MRP – Material Requirements Planning in SAP Business One
6 June

MRP – Material Requirements Planning in SAP Business One

MRP (Material Requirements Planning) and ERP are a pair of siblings, where you don't know exactly which of the two is the older one. Even the latest ERP variants cannot deny their roots, which go back directly to demand planning. It's basically a matter of determining what, how much and when it is needed.

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In the production of less vertical integration and/or smaller quantities, material requirements planning is still easy to master. More complex calculations are required for complex products and larger production quantities. The planned production is an essential building block for the disposition of systems and specialists. Inventory is typically a major cost of doing business and one of the biggest drivers of a manufacturer's profitability.

MRP for different types of companies

While we tend to think of MRP as a manufacturer-only feature, it's important to understand that the term "manufacturer" can be used very broadly. In MRP terms, a manufacturer is any company that acquires components or materials and transforms them in some way. These companies can pursue very different tasks:

  • Merchants who package goods or assemble collections of items into “sets” or combinations for resale as a unit
  • Dealers who assemble customer-specific product configurations to order (warehousing of main and optional additional components and subsequent packaging of the customer-specific product for shipment)
  • Service providers who assemble packages of documentation, equipment, consumables or other physical items that they make available to customers/clients/patients
  • Management of commercial buildings, clinics, government, housing management etc. - for the management of inventories and equipment based on the expected use
  • Foodservice establishments using some form of MRP to manage ingredient inventory, supplies and replenishment

The process of material requirements planning

A modern MRP system is a highly integrated, self-contained system that covers the entire company. It registers with the material requirements planning and ERP are a pair of siblings, of which one does not know exactly which of the two is older. All processes and communicate continuously with the planning and disposition systems. The following steps are followed:

  • Precise definition of what needs to be manufactured. Engineering is responsible for creating and maintaining the BOM for all end products and subassemblies. The end product can consist of several sub-assemblies. Each subassembly can consist of two or more components, and each component can contain multiple parts. A BOM describes the order in which materials are required, which parts are dependent on other parts, and how many of each are required.
  • The system calculates the required quantity and date for the end products needed to meet the demand. The calculation is based on customer orders and sales forecasts, minus the expected inventory. Some companies focus more on customer orders, while other companies use a mix of orders and forecasts to plan for future production.
  • Based on parts list and the production planning for all products, the MRP run determines step by step the assemblies, components and materials that have to be produced or purchased in the planning period. The required quantities are then compared with the available stocks in order to determine the shortfall for each component. Using previously defined parameters, such as lot size, the correct “make-or-buy” quantity is determined for each item. It then calculates the correct sourcing start date using either purchasing or production lead time as required,

The MRP processes in SAP Business One

Set up from base data

The prerequisite for carrying out planning is the definition of planning data. The most important data is defined in the item master record (referred to as the material master record in SAP ECC / S/4 Hana) or at the item group level and then inherited in the data records of the items belonging to this group. When an item is produced, the associated BOM (list of components) is also considered a planning item.

Forecasts for material requirements planning

A forecast of expected demand can also be added. This can be a base forecast
or a so-called intelligent forecast.

With basic forecasting, the user sets the forecast period and selects the frequency with which the item quantity is maintained. The user then enters the quantities manually. After saving, the user can adjust the quantities freely and easily by pressing a button, but the frequency cannot be changed.

With intelligent forecasting, the system offers various algorithms that are used to predict future sales based on historical data. The user can select the intelligent forecast by supplier, warehouse or range of items. The predictions can be revised if the user changes the dependent data. Custom calculation methods can also be used to meet desired requirements.

MRP Assistant

The disposition is carried out using the disposition assistant. Its task is to analyze inventory, supply and demand and, based on the figures determined, to generate recommendations for internal (production, relocation) or external (purchasing) procurement. In practice, supply and demand means open documents such as purchase requisitions, purchase orders, orders, production orders as well as sales offers and order advance invoices. Of course, the numbers are affected by various factors such as minimum/maximum inventory, lot size, lead time for receipt, etc.

Taking all of these factors into account, MRP generates as many recommendations as necessary to meet the demand when it's due. At the same time, this minimizes the amount that needs to be kept in stock. The disposition assistant runs in the following steps:

  1. Select a scenario from the list, or create a new scenario
  2. Definition of the planning horizon for the MRP recommendations and setting the lead time calculation
  3. Selection of the items relevant for the MRP run
  4. Selection of run scope (company level or warehouse level)
  5. Determination of the document sources relevant for the supply and requirement calculation
  6. Generation of disposition recommendations

Display of MRP results in SAP Business One

After the disposition assistant has run, a window with the disposition results appears. There the user can check information about opening inventory, supply and demand, and ending inventory. There is also an option to click on a cell to see the details of the information to understand how that quantity was calculated.

Conversion of material requirements planning

The user can convert the recommendations issued into actual orders (either for internal or external procurement) by using the Order Recommendation feature. This includes a separate window that contains the data displayed in the disposition recommendation. The user can find all the necessary ones there adjustments such as changing supplier/quantity/date, selecting document type, etc. He also has access to specific reports via the context menu, which can help him to make decisions about necessary adjustments. Consolidation of documents for the same supplier to achieve economies of scale.

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