Primary Requirements
Primary requirements are the demand for sellable products – end products, merchandise and saleable spare parts – within a defined planning period. They derive from customer orders and sales forecasts and form the starting point of all demand and material planning.
Primary requirements are a company’s demand for sellable products – for end products, merchandise and assemblies sold as spare parts – relative to a defined planning period, usually a week or a month. They describe what a company intends to sell on the market and are therefore the top-level requirement type in classic requirements determination. Every downstream requirement is derived from them: without primary requirements there is no reason to produce or procure.
Primary requirements draw on two sources: concrete customer orders that already exist, and the sales forecast for expected but not yet ordered demand. In manufacturing, primary requirements are captured in the so-called production program, which defines which end products are to be made in what quantity and by which date. In trade, primary requirements are simply the planned sale of merchandise. They are the point at which material planning starts in order to calculate the demand for components, raw materials and consumables.
At a glance
- Demand for sellable products: end products, merchandise, saleable spare parts
- Relates to a specific planning period
- Sources: existing customer orders and the sales forecast
- Starting point of requirements determination – before secondary and tertiary requirements
- Formulated as a production program in manufacturing, as planned sales in trade
What exactly are primary requirements?
In business requirements determination, a company’s total demand is structured by its origin into three levels: primary, secondary and tertiary requirements. Primary requirements sit at the top of this chain. They cover only the market-driven goods – those products that are intended to be sold. This includes finished end products, merchandise bought and resold in trade, and assemblies or parts sold separately to customers as spare parts.
A characteristic of primary requirements is that they are not derived from internal calculation steps but dictated from the outside: by the market. They are therefore an input to planning, not a computed value. Only once primary requirements are fixed – as the sum of firm orders and forecasted sales per period – can the company determine which input materials and resources it needs for them. This is why primary requirements are also called requirement-triggering: they set the entire downstream procurement and production planning in motion.
Gross and net primary requirements
As with other requirement types, primary requirements are distinguished into gross and net. Gross primary requirements are the planned sales quantity without regard to existing stock. Net primary requirements result from subtracting the available inventory of finished goods and already existing receipts from the gross requirement. Only net primary requirements actually trigger production or procurement activity – for the portion already in stock, nothing needs to be done.
How do primary requirements arise?
Primary requirements are consolidated in a production program or sales plan. They are based on two data streams. First, customer-order-based demand: binding orders with fixed quantity and delivery date that flow directly into primary requirements. Second, forecast-based demand from the forecast, derived from historical sales figures, seasonal patterns and market expectations. Depending on the business model, one or the other source dominates: make-to-order manufacturers plan more order-driven, make-to-stock and series manufacturers more forecast-driven.
From the primary requirements determined this way, the secondary requirements are calculated via bill-of-materials explosion – the demand for assemblies, individual parts and raw materials needed to manufacture the end products. An end product with a primary requirement of 500 units and a bill of materials that specifies two housings and four screws per item generates a secondary requirement of 1,000 housings and 2,000 screws. Tertiary requirements, finally, cover auxiliary and operating materials such as lubricants or packaging that do not follow directly from the bill of materials. In this way, planning works its way level by level from the market to procurement.
Distinction: primary, secondary and tertiary requirements
The three requirement types differ by their origin and their position in the planning chain. Primary requirements are market-driven and concern sellable products; they are dictated from the outside. Secondary requirements are derived: they arise computationally from primary requirements via bill-of-materials explosion and cover the constituents of the end products. Tertiary requirements concern auxiliary and operating materials that are needed for value creation but do not become part of the product.
The clean separation matters because it determines the planning logic. Primary requirements are planned and forecasted, secondary requirements are calculated. One and the same item can play several roles: an assembly that goes into an end product is a secondary requirement – if that same assembly is additionally sold as a spare part, a primary requirement arises for that share. ERP systems must keep such dual roles correctly apart so that neither too much nor too little is planned.
Primary requirements in the ERP system
In ERP and production planning systems, primary requirements are the entry point of material requirements planning (MRP). They are recorded as the requirement originator – either automatically from incoming customer orders or manually or imported as planned independent requirements from sales planning. The system typically holds primary requirements in a production program or a requirements forecast per item and period. On this basis the MRP run starts: it explodes the bills of materials, calculates the net requirement per material level and generates production orders and purchase requisitions.
The quality of this planning stands and falls with the primary requirements. If they are set too high, capital, material and capacity are tied up unnecessarily; if they are set too low, shortages and missed orders loom. This is why companies continuously maintain the planned independent requirements and net them against actually incoming orders, so that forecast and real demand are not counted twice. Through the linkage of primary requirements, bills of materials, the material master and capacity planning, a continuous planning thread emerges from expected sales all the way to the concrete order placed with the supplier.
Customer order versus planned independent requirements
ERP systems usually split primary requirements into customer-order-based and plan-based demand. The customer order is a binding, scheduled requirement with high certainty. Planned independent requirements are the forecasted, still unconfirmed sales used to plan ahead and cover replenishment lead times. So that the two together do not overstate demand, planned independent requirements are gradually reduced as real orders arrive – the so-called requirements netting. It ensures that forecast and order do not feed into procurement cumulatively.
Example
Example: garden furniture manufacturer
A mid-sized garden furniture manufacturer plans a lounge set series for spring. Binding advance orders from specialist retailers amount to 800 sets, and the sales forecast for direct customers expects an additional 1,200 units. The primary requirement for the coming season is therefore 2,000 sets – 800 order-based, 1,200 as planned independent requirements. There are still 300 finished sets from the previous year available in stock, so the net primary requirement stands at 1,700 units.
On the basis of these 1,700 sets, the ERP explodes the bills of materials and determines the secondary requirement: aluminium frames, cushions, upholstery fabric and screws in the respective quantities. From this, production orders for in-house production and purchase requisitions for the bought-in parts are generated automatically, each scheduled backwards over the replenishment lead time. If further real customer orders come in over the course of the season, the system nets them against the planned independent requirements so that nothing is planned and procured twice.
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