Material Planning Methods

The balance between supply and demand can be maintained by new manufacturing orders and purchase orders being planned. Different planning methods can be applied as support in achieving this so that material flows are synchronized as much as possible. Here is a bird’s eye view of the most commonly used material planning methods.

1.      Re-order point:

                                             A re-order pointy method builds on comparison made between the quantity available in stock and a reference quantity. When stock falls below the reference quantity the order is sent to replenish the stock. The quantity which corresponds to the re-order point refers to expected demand during the lead time for replenishment plus a safety stock quantity to protect against unpredictable variations in demand. The formula to calculate re-order point:

Re-order Point = Safety Stock + Demand per time period * lead time

2.      Run-out time Planning:

                                                      This planning method sometimes called cover-time planning, is the time for which available stock i,e physical present stocks plus planned inbound deliveries are expected to last. The rule of thumb is to plan a new order if the run-out period is less then the replenishment time plus safety time.

3.      Kanban:

                         It is a Japanese term originated for Toyota automotive by Taiichi Ohno. It’s a material scheduling system for lean manufacturing introduced in Toyota as a “Just In Time (JIT)” manufacturing to their production. It is based on pull supply chain system. When a package of material is withdrawn from the local store, the transport Kanban card is attached to the package is removed from the package and sent to the central store. The empty card is signal to the central store to replenish the local store with a full package according to the instructions on the card. The card is attached to a full package at the central store and the package is moved to the local store where the package with the attached card is stored until moved to the assemble station.

4.      Material Requirement Planning (MRP):

                                                                        It’s a material planning method that is instead based on the points in time when net requirement of materials arises i,e when future calculated stock availability becomes negative. Let’s have a look at below example. Stocks are estimated to become negative in week 6. Therefore, a new order must be planned for delivery during that week to avoid shortages. The order quantity is 60 pieces and the lead time is 3 weeks, which means that the manufacturing order must start or purchasing order must be registered in week 3.

5.      Distribution Requirement Planning (DRP):

The principle of MRP can also be used to control material flows between stocks in distribution networks. In common with MRP, DRP is based on the principle that material flows should not be estimated from forecasts if they can be calculated from demand instead. In a distribution network demand normally needs to forecast only for end customer. Demand from a consuming stock to a supplying stock can be calculated based on planned stock replenishment orders.