
• Use of low-value materials

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Consumption-Based Planning

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Reorder Point Planning Example

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 Independent and Dependent
Demand
• Independent demand
• Demand is based on customer (external) demand
• Finished goods, trading goods
• Calculated based on actual and forecasted sales
• Actual sales orders = customer independent
requirement (CIR)
• Calculated demand = planned independent
requirements (PIR)
• Dependent demand
• Demand is dependent on the demand for another
material
• Seimfinished goods, raw materials

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 Material Master: MRP and MPS
• Materials requirements planning (MRP)
• Derives dependent requirements based on
independent requirements
• BOM explosion
• Can plan for all levels in the BOM
• Master production scheduling (MPS)
• Optional step, similar to MRP
• Derives dependent requirements only for the
first level (component) in the BOM
• Executed first for critical finished goods

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MRP vs. MPS

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 Material Master: Lot Size Key
• Procedure to determine the lot size of each
procurement proposal generated by material planning
• Static procedures: fixed quantity based on
• Fixed lot size = predetermined fixed quantity
• Lot-for-lot = exact quantity required
• Replenishment up to maximum stock level
• Period lot sizing procedures: combine requirements
from multiple time periods
• Optimum lot sizing procedures: EOQ, EPQ
• GBI
• All materials: lot-for-lot

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Material Master: Scheduling
Times
• Task is to estimate the time needed to procure
the necessary materials.
• Common estimates are:
• In-house production time
• Planned delivery time
• GR (goods receipt) processing time
• In-house production time is further divided into:
• Setup time
• Processing time
• Interoperation time
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Material Master: Planning Time
Fence

• Used to prevent ERP systems from

automatically changing procurement
proposals during a specific period of time
• Changes can be made manually

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Material Master: BOM Selection
Method
• A single material can have multiple BOMs.
• The BOM selection method identifies the
criteria the ERP system should use to
select the BOM.

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Material Master: Availability
Check Group
• Defines the strategy the ERP system uses to determine
whether a quantity of material will be available on a specific
date
• Most commonly applied method is available-to-promise
(ATP)
• Considers a broad range of elements (MRP elements)
representing both supply and demand for the material
• Supply elements: current inventory, requisitions,
purchase orders, planned orders, production orders, etc.
• Demand elements: sales orders, safety stock, material
reservations, etc.
• Availability check is used by many processes

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 Material Master: Strategy Group
• High-level strategy used in production
• Make to stock (MTS)
• Net requirements planning (Strategy 10):
proposals based only on PIR without regard to
CIR
• Planning with final assembly (Strategy 40):
similar to Strategy 10, but takes sales orders
(CIR) into account via consumption
• Make to order (MTO)
• No inventory
• Sales order (CIR)-based planning
• Sales orders trigger production
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 Material Master: Strategy Group
• Assemble to order (ATO)
• Planning without final assembly
(Strategy 50) or subassembly planning
• Finished product is made to order
(CIR)
• Components are made to stock (PIR)

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Consumption
• When a strategy includes both PIRs and
CIRs, the CIRs are said to consume the
PIRs.
• Proposals are not created by simply
adding CIRs and PIRs
Before Consumption After Consumption
PIR CIR PIR CIR
Example 1 50 60 0 60
Example 2 50 40 10 40

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 Consumption Mode

• Forward consumption
• Backward consumption
• Consumption period

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Consumption Modes

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 Product Groups
• Products with similar planning characteristics or similar
manufacturing processes are placed into a product group.
• Products are aggregated into groups from the lowest level to
the highest level.
• Lower-level groups can be nested within higher-level
groups.
• The lowest-level product group in any hierarchy consists of
materials, either finished goods or trading goods.
• Materials and product groups can be members of more than
one group for different planning scenarios.
• Each member of a product group is assigned a proportion
factor.

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GBI Product Groups

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Product Groups at Apple Inc.

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The Material Planning Process

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 Sales and Operations Planning
• SOP is triggered when the organization wishes to revise
its production plan.
• SOP can also be triggered by unexpected events; for
example, changes in the overall economic outlook.
• SOP uses data from a variety of sources to produce a
production plan.
• SOP can generate several versions of the production plan
based on assumptions concerning economic growth.
• SOP can be either standard or flexible.

