Material Planning (Disposition)
Material planning (German "Disposition") is the demand-driven planning and control of procurement and inventory. It determines which item must be ordered or produced, in what quantity and by when, so the company stays able to deliver without tying up unnecessary capital in stock.
Material planning (German "Disposition") is the demand-driven planning and control of material procurement and inventory levels. It answers three connected questions: which item is needed, in what quantity and by when? The goal is to keep goods and input materials available at all times while keeping the costs tied up in stock as low as possible. Material planning therefore operates in the tension between delivery capability and capital lock-up, and is the planning hub between demand, stock and purchasing.
Whoever runs material planning is "disponiert" (planning); the responsible person is called a planner (Disponent). In everyday practice, material planning is not a one-off act but an ongoing process: consumption is monitored, demand is forecast, orders are triggered and deadlines are tracked. In modern merchandise management and ERP systems, much of this work runs automatically. The system continuously compares stock levels against stored thresholds and demand, and generates order proposals that the planner only reviews and approves.
At a glance
- Demand-driven planning of procurement and inventory
- Answers: which item, what quantity, which date
- Goal: secure delivery capability with minimal capital lock-up
- Two core logics: consumption-driven and demand-driven
- Largely automated in the ERP via order proposals
What does material planning cover?
Material planning comprises several sequential sub-steps. It starts with demand determination: from sales plans, open orders, historical consumption or bill-of-materials explosions, the system works out how much of an item is needed over a given period. From this the net requirement is calculated by offsetting available stock, already ordered quantities and reserved goods. Only if a shortfall remains after this calculation does an actual procurement need arise.
Demand determination is followed by quantity and date planning. Order-quantity calculation determines the economically sensible order quantity, taking into account minimum order quantities, packaging units, volume discounts and the opposing costs of order processing and stockholding. Scheduling defines when the order must be placed so the goods arrive in time before the required date; the decisive factor here is the replenishment lead time. The result of material planning is the order proposal: a concrete recommendation of what to order from which supplier, in what quantity and by when.
Planning methods: consumption-driven or demand-driven
In principle there are two core logics of material planning, used depending on the item and business model. Consumption-driven planning derives future demand from past consumption. It suits items with steady, well predictable outflow and works with threshold values or fixed cycles. Demand-driven (also called plan- or program-driven) planning, by contrast, calculates demand concretely from orders and production plans, typically via the explosion of bills of materials. It is more precise but more data-intensive, and rarer in trading companies than in manufacturing.
Reorder-point and reorder-cycle methods
Within consumption-driven planning, two methods are common. In the reorder-point method, an order is placed as soon as stock reaches or falls below a defined reorder level, so the trigger is the stock itself and the timing is variable. In the reorder-cycle method, stock is checked at fixed intervals and replenished up to a target level, regardless of the exact stock position. The reorder-point method reacts more precisely to actual consumption, while the reorder-cycle method bundles orders and simplifies handling with the supplier.
Demand-driven planning (MRP)
In production environments, demand-driven planning corresponds to the principle of Material Requirements Planning (MRP). From the production program and the bills of materials, the secondary requirement for components and raw materials is derived with precise timing and reconciled with stock and open orders. This way, only what is actually needed for concrete orders is procured. Here the safety stock serves merely as a buffer against disruptions, not as the primary trigger of procurement.
Why material planning matters
Material planning directly determines two opposing cost risks. If planning is too tight, shortages occur: orders cannot be fulfilled, revenue is lost, and there is a risk of contractual penalties or expensive rush purchases. If planning is too generous, warehouses fill up, capital is tied up, storage and handling costs rise, and the risk of obsolescence, spoilage or write-off grows. Good material planning finds the narrow line in between and thus acts directly on liquidity, service level and results.
Beyond pure cost control, material planning is the pacemaker of the entire supply chain. Its proposals determine when purchasing negotiates with suppliers, how evenly the warehouse is utilized, and how reliably sales can make delivery commitments. Structured, data-supported material planning makes these processes predictable and relieves those involved of reactive firefighting. The prerequisite, however, is reliable inventory management: if the book stock deviates from the physical stock, the system plans on a false basis.
Material planning in the ERP system
In ERP and merchandise management systems, material planning is a core module between inventory management and purchasing. For each item, the planning parameters are maintained in the item or material master: planning method, reorder level, safety stock, minimum order quantity, replenishment lead time and the preferred supplier. On this basis the system performs a planning run, reconciles demand, stock and open orders, and automatically generates order proposals. The planner then only processes the exceptions reported by the system instead of checking each item individually.
The benefit of this automation grows with data quality. Modern systems dynamically project consumption from the transaction data, take seasonal patterns into account, and even propose planning parameters for adjustment themselves. In addition, analyses such as the ABC analysis or the XYZ analysis provide a classification of which items require tight control and which can be planned in bulk. In this way, material planning connects master data, transaction data and purchasing into a continuous, largely self-controlling procurement process.
Distinction: material planning, procurement and inventory management
Material planning, procurement and inventory management interlock but are not the same. Inventory management documents what is actually in the warehouse and supplies material planning with its numerical basis. On this basis, material planning plans what, how much and when to procure, and results in order proposals. Procurement or purchasing implements these proposals operationally: it selects suppliers, negotiates terms and converts proposals into binding orders. Put briefly: material planning plans the demand, purchasing covers it.
Example
Example: Mid-sized wholesaler for electrical installation
A wholesaler carries around 12,000 items, from switches and cables to distribution boards. For the fast-moving A-items with steady sales, material planning uses the reorder-point method: for each item, the item master stores reorder level, safety stock and replenishment lead time. When the available stock of a cable type drops to its reorder level, the ERP automatically generates an order proposal with the standard supplier, including the economic order quantity while taking the packaging unit into account.
For sporadically demanded special items, by contrast, the demand-driven logic applies: only once a concrete customer order exists is the associated demand planned and ordered, so as not to build up slow-moving stock. Every morning the planner starts a planning run, reviews the proposed orders collectively, consolidates them by supplier and approves them. Instead of manually monitoring thousands of items, they only work on the exceptions reported by the system, so procurement stays both able to deliver and lean at the same time.
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