Material Planning & Budgeting

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4/2/12

Deepak Thakur

Definition

Material planning and budgeting is the starting point and the most important activity of materials management. If the planning of the requirements of various material inputs is either wrong or untimely, then the functions of manufacturing planning and control are most adversely affected.
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Materials planning deals with a number of critical questions, which include the following:
i)

whether to make a component/subassembly or an intermediate product, in house, or buy from an external vendor/supplier?

ii) How much to order? Or how much to order every time an order is placed? iii) When to order? Or how frequently to place orders for that material?

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These decisions are dependent on: (i) where in the manufacturing process for the end product is the particular material required, namely, the crankshaft forging for the machining of the crankshaft prior to its assembly with the piston, cylinder etc. for the engine subassembly of the automobile, and

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(ii) the lead times for procurement and manufacturing, namely procurement lead times for raw materials (including forgings and castings) and purchased, or bought-out, components and subassemblies, and manufacturing lead times for the in-house manufactured components and assembly operations, both subassemblies and final assembly.

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Material Requirements Planning (MRP)

Manufacturing computer information system Determines quantity & timing of dependent demand items

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MRP and The Production Planning Process

Forecast Firm & Orders Material Requirements Plannin g Capacit Requirements y Plannin g
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Aggregate Production Plannin g Master Production Schedulin g No, modify CRP, MRP, or MPS Realistic ? Ye s

Resource Availabilit y

Sho Floo p Schedules r

Direct materials budget is prepared after computing production requirements by preparing a production budget . Direct materials budget or materials budgeting details the raw materials that must be purchased to fulfill the production requirements and to provide for adequate inventories. The required purchases of raw materials are computed as follows:

Raw materials needed to meet the production schedule Add desired ending inventory of raw materials Total raw materials needs Less beginning inventory of raw materials Raw materials to be purchased

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