MRP vs CBP

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In this document, I would like to highlight the planning procedures and the differences between them.

Planning is needed to maintain optimum stock levels to guarantee material availability in most of the scenarios while minimizing capital lockup due to excess inventory.

Below are the two broad divisions of planning procedures:

• Material Requirements Planning (MRP)


• Consumption Based Planning (CBP)

 

Before going into the details of the planning procedures and their differences, here are a few related concepts:

• ABC is an inventory classification system based on Pareto’s principle.

The ABC principle is based on the observation that a small number of items often dominate the results achieved in any situation. As applied to inventories, it is usually found that the relationship between the percentage of items and the percentage of annual dollar usage( Based on business companies may use different criteria other than annual dollar usage to classify their inventory) follows a pattern in which three groups can be defined:'

 

Group A- About 20% of the items account for about 80% of the dollar usage

Group B- About 30% of the items account for about 15% of the dollar usage.

Group C- About 50% of the items account for about 5% of the dollar usage.

 

• The safety stock is an extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation. It acts as a buffer against excess material consumption within the replenishment lead time or any additional requirements that may occur due to delivery delays.

 

Differences between MRP and CBP

	Material Requirements Planning	Consumption Based Planning
Process explanation	Material Requirements Planning is carried out using current and future sales figures. This may include based on settings: Open sales orders and Deliveries, Open Purchase Orders and Purchase Requisitions, Open Planned Orders and Production Orders.	Consumption-based planning procedures use historical consumption data to calculate future requirements with the help of the material forecast or static planning procedures.
Usage Case	Material Requirements Planning is performed for A parts	Consumption based planning is performed for B and C parts and operation supplies
Safety Stock	Net requirement calculation is triggered based on the planned and the exact requirement.     Since net requirement is the exact requirement, hence low level of safety stocks is required.	Net requirement calculation is triggered based on reorder points or by forecast requirements calculated from past consumption data.   Since net requirements are not the exact requirements, hence safety stock level should be on a higher side to avoid out-of-stock situation.
Configuration Aspects	The MRP field in the MRP1 in the Material Master should be anything between if using standard:   ND: No planning (For procurement) PD: MRP M0, M1,M*: MPS (which is a special type of MRP procedure)	The MRP field in the MRP1 in the Material Master should be anything between if using standard:   VB – Manual reorder point planning VM – Automatic reorder point planning VV – Forecast-based planning R1,R2,R*,VS- Time phased planning

Here are some references if you want to learn detailed MRP and CBP processes:

Material Requirements Planning

Consumption Based Planning

 

Please let me have your comments.