SAP MRP (Material Requirement Planning) empowers organizations to optimize their supply chain operations, boost productivity, maintain ideal inventory levels, and ensure material availability exactly when and where it’s needed. By leveraging SAP MRP, companies can transform their approach to material planning and management, reducing production costs and increasing efficiency.
In this article, we’ll explore the key components and capabilities of SAP MRP, share valuable tips to maximize your investment, and highlight how our team of SAP consultants can assist in optimizing your MRP processes for greater success.
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 material 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 production speed 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 Requirement Planning (MRP) and Enterprise Resource Planning (ERP) systems are often interconnected and share common features and capabilities, there are a few key differences.
Let’s take a look at a few critical differences between ERP and MRP systems:
Scope and Functionality
On the 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.
Business Processes
When managing and optimizing core business processes, MRP primarily focuses on determining when and how much to order or produce materials to meet future 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.
Integration
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 real-time data, connect operations across teams, and provide a more holistic view of availability and performance.
Focus
While MRP systems emphasize 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, considering factors like sales orders, forecasts, existing stock levels, and outlined events in the SAP material master production schedule.
By analyzing these inputs, MRP generates procurement proposals, such as purchase requisition or planned order features, to ensure that materials are available wherever and whenever needed. SAP’s MRP system also considers various parameters, including lead times, safety stock, and reordering policies, to optimize the demand planning process and avoid stockouts or excess inventory in the warehouse.
With its comprehensive planning features and integration capabilities, the SAP MRP run streamlines supply chain operations and enables organizations to maintain optimal inventory levels while optimizing customer demand management.
There are a few material 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, 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 run 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 material production schedule (MPS), making it easier for key stakeholders to agree upon production inventory, capacity, and profitability across the organization.
3) Determine the necessary supply.
By leveraging the predefined bill of materials and master production schedule, users can 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 amounts 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.
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 planning data about material requirements, inventory levels, and production schedules. This enables companies to make informed decisions regarding procurement proposals, production processes, and resource allocation, improving overall decision-making and strategic planning.
Legacy MRP vs. Cloud-Based SAP MRP Solutions
There are quite a few differences 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 planning 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 of 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 on the same day
- Go beyond traditional planning to consolidate planning data and reduce overall costs
Things to Consider When Choosing Between ERP and MRP
When choosing between Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP) systems for your organization, there are several key factors to consider:
- Scope and Needs of Your Business: Assess the specific needs of your organization. Consider whether your organization requires the comprehensive features of an ERP system or if MRP is sufficient for your core operations.
- Budget and Resource Constraints: Budgetary constraints can heavily influence your decision. MRP systems are generally more cost-effective and more accessible to implement than ERP systems.
- Integration Requirements: Assess the level of integration your business needs. If you have multiple departments or functions that rely on shared data and processes, an ERP system’s integrated nature can offer significant advantages regarding data consistency and collaboration. MRP systems may require additional integrations with other software or systems, potentially leading to data discrepancies and increased complexity.
- Scalability and Growth: Consider your organization’s growth trajectory. If you anticipate significant growth or diversification of your business operations, an ERP system may be a more future-proof choice.
- User Training and Change Management: Evaluate the readiness of your employees to adopt a new system. Ensure that you have a plan in place to effectively transition your team to the chosen method without disrupting productivity.
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 project with flying colors, no matter the complexity or duration of the project needs.
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