What is the formula for calculating raw material requirements?

The raw material requirement for a period is the planned production quantity of each finished good multiplied by the quantity of that material in one unit, summed across every finished good that uses the material, then grossed up for expected yield loss. The net requirement subtracts stock on hand and open purchase orders and adds the safety stock you want to hold. The order quantity is the net requirement rounded up to the supplier's MOQ.

Should raw materials be planned from the sales forecast or the production plan?

Raw materials should be planned from the production plan, not directly from the sales forecast. Production quantities differ from sales because finished-goods stock is netted out first and because runs are batched into production windows. Planning materials straight from sales under-buys before a build-up and over-buys when finished-goods stock is already high.

How do you handle a raw material used in several products?

A raw material used in several finished products is planned by summing the gross requirement from every product's bill of materials by period, then netting that total once against stock on hand and on order. Netting each product separately against the same stock counts the inventory several times over, which is the most common way shared ingredients run short.

How far ahead should a CPG company order raw materials?

The order-by date for a raw material is the production start date minus the supplier lead time, minus transit time to the plant or co-manufacturer, minus any receiving or quality-hold time. Long-lead materials such as custom packaging are therefore ordered against a forecast further out, where the forecast is less certain, so they usually need more safety stock.

Do brands that use a co-manufacturer need to plan raw materials?

Brands that supply ingredients or packaging to a co-manufacturer need to plan those materials themselves, timed to arrive at the co-man before the booked production window. Brands whose co-manufacturer buys all materials still need to give the co-man a forecast far enough ahead to cover the co-man's own supplier lead times.

Raw Material Calculation Formula, Step by Step

What is the raw material calculation formula?

Raw material planning is the core of material requirements planning (MRP). It converts a finished-goods plan into how much of each ingredient and packaging component to buy, and when. The calculation has four steps, and each has a formula.

Step	Formula	Answers
1. Production quantity	Finished-goods forecast − finished-goods on hand − open production + finished-goods safety stock	How many units to make
2. Gross requirement	Production quantity × BOM quantity per unit ÷ (1 − yield loss)	How much material those units consume
3. Net requirement	Sum of gross requirements − material on hand − material on order + material safety stock	How much material to buy
4. Order-by date	Production start − lead time − transit − receiving and quality hold	When to place the order

If the net requirement comes out negative, you have enough material and nothing needs ordering.

The order quantity is then the net requirement rounded up to the supplier's minimum order quantity or pack size. What is an MOQ covers how to handle the excess an MOQ forces you to buy.

Why plan materials from production, not from sales?

Materials are consumed when you make product, not when you sell it. The two quantities differ for two reasons:

Finished-goods stock is netted out first. If the warehouse already holds a month of a product, the next run is smaller than the sales forecast suggests.
Production is batched. A co-manufacturer may give you one window a quarter, or your own line may run a product every other week. The run has to cover demand until the next one, so it can be much larger than one period's sales.

Planning materials straight from the sales forecast buys too little before a seasonal build and too much after one. Step 1 in the table exists to prevent that.

How does the calculation work on a real bill of materials?

The worked example below follows two products through all four steps. For example, suppose a company makes a protein bar and a granola, and both use rolled oats.

Step 1: production quantity

For example, say the bar's forecast for next month is 15,000 units, there are 3,000 on hand and the company wants to hold 2,000 as finished-goods safety stock. The run needs to make 15,000 − 3,000 + 2,000 = 14,000 bars. The granola needs a run of 8,000 bags on the same logic.

Step 2: gross requirement

Product	Units to make	Oats per unit	Oats needed
Protein bar	14,000	40 g	560 kg
Granola	8,000	150 g	1,200 kg
Total			1,760 kg

For example, if the oat line typically loses 2% in production, divide by 0.98 rather than multiplying the BOM by a guess: 1,760 kg ÷ 0.98 is about 1,796 kg of gross requirement.

Step 3: net requirement

For example, with 400 kg of oats on hand, 500 kg on an open purchase order arriving before the run and a 300 kg safety stock target, the net requirement is 1,796 − 400 − 500 + 300 = 1,196 kg. If the supplier ships oats in 500 kg totes, the order is three totes, or 1,500 kg.

Step 4: order-by date

For example, if the runs start on 16 March, the oat supplier quotes 14 days, freight to the plant takes 3 days and receiving and quality release take 2 days, the order has to be placed by 16 March − 19 days = 25 February.

Why do shared materials run short?

Most CPG catalogues reuse the same ingredients, films, cartons and labels across many products. The mistake that causes most shortages is netting each product separately against the same stock.

If both the bar and the granola planner see 400 kg of oats on hand, each assumes it is theirs, and the shortfall only shows up at the second run. The fix is the order of operations:

Explode every product's planned production through its bill of materials.
Sum the gross requirement for each material, by period.
Net the total once, against one figure for stock on hand and on order.
Allocate the material to runs in date order, and flag any run left short.

The bill of materials basics post covers structuring BOMs so this sum is possible: one material code per physical material, consistent units of measure, and packaging components on the BOM alongside ingredients.

How do lead times and MOQs change the plan?

Lead times decide how far ahead you are buying, and therefore how good the forecast behind the order is.

Group materials by lead time

Short-lead materials such as commodity ingredients from a domestic supplier can be ordered against a near-term forecast.
Long-lead materials such as printed film, custom cartons or imported ingredients are ordered against a forecast much further out. That forecast is less certain, so those materials usually need a larger safety stock, sized from demand variability rather than a fixed number. What is safety stock covers the sizing.

Check MOQs against consumption

An MOQ well above one run's requirement means the excess sits in stock until later runs consume it. Check the shelf life of the material against how long the excess will take to use. If it expires first, the true cost of the MOQ includes the write-off.

Track actual lead times

Plan against the lead times suppliers actually deliver, measured from your receiving records, not the ones they quote. Lead time in inventory explains how to measure it.

What changes when a co-manufacturer makes the product?

The arithmetic is the same. Three inputs change:

The production start date is the co-man's booked window, and it may be fixed weeks in advance. Missing it can mean waiting for the next one.
Transit is to the co-man's facility, and its receiving rules apply. Ask how far ahead it wants materials on site before a run.
Stock on hand includes material already held at the co-man. Reconcile it before each run and do not count it twice. Co-packer inventory management covers keeping that figure accurate.

If the co-manufacturer buys some materials itself, those drop out of your net requirement, but the co-man still needs your production forecast early enough to cover its own supplier lead times.

Common mistakes

Forgetting yield loss. Small losses multiply across every unit made.
Leaving packaging off the BOM. Packaging often has the longest lead time and the largest MOQ.
Ignoring open purchase orders, which double-orders material that is already on the way.
Planning from quoted lead times rather than measured ones.
Not re-running the calculation when the plan changes. A moved run or a revised forecast changes every material requirement downstream of it.

How Planster handles raw-material planning

The calculation above is simple for one product and one material. It becomes hard to keep current across hundreds of products and materials, because every forecast change or moved run changes the answer.

Planster keeps bills of materials for your finished goods and shows which production runs are coming and what materials each run consumes, so shared components are planned once rather than product by product. The forecast underneath comes from a statistical model chosen for each SKU, and safety stock is held in days of cover that convert to units from that forecast. See bills of materials and kitting for how it works. Purchase orders are drafted for your team to review and approve; nothing is sent to a supplier without that approval.

How to Calculate Raw Material Demand from Finished Goods Forecasts