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Sage 500 ERP: Advanced

Planning, MRP and Demand

Planning

Session: P-0588

Presenter: Mari Carlise

CPE Credit

• In order to receive CPE credit for this session, you must be present for

the entire session.

– Session Code: P0588

– Recommended CPE Credit = 1.5

– Delivery Method = Group Live

– Field of Study = Specialized Knowledge and Applications

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conference.

Introduction

• Mari Carlise – Design Analyst

• This presentation will be available on Sage Summit Virtual

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Learning Objectives

• After participating in this session, you will be able to:

• Understand the setup requirements for replenishing inventory

items

• Learn how Material Requirements Planning interprets supply

and demand dates in the planning process.

• Learn how Material Requirements Planning calculates lead

times.

• Discover preferred Material Requirements Planning generation

options.

• Find out the recommended sequence to process Material

Requirements generation, without and with Scheduling.

Topics for Today

• Set Up Requirements

• IR in Action

• Preferred MRP Generation Options

• MRP Date Priorities

• MRP Lead Times

• Work Order Dates

• MRP in Action

• Recommended MRP Generation Sequence

Replenishment

• Controls Stock Levels

• Determines what products need to be replenished

• Determines when a product should be replenished

• Determines how much product should be ordered

– Ordering the correct amount ensures you can meet demand for

an item

• Determines how the product should be sourced (i.e.,

from a vendor or another warehouse)

Reorder Method Manual: Excluded from the replenishment process. Orders are

entered manually (except for Make items)

EOQ: Uses several factors in the replenishment formula including:

Replenishment Cost - costs incurred during processing and receiving items on a purchase order.

Inventory Carrying Cost Percentage - expenses for maintaining stocked inventory in a warehouse includes rent, shrinkage, insurance, moving, physical and opportunity costs.

Unit Cost – Specified from IM Options (Standard, Average, Landed, Last, or Replacement)

Reorder Method Min/Max:

• Ordered when replenishment level falls below minimum stock level.

• Orders enough to bring the level to the maximum stock level.

• Typically used on low volume items

• New items that don’t have enough history

Max Stock Level:

• Ordered when replenishment level falls below maximum level.

• Good for items with more than once a week turnover, consumable products like dairy.

EOQ Formula

2 * (# of Work Days in Last 12 Months) * (Replenishment Cost)* (Daily Demand)

Annual Carrying Cost % * Unit Cost

Assume the following values for an item: Number of work days in past 12 months = 245 Replenishment Cost = 6.00 Demand per Day = 186.2170 Annual Carrying Cost Percentage = 28 Unit Cost = 1.25 The EOQ will calculate as follows: Square Root of 1,564,222.80 = 1,250.6889 (This is the EOQ) HOWEVER if the EOQ of an item is less than (Line Point - Replenishment Position) then the EOQ will be equal to (Line Point - Replenishment Position).

(2 * 245) * (6 * 186.2170)

.28 * 1.25

= 547,477.98

.35

= 1,564,222.80

Order Point

• Level of inventory to be maintained

– Includes calculation for future demands, projected lead time,

and safety stock

– Calculated using the following formula:

(Daily Demand * Projected Lead Time) + Safety Stock

= Order Point

5 per day

* 6 days

+ 15 on-hand

= 45

Replenishment Position

• Calculated using the following formula:

On-Hand - Committed + Qty On Order

= Replenishment Position

10 currently

on-hand

+ 20 on order

= 24 - 6 committed

Order Cycle

• Calculated using the following formulas:

Total Stock Receipts/Target Order Requirements

= Total # of Purchases in a Year

# of Business Days in prior 12 months/Total

# of Purchases in a Year = Order Cycle

200 received 10 = 20

260 working

days

20 = 13

Line Point

• Calculated using the following formula:

Order Point + (Daily Demand * Order Cycle) = Line Point

45 5 per day

13 + ( * ) = 110

Set Up Purchase Product Lines

PPL must be defined

and assigned to

inventory record for

Buy items that will be

replenished through PO

Set Up Warehouse Replenishment

A PPL must be

assigned to warehouse

to create a warehouse

replenishment record

(PPL/Whse) for Buy

Items

Set Up Warehouse Replenishment

Purchase Requirements:

IR - used only to indicate

target quantities for

suggested orders in

release target/emergency

orders

MRP – Not Used

Inventory and Replenishment

Maintain Inventory – Make Items

MRP -

Reorder

Method

irrelevant for

Make items

Order Qty

will be set to

Demand plus

Safety Stock

Maintain Inventory – Buy Items

(Min/Max) IR – will not

consider the

demand for

lower level

subassemblies

because it is not

aware of WO

requirements

MRP – Will add

both projected

demand and

safety stock to

planned order,

IR will not

Maintain Inventory – Buy Items

(EOQ) IR – will not

generate an

order if standard

order qty is zero.

