Production Planning is an integral part of the logistics function in SAP and it is fully integrated with other components including Materials Management (MM) and Plant Maintenance (PM). Every business that has a manufacturing operation will have implemented some level of production planning functionality to ensure that finished goods can be manufactured at the necessary time for customer's sales orders to be delivered. Product planning is important to a company's supply chain function as it encompasses the functions that are used to plan the introduction, sale, and manufacture of items.
The demand management function allows a company to determine requirement quantities and delivery dates for its products. Demand Management uses both planned requirements, from sales and operations planning (S&OP), and requirements from customers, for example, planned sales orders. The demand management function provides inputs for the Material Requirements Planning (MRP) functionality. To utilize the functionality of demand management, the planning department will need to ensure that each of a company's products is assigned a planning strategy. A planning strategy indicates how an item is manufactured or purchased.
There are a number of planning strategies that are delivered with the SAP functionality, such as make to stock, make to order, and configurable materials.
- Make to Stock: This planning strategy should be used if a company produces products that are manufactured independently of any customer orders. The production of items without reference to a customer order creates a situation where the items will have to be stored in the warehouse and therefore there will be storage charges. Although this does allow a company to fulfill customer orders immediately, this has to be considered against the costs of producing items prior to any sales orders, especially if the unit cost of the items in stock is high.
- Make to Order: Not every item a company manufactures will be a make to stock item. Some items a company sells may be very expensive and therefore it is cost prohibitive to manufacture those items and then store them in the warehouse for an undetermined length of time. Also, if items are ordered infrequently, items may sit in the warehouse for months before being ordered by a customer. If a company sells this type of product then they will need to be manufactured for each specific sales order that is received and the plan will reflect the need to make the item for an order.
- Configurable Products: A configurable product is an item that is sold which allows customers a variety of options that configure the way the finished product is made. These items can be made to order due to a large number of variations that are possible for the finished product. However, if there are popular variations that are purchased by customers, it is possible to create a make to a stock strategy for some products allowing quick delivery times.
Materials Requirements Planning
The materials requirements planning (MRP) process takes inputs from the demand management function and calculates purchasing requirements to cover this demand. If the requirement is for a component to be manufactured in-house, MRP will create a planned order which can be converted to a production order.
The initial MRP process reviews the planning file, which contains all the materials that are relevant for the MRP run. The review is followed by a net requirements calculation that derives the stock at a company's location based on the goods receipts and goods issues that are scheduled for each material. Based on the net requirements calculation, the MRP process calculates purchasing proposals to cover any material shortages.
After the MRP process has calculated the purchasing proposals, the scheduling function calculates when any shortages will occur and if the purchasing proposal needs to be converted to an in-house production order. If this is the case, MRP produces a number of production orders as well as creating the other purchasing proposals to purchasing requirements to be processed by the purchasing department. If finished products in the planning file have a bill of materials (BOM) then MRP explodes the BOM after the purchasing proposals have been created. The resulting dependent requirements are then scheduled as part of the MRP run.