What is Materials Planning and the techniques

What is Materials Planning

What is materials Planning:

Materials planning is the way to plan for any material which is going to serve the end customers need within the specific time & money. This is a scientific way & helps to determine the requirements of component level, raw materials, MRO items, spares and other items that go into meet production requirements. It is a sub-section of the overall planning activity but has a very big impact on the key performance indicators like On time delivery, Inventory turnover ratio, cost saving, etc. What is Materials Management

Factors influencing Materials Planning:

The factors which affect material Planning can be classified in the following two categories:

Macro factors:

The factors which are broadly and an enterprise level affect the materials Planning can be segregated as macro factors. Some of the Macro factors which affect material planning are 

price Trends, business cycles, Credit Policy, Government import policy etc. the recent credit squeeze followed by the interim report submitted by the study group to frame guidelines for follow ups of bank credit is an excellent case in point. The latest guidelines has given for inventory levels of raw material, work in process, finished goods as well as for receivable and bills purchase and discounted .therefore it is obvious that no material planner can afford to ignore these guidelines.  Such macro-level policy changes are bound to take place in future as well and should be considered while evolving the materials plan.

Micro factors:

Materials planner also has to take into account various factors at micro level.  They include corporate objective, plant capacity utilization, rejection rates, lead times, inventory levels, working capitals, seasonal demand, and delegation of power, communication systems, customer demand fluctuations, sales forecast Supplier evaluation and many more.

Importance of Materials Planning:

For any organization planning is a very important function. Planning theory can be divided into two major parts: 

1. Planning for non programmed decisions/ the strategic decisions.  The Top management mainly keep themselves engaged in these type of planning.
2. Planning for programmed decision/ the routine one:  Mainly the middle management keep themselves busy in the routine planning.Supplier development

The materials planning function is given a prominent place in the materials management set up. This is so because planning of materials and working out a realistic budget not only help motivate the people but also serves as a control device.Anatomy of Procurement process

In the context of materials management training has to be done for highly non program discussion search import policy foreign exchange availability credits squeeze etc. in similar manner training has also to be done for highly program revision such as inventory for working capital working out delivery schedules etc.

Some of the major points are mentioned below:

a.           a.  Optimize Ordering strategy: Without proper materials planning there is a high chance of ordering or             under ordering. Excess ordering leads to over inventory leads which in turn the working capital of                  the         organization occupies extra space in stores. Where is under ordering needs to material                  shortages and potential delay in delivery. This results in a loss to reputation and money. 

b.              b. Effective control: Materials planning helps the management to understand the variation in actual                   activities with respect to the standard. This is the key to control the overall materials. 

3. Avoid Cost Escalation: Improper materials management or planning Leads to emergency orders and rush orders which in turn increases the overall cost of the product. 20 emergency situations extra material cost, transportation cost as well as disturbance in the standard planning process.
4. Direction of work: Materials planning activity gives a direction to the overall materials management team on what to do with a specific timeline to serve the customer better
5. Reduces risk of uncertainty:  proper material planning always helps in reduction of uncertainty and surprises.You can check Supply Chain Chalenges for the potential risks & it's management.

 Materials Planning Techniques:

Holistic view of Planning and it's levels

There are two types of material planning techniques:

1.  Bill of material explosion based of forecasting - there is a bill of material for every finished goods.  This contains items are components required specific quantity to make a specific finished product. requirements of  finished goods can be determined from the materials forecast of sales from different zones and those are calculated, analyzed and  shared with the respective factories or manufacturing units. In the next step altogether the finished goods bill of materials is exploded with quantities and then the materials planning is done. In modern techniques there are different ERP or MRP systems like SAP, Oracle etc which helps the materials planner plan all the activity every shorter time with accuracy. 

Materials planning can be done a different planning Horizon as per the requirement of the organization. This horizon is very much important ascertain the reliability of the forecast. As the Horizon increases the forecast accuracy or reliability decreases. Therefore it is always preferable to plan is closed to the customer as possible. generally the materials planning analysis is done from yearly to quarterly, quarterly to monthly,  monthly to weekly and daily. At the same time the planning Horizon should be sufficient long enough so that realistic ordering can be done with the supplier.

     2. Past consumption analysis-What the fast moving items visit consume on a regular basis there the                 trend of consumption can be calculated and analyzed as a projection for material planning. This type          of technique is used where there is no reliable forecast future demand. Certain guidelines are worked          out for each item based on the monthly average consumption and standard deviation.

  Points to Remember: 

a.     Analysis of planning Horizon, The longest lead times must be taken into account so that they are adequately covered.

b.      The market expected Lead time (MELT) and the supplier Lead time (SLT) must be analyzed properly during the materials planning to mitigate the customer requirement.

c.     Product marketing environment must be taken into account. if there is they will affect the planning system and this should be taken care of.