MRP – will still

generate an

order, but if

standard order

qty is zero, then

it will only

include actual

demand

Maintain Inventory – Transfer Items

IR – will not

consider

safety stock.

MRP – will

include safety

stock for

transfer items.

Maintain Routing

Default warehouse used

when creating Work Orders

Standard

Routing must be

selected for Item

to be recognized

as a MAKE in

MRP and lower

level

requirements to

be considered.

If Standard is

not selected it

may be treated

as a buy item

depending on

reorder method.

Maintain Routing – MRP Options

Batch Size – MRP will always create an order in increments of the batch size. If the batch size is 20 and demand is for 25 then one order of 40 will be created Min/Max – Defines the minimum or maximum order quantities. If a minimum of 100 is set in routing maintenance and demand is for 10 items, MRP will create an order for 100

Maintain Routing – MRP Options

continued

Percent Over – Used as a buffer to generate more product than demand. Commonly used when scrap is unpredictable or customers allow overshipment Windows (Days) – Defines the planning bucket to use for the specific item/warehouse combination. Commonly used for long or short lead-time items that vary from the norm

Demand Adjustment

Starts from previous

period. Historical Data. Add to historical sales.

Needed anytime you have no history (or not enough) for an EOQ

item. Also if you want to add projected demand with a demand

formula for either Min/Max or EOQ.

Calculate Projected Demand

Should be run for current inventory period

Calculate Replenishment

Parameters

Must be run when

items are using EOQ

Reorder Method

Process Replenishment Orders

To Create, Release and generate

orders.

Optional:

Warehouse

Buyer

Create Suggested Orders

Determines which items to include for

replenishment processing.

Items needing Replenishment are printed

on Suggested Order Report.

• Let’s take a look at Inventory Replenishment

MRP – Material Requirements

Planning • A set of techniques that uses BOM data, inventory data,

and the master production schedule (MPS) to calculate

requirements for materials and ensure materials and

products are available for production and delivery to

customers.

• Maintain the lowest possible level of inventory.

• Plan manufacturing activities, delivery schedules and

purchasing activities.

• Provides multiple versions, “what if” scenarios

• Offers multiple forecasting and replenishment options

• Calculates lead times dynamically

MRP Generation – Main Tab

Main Tab

Define

parameters for

MRP Version

Allows for

selection and

sorting of items.

MRP Generation – Options Tab

Options Tab

Define version

criteria

Selection,

initialization,

and planning

options

MRP Generation – Options Tab

The key driver for MRP and determines results

Selection Options:

- Purge items on Select

- Select Make Items

- Select Purchase Items

- Include Lower Level BOM

- Use Consolidated Warehouse

MRP Generation – Options Tab

Initialization Criteria:

- Start and Cut off Dates – MRP planning time frame.

- Include Items w/No trans.

- Days in Planning Period – typically 1, 7, 30

- High & Low Balance Cutoff – Eliminates items whose

on-hand balances fall outside of these values.

- Summarize SO detail

MRP Generation – Options Tab

Planning Options:

- Start Generation on Items with BOM Lower Levels –

Determines the level at which to start the MRP

generation – FG = 0, RM1 = 1 etc.

- Generate lower level items also – Lower than level

defined above.

- Planned Order Fence Date.

MRP Smoothing Calculation • Inventory/Replenishment Data

– Inventory Calendar = 12 periods

– “Item X” Forecast = 14,600 units per inventory period

• MRP Data

– Start/End Dates – 5/1/2010 to 5/30/2010 (30 days)

– Days in Planning Period – 7 (weekly)

• MRP Smoothing Calculation 1. Inventory Calendar Demand/Day = (12 X 14,600) / 365 = 480 units/day

2. MRP Periods = 5 (5/1, 5/8, 5/15, 5/22, 5/29)

3. Calculated Demand Per MRP Period Period 1 = 3,360 (480/day X 7 days = 3,360)

Period 2 = 3,360 (480/day X 7 days = 3,360)

Period 3 = 3,360 (480/day X 7 days = 3,360)

Period 4 = 3,360 (480/day X 7 days = 3,360)

Period 5 = 3,360 (480/day X 7 days = 3,360)

Material Requirements Planning

Date Priorities • Forecast (Demand)

– 1. Beginning Date of Smoothed Forecast Period

– 2. Beginning Date of Forecast Period

• Sales Order (Demand)

– 1. SO Line Ship Date

• Purchase Order (Supply)

– 1. PO Line Promise Date

Material Requirements Planning

Date Priorities

• Work Orders (FG Supply)

– 1. WO Scheduled Finish Date

– 2. WO Required Date

• Work Order Materials (RM Demand)

– 1. WO Step Detail Scheduled Start Date

– 2. WO Scheduled Start Date

– 3. WO Mfg Commit Date

– 4. WO Required Date

Material Requirements Planning

Date Priorities

• Transfer Orders – In (Supply)

