SAP MRP, Material Requirement Planning, empowers organizations to streamline their supply chain operations, enhance productivity, and maintain optimal inventory levels, and guarantee material availability whenever and wherever it’s needed.
By leveraging a comprehensive planning solution, like SAP MRP, companies are enabled to revolutionize the way they plan and manage their material requirements and minimize production costs across the board.
This article will discuss the core components and capabilities of SAP Material Requirements Planning and a few key tips and tricks to make the most of your MRP investment, as well as where our team of SAP consultants can come in to help.
Read on to learn more!
What is Material Requirements Planning?
Material requirements planning (MRP) is a system designed to help companies plan and execute production processes, including defining necessary materials, estimating quantities for each product and material, outlining master production schedules, and managing delivery timelines after production.
MRP systems not only help organizations across industries streamline manufacturing production operations, but built-in supply chain planning tools and accurate calculations also improve the speed of production and reduce costs across the board.
This way, companies can meet evolving consumer demands, create reliable products, and improve productivity across teams without breaking the bank.
MRP vs ERP — What’s the Difference?
While Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP) systems are often interconnected and share common features and capabilities, there are a few key differences to note.
Let’s take a look at a few key differences between the two planning systems:
Scope and Functionality
On one hand, MRP focuses specifically on material planning and inventory management, including calculating material requirements based on demand forecasts, existing inventories, and current sales orders, to ensure proper material availability, no matter what.
On the other, ERP is a comprehensive system that integrates core finance, human resources, manufacturing, and supply chain planning operations into one centralized platform to coordinate more efficient production processes across the board.
When it comes to managing and optimizing core business processes, MRP primarily focuses on determining when and how much to order or produce materials to meet demand and optimize the flow of materials.
ERP focuses on a broader range of business processes, including customer relationship management, inventory management, and production planning, to connect and optimize cross-functional workflows.
MRP systems often exist as a single module or component within an ERP system and can be integrated into the overall ERP framework and facilitate better coordination across the MRP run.
ERP systems are designed to integrate multiple modules into a unified platform to share data in real-time, connect operations across teams, and provide a more holistic view of availability and performance.
While MRP systems place an emphasis on inventory management and production planning to optimize material planning and minimize costs, ERP systems focus on the overall management and optimization of business processes to improve efficiency and productivity across the entire organization.
What is MRP in SAP?
SAP MRP (Material Requirements Planning) is designed to help companies generate MRP lists and manage their inventory and production processes more efficiently across the entire enterprise. The SAP MRP tool calculates material requirements based on demand, taking into account factors like sales orders, forecasts, existing stock levels, and outlined events in the master production schedule.
By analyzing these inputs, MRP generates procurement proposals, such as purchase requisitions or planned orders, to ensure that materials are available wherever and whenever they’re needed. SAP’s MRP system also considers various parameters, including lead times, safety stock, and reordering policies, to optimize the planning process and avoid stockouts or excess inventory in the warehouse.
With its comprehensive planning features and integration capabilities, SAP MRP streamlines supply chain operations and enables organizations to maintain optimal inventory levels, while meeting evolving customer demands in the process.
There are a few key master data sources required to carry out the MRP process in SAP, including:
- Data from the material master record
- Bill of materials
- Work center data for in-house production
- Routing data for in-house production
- Sales and distribution data (if required)
- Demand management
How Does MRP Work in SAP?
Here are the key steps included across the MRP process flow in SAP:
1) Define production requirements.
The first step in the MRP process flow involves accurately defining what needs to be produced to create the final product for customers, including the creation and management of a bill of materials (BOM) for all final products and sub-assemblies.
With a well defined BOM, users can keep better track of all the required components for each product, ensure materials are used in the correct order according to priority, better understand how each part and material is related to each other, and outline the right material quantities for each product.
2) Quantify demands.
Once requirements for production have been outlined and approved, users can leverage SAP MRP capabilities to calculate the required quantity for each material and outline a specific date for the final products needed to meet consumer demand. This calculation is based on production orders, material forecasts, and on-hand inventory.
Demand is quantified differently for customers with different business models, including:
- Build-to-order manufacturers: Focus on filling customer orders
- Make-to-stock companies: Emphasize production planning forecasts
- Other companies: Leverage a combination of orders and forecasts to plan future production
The information derived from demand calculations will feed the mater production schedule (MPS), making it easier for key stakeholders to agree upon production inventory, capacity, and profitability across the entire organization.
3) Determine necessary supply.
By leveraging the predefined bill of materials and master production schedule, users are enabled to initiate an MRP live run to calculate assembly requirements, components, and materials that must be purchased or produced to fulfill customer orders. Once these quantities have been defined, users can compare necessary quantities against available inventory to identify any shortages or issues for each component.
The Material Requirement Planning process flow in SAP also uses outlined parameters to help users determine the proper “make-to-buy” quantities for each item and calculate proper start dates and lead times for production and purchase orders across the board.
Main Advantages of an MRP System
Let’s take a closer look at a few key advantages of an efficient MRP run in SAP:
1) Optimal Inventory Management
An efficient MRP system allows businesses to maintain optimal inventory levels by accurately calculating material requirements based on demand forecasts, sales orders, and existing stock levels. This helps prevent overstocking or stockouts, reducing overall costs and improving customer satisfaction.
2) Streamlined Production Planning
MRP systems enable companies to plan their production activities more effectively. And, by analyzing material requirements and scheduling production orders, companies can optimize their production processes, reduce lead times, and enhance overall operational efficiency.
3) Cost Reduction
With accurate demand forecasting and material planning, MRP systems help minimize production and inventory costs. By avoiding excess inventory, organizations can reduce carrying costs, minimize waste, and optimize their purchasing processes across the board.
4) Improved Customer Service
By ensuring timely availability of products and materials, an efficient MRP system enhances customer service. With accurate material planning, businesses can meet customer demands promptly, reduce order times, and enhance customer satisfaction, fostering better customer loyalty and retention in the long run.
5) Enhanced Decision-Making
MRP systems provide valuable insights and real-time data about material requirements, inventory levels, and production schedules. This enables companies to make informed decisions regarding procurement, production, and resource allocation, leading to improved overall decision-making and strategic planning.
Legacy MRP vs Cloud-Based SAP MRP Solutions
There are quite a few differences to note between legacy MRP systems and SAP’s modern, intuitive MRP system. Here are a few key examples that differentiate the two systems:
Legacy MRP System
- MRP and capacity planning functions operate on separate systems and must be manually reconciled
- In-depth manual reports that allow planners to make smarter decisions across the board
- Store data in rows on a hard disk, so required records must be read from the disk for processing
- MRP runs are typically time-consuming and consume a lot of computing resources
- Conduct classic MRP functions to plan material needs for in-house functions
SAP MRP System
- Combined planning model to connect constraint and unconstraint-based systems for reduced processing time and risk for error
- Role-based user interface and advanced report visualization tools improve data analysis, presentation, and decision-making
- Store data in an in-memory, column-based storage system for easier access and delivery
- MRP runs are quicker and multiple runs can be executed in the same day
- Go beyond traditional planning to consolidate planning data and reduce overall costs
How Can We Help?
Whether you need help implementing new SAP software solutions across your enterprise, additional support conducting an MRP evaluation to assess stock requirements, or just an extra hand generating purchase requisitions for externally procured materials, Surety Systems is here to help.
Our team of senior-level, US-based SAP consultants has the knowledge, skills, and experience needed to handle any kind of project with flying colors, no matter the complexity or duration of the project needs.
Getting Started with Our Team
Interested in learning more about SAP MRP software or where our team of expert SAP consultants can fit in your organization?