Post Graduate Diploma in

Supply Chain
Management

MATERIAL PLANNING
 Introduction to Planning

Planning is most neglected area in the purchasing

activity. A major weakness in the materials
management system of developing countries like
Bangladesh, is the lack of proper materials planning
and coordination. The lack of coordination has led to
fragmentation, which in some cases has prevented
the development and maintenance of uniform
standards.
 Definition of Material Planning
Materials planning is the scientific way of determining the
requirements of raw materials, components, spares and other
items that go into meeting the production needs within economic
investment policies. As the definition needs planning within
economic investment, we need a system which evolves
methodology to plan the purchase requirements in a scientific
fashion. It is related to the user departments activities and hence
to the investment policy of the individual organization.
Three critical elements of the supply chain are

1) Flow of materials

2) Flow of information

3) Fund transfers
Manufacturing Planning and Control consist of

1) Production Planning

2) Implementation and Control

3) Inventory Management
Production Planning includes

1) Forecasting

2) Master planning

3) Material requirements Planning

4) Capacity planning
A forecast is an interface of what is likely to happen in the future. It
is estimated by systematically combining & casting forward data about
the past in a pre determined way.

It is objective in nature but not an absolutely certain prophesy. Even

very carefully prepared forecasts can be wrong. In fact ,it is extremely
rare for a forecast to be exactly right.

A prediction, on the other hand is an estimate of a future event

achieved through subjective considerations other than just past data
,this subjective consideration need not to occur in any pre determined
way.
 Use of Standard Deviation
Standard distributions such as normal distribution help in purchase planning, if past
data on consumption are available.
Let us consider weekly consumption of a particular fast moving item for a 24 week period. The
consumption in kg under stable process conditions for the period are 25, 26, 25, 26, 25, 28, 32, 33,
26, 35, 30, 27, 36, 23, 32, 31, 36, 27, 31, 321, 39, 32, 25, 38. The range of fluctuation is identified as
maximum of 39 kg minus lowest of 23 kg, which gives 16 kg, with an average of 30 kg.
The most useful graph is obtained by plotting the values on the horizontal axis against the
frequency of occurrence in the vertical axis. If a large number of observations of consumptions are
available, then we get a bell shaped pattern known as normal curve, which is uniquely determined
by the average and standard deviation — refer to any book on statistics for details. The mean is
obtained as total divided by the number of observations as 30 kg. now get the difference of
individual observations from the average as -4, -4, -5, -4, -5, -2, 2, 3, -4, 5, 0, -3, 6, -7, 2, 1, 6, -3, 1,
1, 9, 2, -5, 8. Square the differences and add, which gives us 476. The standard deviation is defined
as √476/23
Implementation and Control includes

1) Production Activity Control

2) Purchasing
Five basic inputs to the Manufacturing Input and Control system are

1) Product description / bill of material

2) Process specifications

3) Time needed to perform operations, in standard time

4) Available facilities

5) Quantities required
 Priority – what is needed, how many and when;
Capacity is the capability to produce goods and services.

In the long run, they must be in balance

Manufacturing Planning and Control System has five levels
(sorted by level of details)

1) Strategic Business Plan

2) Production Plan

3) Master Production Schedule

4) Material Requirements Plan

5) Production Activity Control and Purchasing

 Strategic Business Plan

1) Marketing determines product & pricing

2) Finance finds funds
3)Production meets needs through machinery & labor
4) Engineering is responsible for design.

Reviewed every 6 months to a year

 Production Plan

1) Quantities by product group

2) Inventory levels
3) Equipment, labor and material needed
4) Availability of resources needed.

Planning horizon 6-18 months and reviewed monthly or quarterly

Master Production Schedule (MPS) is for production of
individual items. The planning horizon is 3-18 months out. Master
scheduling is the process of making an MPS. The plans are changed
weekly or monthly

Material Requirements Plan (MRP) is a plan for production and purchase of items in
the master production schedule. Purchase and Production Activity control use the MRP for
controlling raw materials
Enterprise Resource Planning (ERP) is an accounting
oriented information system for identifying and
planning the enterprise. ERP encompasses the entire
company and MRP II is manufacturing.

In the short term the product plan is limited by capacity. Changes can be made through
overtime, build up of inventory, subcontracting and leasing extra equipment

The production plan usually has a12 month time horizon, a few product groups,
demand is fluctuating, plant and equipment are fixed
The planning horizon is a day to a month
Production Activity Control and Purchasing represent the implementation of the plan. Purchasing
obtains material per the MRP and production carries out the tasks in the MRP

Sales and Operations Planning is derived from the Strategic Business Plan and is made up of a
Marketing Plan that links to the Production Plan (above) and a Detailed Sales Plan that links to the
master Production Schedule (above)

Manufacturing Resource Planning (MRP II) is the fully integrated planning and control system. It
coordinates between marketing and production. It includes the sales and operations plan, the sales
plan, master schedule, material requirements plan, purchasing, production activity control and
performance measures
Planning
Planning is most neglected area in the purchasing activity. A major weakness in
the materials management system of developing countries like Bangladesh, is
the lack of proper materials planning and coordination. The lack of coordination
has led to fragmentation, which in some cases has prevented the development
and maintenance of uniform standards. Over-ordering and under-ordering is
marked by over-investment and unproductive use of costly working capital. It
creates the need for extra storage facilities for the presentation, maintenance
and security of surplus inventories. Some surplus stocks lose value or perish
through deterioration and obsolescence. Sometimes inadequate storage facilities
have been provided and as a result, large quantities of valuable equipment are
stored in open stockyards with consequent damage and deterioration.
Planning
Under-ordering is characterized by equipment and material shortages that cause
unnecessary delays and costly interruptions in executing the commitments. In
many cases, poor planning has led to unwarranted emergency orders, usually
processed by air at high cost. Ill-planned purchasing at Micro and macro-levels
have a powerful inflationary potential. Thus, materials planning is the most
important function that distinguishes the buyer as a manager and segregates him
from other categories of staff. To spend money is easy, but planning enables the
buyer to spend the money better in an optimum manner. Materials planning
activity raises the level of the buyer from an order placer to a purchase manager.
Efficiency cannot be visualized without sensible or effective planning. Purchase
planning aims at motivating people and serves as an effective control device.
 The cyclical swings of well known surpluses and shortages
with the resultant escalating costs, make the purchase
planning job a difficult but an important one in the
organization. In this context, the readers are familiar with
the great depression of 1930s and the stock market crash of
October 1987 and theses are the classic examples of
business cycles.