What is Net Requirements in MRP?
Executive Summary
- Net requirements calculation is one of the most important functions in MRP.
- We cover what is net requirements in MRP and how it connects to other things.
Introduction
What are net requirements in MRP is a question we receive occasionally. It is critical to understanding the MRP output.
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What are Net Requirements in MRP?
Net requirements calculation is the math MRP performs to determine the time-phased need. This is explained well by SAP’s help.
“Net requirements” is simply a method of comparing and calculating the overall planned supply to overall planned demand for a product at a location. It is the primary calculation which is performed within any MRP system and as the book Factory Physics points out, one of the five things that MRP does along with lot sizing, time phasing, BOM explosion and iteration (repeating these steps). The following quotation is helpful with regards to net requirements. Net requirements calculation is carried out in MRP in the planning run after the planning file check at the plant level. The system checks whether it is possible to cover requirements with plant stock and fixed receipts already planned. – SAP Help
Net requirements from this description can be precisely what the name implies, a comparison of supply to demand.
Net requirements are calculated for not only MRP but reorder point planning as well. When net requirements planning is triggered, it tells you a lot about the procedure.1 In reorder point planning. The net requirements calculation is only carried out once the stock level has fallen below the reorder level. It is calculated as follows:
Plant Stock + Receipts (PO’s, firmed planned orders, firmed purchase requisitions) = Available Stock – SAP Help
Net requirements are triggered for MRP planned products whenever MRP is run. Now let us compare this to net requirements in MRP. The basis for forecast-based planning is the forecast of the total requirements.
Plant Stock – Safety Stock + Receipts (POs, firmed planned orders) +
Requirements Quantity (forecast requirements) = Available Stock – SAP Help
Looking at the differences between these formulae is straightforward enough and is highlighted in blue. Here is what is different between the two:
- Safety Stock
- Firmed Purchase Requisitions
- Forecast Requirements
“At an abstract level, supply chains consist of product-location nodes, which are connected by links. That is precisely the way that Smoothie visualizes supply chains. A unique planning item in Smoothie is a node, which is connected by links. Link relationships can be factored (if one product produces a requirement for 2 of another, for example), and they can be offset with a lag, allowing for the possibility that nodes can be separated from one another by a significant amount of time.” “MRP models are used to represent the conversion of one material’s requirement into a requirement for other materials. For example, the manufacture of a food product produces dependent requirements for packaging and ingredients. Another example might be a machine, which is assembled from many parts or sub-components (which can consist of parts…). The most complex models tend to be MRP models. They can span multiple levels, and they often involve conversion of goods using factors as multiples. The example below shows an MRP relationship that might be appropriate for the manufacture of hand tools. Notice that it includes multiple levels in depth, where a kit comes from components, and those components can be made up from raw materials. Notice also that some materials, such as the extrusions and handles, can receive demand from multiple items. Lastly, note that the screw drivers require various lengths of the same steel casting. For example, it takes 25 short screw drivers to consume a 10 ft. length of steel, so the conversion is equal to 1/25, or 0.04.” – Demand Works Smoothie Help, Version 7.3, 2013
Conclusion
Net requirements are simply comparing and calculating the overall planned supply to total planned demand for a product at a location. Net requirements and pegging provide the calculation and the detailed connection between demand and supply in MRP systems. Net requirements are calculated for not only MRP but reorder point planning as well.