– 1. TO Required Delivery Date**

• Transfer Orders – Out (Demand)

– 1. TO Scheduled Ship Date**

– ** Impacted by Actual Transaction Date

Material Requirements Planning

Date Priorities

• Project Accounting (Demand)

– 1. Estimate Detail Scheduled Start Date

– 2. Estimate Detail Actual Start Date

– 3. Estimate Header Job Commencement Date

MRP Lead Time Calculations

• Make Item - Order Date Without Scheduling Installed:

– Does not use the Lead Time on Maintain Inventory screen

– Adds the total hours required for all steps and assumes 24-hour

availability

– All lead time calculations are calculated end-to-end including

setup, run, down time, and reset times without overlapping

operations

– Backs into the Order Date from the Required Date

Lead Time Example

• Work order requires 120 hours to make a quantity of finished goods

• MRP assumes 24 hour availability

• Calculates the lead time is 5 days – 120 hours / 24 hours per day = 5 days

• Required date of January 30th yields an order or start date of January 25th.

• But, assume the facility only works 8 hours per day

• Correct lead time would be 15 days – 120 hours / 8 hours per day = 15 days

• Required date of January 30th yields a correct order or start of January 15th

MRP Lead Time Calculations

• Make Item - Order Date With Scheduling Installed

– Does not use the Lead Time on Maintain Inventory screen

– Uses backward scheduling logic from the Required Date with no

consideration for capacity load

– Includes setup, run, down time, and reset times

– Considers work center schedules

– Adjusts for overlapping operations with negative move time

Lead Time Example

• Work order requires 112 hours to make a quantity of

finished goods

• MRP references the production schedule

• Finds work center availability = 16 hours per day, 5 days

per week

• Calculates the lead time is 9 days

– 112 hours / 16 hours per day = 7 days plus 2 weekend days

• Required date of January 30th yields an order or start

date of January 21st

MRP Lead Time Calculations

• Buy Item

– Uses the Lead Time on Maintain Inventory screen

• Transfer Item

– Does not use the Lead Time on Maintain Inventory screen

– Uses the Lead Time Days on Warehouse Transfers screen,

source to receiving warehouse

Without Scheduling

Without Scheduling

With Installed Scheduling

With Active Scheduling

MRP Requirements Planning Inquiry – Period Summary

• Period Summary displays individual item statistics in a horizontal time bucket (planning period) format by warehouse.

MRP Inquiry – Transaction Detail

• Displays individual item statistics in a vertical format by warehouse.

• Prior to Generating Planned Orders, only actual supply and demand transactions appear.

• After Generating Planned Orders, the planned supply and demand orders appear with the actual supply and demand transactions.

MRP – Planned Orders

• Must have the Act and Frm boxes checked to convert Planned orders into Actual orders

• Consolidate PO creates one PO per vendor

• Cost breaks from Maintain Vendor Items is used when creating a PO

• Buyer and Vendor can be changed on the fly

MRP Inquiry – Drill-Down Capability

• Right Click / Select Drill Down or Double Click the Selected Item

• View the Actual Transaction Details

Recommended MRP Generation

Sequence – Without Scheduling

1. Perform MRP generation.

2. Generate planned orders tab.

3. Review results and recommendations.

4. Execute recommendations as desired.

Recommended MRP Generation

Sequence – With Active Scheduling

1. Perform MRP generation.

2. Generate planned orders.

3. Access Schedule.

4. Perform Schedule generation.

5. Review Schedule results and Update Work Orders.

6. Finish and save Schedule.

Recommended MRP Generation

Sequence – With Active Scheduling

(cont.)

7. Cancel and Exit MRP Inquiry saving the MRP Plan.

8. Perform MRP generation again.

9. Generate planned orders.

10. Review results and recommendations.

11. Execute recommendations as desired.

MAS 500 Manufacturing Planning • Material Requirements Planning

– Provides multiple versions, “what if” scenarios

– Generates for the enterprise, selected criteria or selected orders

– Offers multiple forecasting and replenishment options

– Calculates lead times dynamically

– Displays single screen, interactive planner’s workbench

• Advanced Planning and Scheduling

– Provides multiple versions, “what if” simulations

– Plans and schedules infinitely or finitely

– Generates backward and forward schedules

– Offers multiple scheduling rules, single or in combination

– Displays an interactive, drag and drop schedule board

Contact Information: mari.carlise@sage.com

Questions?

Take Aways

• Learned how Material Requirements Planning interprets

supply and demand dates in the planning process.

• Learned how Material Requirements Planning calculates

lead times.

• Gained how proper work order dates are essential to

Material Requirements Planning success.

• Discovered the preferred Material Requirements

Planning generation options.

• Obtained the recommended sequence to process

Material Requirements generation, with and without

Scheduling.

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• Session code for this session: P-0588

Contact Us

Presenter Contact Information:

Mari Carlise

Email: mari.carlise@sage.com

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