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Elements of the SOP Step

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Data in the SOP Step

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 Tasks
• Tasks in the SOP step include:
• Creating the sales plan
• Specifying inventory requirements
• Creating operations (production) plans
• Evaluating the feasibility of the operations plans
• The interface to complete the tasks in SOP is the planning
table, a simple-to-use spreadsheet-like tool.
• The production plan that is generated from SOP is based
on:
• Synchronous to sales
• Target stock level
• Target day’s supply
• Stock level = 0

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Standard SOP Planning Table

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GBI SOP Example

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Outcomes

• One or more versions of the production

plan
• No financial implications
• No material movements
• Therefore no FI, CO, or material documents
are created.

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 Disaggregation
• The plans from SOP must be translated into
plans for the finished product in the product
hierarchy (disaggregation).
• Disaggregation is triggered when a new
production plan is created.
• Organizational data (e.g., plant) and master data
(e.g., product groups) from the production plan
are used to calculate requirements for the
materials in the product group.
• These requirements are then transferred to the
demand management step for further planning.
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Elements of the Disaggregation Step

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Data in the Disaggregation Step

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 Tasks
• The primary task in the disaggregation step is
to translate the plans generated for product
groups during the SOP step into plans for the
materials contained in those groups.
• Disaggregation can be completed for the entire
product group hierarchy or for one or more
levels of the hierarchy.
• Either the production plan or the sales plan
can be disaggregated.

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 Tasks
• Disaggregate the production plan to the next
level
• Disaggregate the sales plan to the next level
• This becomes the sales plan for the next
level.
• Then, calculate the production plan for that
level.
• Disaggregate the sales plan to the material
level
• Calculate the production plan for the
materials.
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GBI Disaggregation Example

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 Outcomes

• Calculate the PIRs for each planning period

• These requirements are then transferred to
demand management
• No financial implications
• No material movements
• Therefore no FI, CO, or material documents
are created.

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Transfer PIRs to Demand
Management

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 Demand Management
• Demand management calculates revised PIRs
for the materials using:
• PIRs from SOP after disaggregation
• Customer orders (CIRs) from the
fulfillment process
• Data regarding planning strategies from
the material master

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Elements of the Demand
Management Step

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Data in the Demand Management
Step

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 Tasks
• The primary task is to create revised PIRs for
the materials.
• Which procedure a company uses to calculate these
requirements depends on the production planning
strategy defined by the strategy group in the
material master.
• Demand management is carried out automatically
by the ERP system.
• The MRP controller monitors the results using a
variety of reports and makes adjustments as needed.

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Outcomes
• PIRs for each material included in planning
• PIRs represent requirements for the
materials for specific quantities and
specific dates.
• No financial implications
• No material movements
• Therefore no FI, CO, or material documents
are created.

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 Materials Requirements
Planning
• SOP: plans at the product group level
• Demand management: plans at the material
level (FG, TG)
• MRP: plans for materials (FG, TG),
components (SFG), and raw materials (i.e., for
all levels of the BOM)
• MRP calculates the net requirements for the
materials.
• MRP creates procurement proposals - to make
or buy the necessary materials.
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 Materials Requirements
Planning
• Activities that affect material availability in different
processes:
• Procurement: purchase requisitions, purchase orders, and
goods receipts
• Fulfillment: sales orders, deliveries, and goods issues
• Production: planned orders, production orders, material
reservations, and goods receipts and goods issues
• These activities, called MRP elements, are used by MRP for
calculating net requirements and generating procurement
proposals.
• MRP can be executed for one plant, for multiple plants, or
within MRP areas.

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Materials Requirements Planning

• Master Production Schedule (MPS)

• Optional
• MPS items are high-impact items.
• Materials planned by MPS are typically finished goods.
• Materials are flagged as master schedule items.
• After planning the master schedule items, MPS creates
dependent requirements for the first-level components in
the BOM of the MPS items.
• After MPS, MRP plans for the remaining materials in the
BOM.

