Materials Planning: Process, Overview

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  • 0:01 Materials Planning
  • 2:10 Sales Budget
  • 2:42 Production Budget
  • 3:49 Materials Budget
  • 4:46 Lesson Summary
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Lesson Transcript
Instructor: Jared Taylor

Jared Taylor has worked as a course materials manager, writer, editor and transcriptionist. He holds a master's degree in history.

In this lesson, we will use the concept of materials planning to find the information that you would need to complete a job or production process efficiently and profitably. You will learn about budgeting and inventory control.

Materials Planning

It has started to rain and my roof is leaking! Can you take the repair job? Being a good manager, you will want to have all of the necessary materials available when you start working on the roof. Otherwise, you will have to climb down, drive to the store and back, then climb up on the roof again. Failure to plan properly will cost you time and money. For this job, your first steps will probably be to measure the roof area and calculate the amount of shingles, nails, and other materials that you will need.

You should buy enough materials to finish the job, but you also want to avoid having too much of anything. Excess materials will cost you money that you might not recover from the job. Next, you have to find a place to buy the required materials and arrange for delivery. Do you need any other items, such as ladders, a nail gun, or work gloves? How much will the materials cost, and how will you pay for everything? What we have just done is a basic example of materials planning or material requirements planning (MRP).

In our simple example, we only had to take a few measurements and check our existing equipment and supplies. However, if we tried to do materials planning for a large company, such as an auto manufacturer, it would be very complicated. We would probably use computer software called Enterprise Resource Planning (ERP) systems. For either a simple or a complex operation, the data gathering process and information sources are similar.

In any highly competitive market, manufacturers survive by operating efficiently. In the context of materials planning, efficiency involves minimizing inventories of materials, supplies, and finished products while maintaining sufficient quantities for planned production. It is also critically important that the customers receive their product on time. This means that all production, purchasing, and delivery activities must be accurately scheduled. Any unexpected delays or emergency orders to their suppliers will cost manufacturers time and money (just as it would on the roof repair). Let's take a closer look at the basic information requirements.

Sales Budget

In general, the information flow within a company's materials planning process will be:

Budget Flow Diagram

First, a business will need to forecast expected sales of each of its products during a given period. This information is called a sales budget. Some manufacturers work with annual budgets, and others prefer short-term budgets. Remember, this is a forecast made well in advance of the actual sale. Let's assume that we manufacture a candy bar called Yummy. The chart would go something like this:

January February March Quarterly Total
1,000 cases 2,500 cases 1,800 cases 5,300 cases

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