Meaning of Materials Planning:
Materials Planning has been defined as the scientific way of determining the requirements of raw materials, components and other items needed for production within the economic investment policies. It is rather a subsystem in the overall planning activity. There are many factors, which influence the activity of material planning. These factors can be classified as macro and microsystems.
- Macro factors: Some of the micro factors which affect material planning are price trends, business cycles Govt. import policy, etc.
- Micro factors: Some of the micro factors that affect material planning are plant capacity utilization, rejection rates, lead times, inventory levels, working capital, the delegation of powers and communication.
Techniques of Materials Planning:
The techniques of materials planning are:
(a) Bill of Materials Explosion and
(b) Past Consumption Analysis.
(a) Bills of materials explosion:
The planning for materials management is aimed at determining the demand for the end-products. This is possible only through farsightedness or forecasting. Therefore, forecasting forms “the basis for materials planning. There are various techniques for forecasting. These techniques are equally applicable to demand to forecast.
The techniques are:
(i) Moving averages method.
(ii) Exponential smoothing and Time series.
After the demand forecast, the exercise of materials planning starts. Requirements for various materials are ascertained from the demand forecast. For this purpose, the bill of materials is used through explosion charts. Here the use of computers is very effective for the “exploding” bill of materials with demand forecasts. The bill of materials is prepared and issued by the planning or engineering department in a standard form.
An explosion chart is just a series of bills of materials grouped together in a matrix form so that combining the requirements for different components can be done. Materials planning are usually made for a short period on a quarterly basis and at the beginning of every quarter; it is quite natural to find that some materials are in short supply and some in excess. This can be ascribed to the wrong forecasting.
To rectify such errors in the estimation of materials, quarterly planning is resorted to. In engineering industries, even quarterly planning seems to be too long and realistic order is placed with the suppliers.
(b) Past Consumption Analysis:
For continuously needed materials and the materials where no bill of materials is possible, this technique of analysis is adopted- The past consumption data is analyzed and a projection for the future on the basis of past experience and future need is made. To prepare such a projection, “average” or “mean” consumption and the “standard deviation” are taken as bases and as guidelines for each item.
These are all statistical tools and are very effective to absorb the stock of fluctuation in consumption of direct and indirect materials where no straight-forward norms of consumption can be formulated. In the process industries, this technique is particularly suitable.