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Elements of the MRP Step

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Data in the MRP Step

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MRP Procedure

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 Check Planning File
• Determine which materials must be planned.
• Any change to an MRP-relevant material generates an entry in the
planning file.
• Changes in material master (e.g, scheduling times, safety stock)
• Changes to an MRP element
• Finished goods are planned first, followed by BOM components and
then raw materials.

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 Calculate Net Requirements
• Determine whether there is a need to procure material.
• Net requirement calculation takes into account all of the relevant MRP
elements to determine if a shortage of materials exists.
• If the MRP type is consumption-based planning, then the formula is:
• Available stock = Plant stock + Receipts
• If the MRP type is MRP or MPS, then the formula is:
• Available stock = Plant stock – Safety stock + Receipts –
Issues
• If available stock is negative, procurement proposals are generated.

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Determine Lot Size
• Lot size procedure is used to determine the quantity
to be included in the procurement proposals.
• Data needed to calculate lot size are included in the
material master: lot size key

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 Scheduling
• Determines whether the material can be procured by the required
date
• Two types:
• Backward scheduling
• Forward scheduling
• Data needed for scheduling are included in the material master.
• ERP systems initially use backward scheduling; if not successful, they
then shift to forward scheduling.
• In backward scheduling the MRP controller can manually adjust the
schedule.

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Backward Scheduling

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Determine Procurement Proposal
• Purpose is to determine the type of procurement
proposal to generate
• Internal : planned orders
• External: three options
• Create purchase requisitions
• Create planned orders, which are converted to purchase
requisitions
• Create schedule lines

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Procurement Proposals

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Determine Dependent Requirements

• For in-house procurement

• MRP generates dependent requirements for the component by
exploding the BOM
• Single-level MRP: Process is terminated after this initial step.
• Multilevel MRP: Calculations are performed for all levels.
• Assemblies have their own BOMs, and MRP creates dependent requirements
for the components in their BOMs.
• Creating dependent requirements can also make entries in the
planning file, which causes further processing.

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BOM Explosion

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BOM for Off-road Bikes

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 MRP Control Parameters

• Processing key
• NETPL: Planning in planning horizon
• All materials for which MRP-relevant changes have been made in
the planning horizon
• Least time consuming
• NETCH: Net change to total horizon
• Planning for all materials for which MRP-relevant changes have
been made
• NEUPL: Regenerative planning
• Planning of all MRP-relevant items
• Most time consuming

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 MRP Control Parameters
• Output of the MRP procedure
• Creation of a purchase requisition
• MRP (1) always creates a purchase requisition for externally
procured materials
• MRP (2) creates planned orders
• MRP(3) creates purchase requisitions only in the opening period
and creates planned orders after the opening period
• Schedule lines applies to scheduling agreements
• Option (1) not to create schedule lines
• Option (2) to create them only during the opening period
• Option (3) to create them only within the planning horizon

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MRP Control Parameters
• Output of the MRP procedure
• Create MRP list
• Determines whether the system will create the MRP list
• Creates the MRP list only for materials for which exception messages
are generated
• Planning mode
• Determines how previously created procurement proposals will be
handled
• Adjusts the quantities and dates of existing proposals, or discards
the existing proposals and creates new ones
• Scheduling
• Should the ERP system calculate only basic dates using the
scheduling times in the material master?
• Should the ERP system perform lead time scheduling using the more
detailed times in the routing?

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Outcomes
• Procurement proposals
• Purchase requisitions
• Planned orders
• Both trigger procurement and production processes
• No financial implications
• No material movements
• Therefore no FI, CO, or material documents are
created.

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References
• Textbook Chapter 8
• Jonsson, P., & Mattsson, S. A. (2002). The selection and application of
material planning methods. Production Planning & Control, 13(5),
438-450.
• Grimson, J. A., & Pyke, D. F. (2007). Sales and operations planning: an
exploratory study and framework. International Journal of Logistics
Management, The, 18(3), 322-346.
• Mabert, V. A. (2007). The early road to material requirements
planning. Journal of Operations Management, 25(2), 346-356.

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