Managing inventory is a crucial part of running a successful business. One of the key tools for efficient inventory management is the Material Requirement Planning Calculator. This calculator helps businesses to determine the right quantity of an item that needs to be ordered.
The Material Requirement Planning Calculator focuses on computing Planned Order Releases (PORL). In simple terms, PORL indicates the amount of an item that you need to order to fulfill your net requirements.
Working of the Material Requirement Planning Calculator
Calculations
To understand how the calculator works, let’s first look at the elements that go into the formula:
- Planned Order Releases (POR): The expected amount of an item that you need to meet demand.
- Safety Stock: An extra quantity of items kept in storage as a precaution against shortages.
- On-Order Inventory: The items that you have already ordered but have not yet received.
- Work-in-Process Inventory: Items that are in the process of being manufactured but are not yet finished goods.
The formula to calculate PORL is as follows:
PORL=POR+Safety Stock−(On-Order Inventory+Work-in-Process Inventory)PORL=POR+Safety Stock−(On-Order Inventory+Work-in-Process Inventory)
Example of Material Requirement Planning Calculator
Imagine you have:
- Planned Order Releases (POR) = 100 items
- Safety Stock = 10 items
- On-Order Inventory = 30 items
- Work-in-Process Inventory = 20 items
Using the formula:
PORL=100+10−(30+20)=110−50=60PORL=100+10−(30+20)=110−50=60
So, you would need to order 60 items to meet your net requirements.
General Terms and Conversions Table
| Term | Explanation | Example |
|---|---|---|
| Safety Stock Level | The extra amount kept aside to prevent stockouts | 10 items |
| Lead Time | Time between placing an order and receiving it | 2 weeks |
| Work-in-Process | Items currently being manufactured | 20 items |
| On-Order Inventory | Items ordered but not yet received | 30 items |
Frequently Asked Questions
Safety Stock is an extra amount of items you keep in storage. It acts as a cushion against unexpected delays in delivery or sudden spikes in demand.
Lead Time is the duration between the moment you place an order and when it arrives. The calculator considers this time frame to ensure you never run out of stock.
If you get a negative value for PORL, it generally means you have enough inventory at hand and do not need to place any new orders.