Materials Planning in SAP ERP- Overview

Materials planning is one of the key of good inventory control systems. The objective of materials planning is to monitor stocks to ensure material availability. As a leader in ERP software, SAP R/3 also has a special materials planning function that works like and even better than other inventory control software. With materials planning in SAP, we can determine automatically which material is required, the quantity required and when it is required. By doing so, we can prevent lacking of materials when we need it.

Materials planning in SAP can automatically create procurement proposals for purchasing and production (planned orders, purchase requisitions or delivery schedules). This target is achieved by using various materials planning methods which each cover different procedures.

An example of how SAP materials planning and other SAP functionalities can help company to excel its business.

Sales and Distribution (SD) module of SAP receives demand from customer. Sales department will create a sales order (SO) or sales forecast which contain the information of what, how many, and when Finished Goods are needed by the customer. The SO or sales forecast will be considered as an independent requirement in SAP. This requirement will trigger materials planning process for finished goods.

SAP will compare the requirements with finished goods current stock. If the requirement fulfillment will result in shortage of stocks (according to certain calculation of materials planning procedure for the finished goods), materials planning will automatically create procurement proposal, such as planned order. Planned order can be converted into production order (if finished goods are produced internally) or purchase requisition (if finished goods are procured externally). In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order).

If the finished goods are produced internally, the production order/planned order created will be considered as dependent requirement for their components and/or raw materials. SAP will determine these dependent requirements by using the information from Bill of Materials (BOM) of finished goods. These dependent requirements will also trigger materials planning for the components and/or raw materials. SAP will compare the requirements with components/raw materials current stock. If the requirement fulfillment will result in shortage of stocks (according to certain calculation of materials planning procedure for the components/raw materials), materials planning will automatically create procurement proposal, such as planned order. Planned order can be converted into production order (if components are produced internally) or purchase requisition (if components/raw materials are procured externally). In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order).

If the finished goods/components/raw materials are procured externally, the procurement/purchasing department will process the purchase requisition into Purchase Order (PO).

Production Order and Purchase Order will result in materials availability when we need them, so we can fulfill the customer demand on-time.

The prerequisites for implementing all materials planning procedures is the Inventory Management must function well and should always be up-to-date. If this prerequisite is not met, then materials planning will fail to achieve its objective to monitor stocks to ensure material availability.