How do I calculate raw material needs from my sales forecast?
You've built a demand forecast for your finished products. You know you'll need 50,000 units of your bestselling SKU next quarter. But that forecast alone doesn't tell you when to order ingredients or how much packaging to buy.
Converting finished goods demand into raw material requirements is the core of material requirements planning—MRP for short. Here's how to do it, whether you're using spreadsheets or software.
The basic calculation
Raw material demand starts with a simple multiplication: Finished goods forecast × BOM quantity per unit = Gross material requirement.
If your forecast shows 10,000 units of a protein bar and each bar requires 25 grams of almonds, your gross requirement is 250,000 grams (or 250 kg) of almonds.
But gross requirements rarely equal what you actually need to order. You have to account for three adjustments:
- Current inventory: What's already sitting in your warehouse?
- Incoming orders: What's already on purchase orders but hasn't arrived?
- Safety stock: What buffer do you want to maintain?
The net requirement formula becomes: Net requirement = Gross requirement - Current inventory - Incoming POs + Safety stock.
A worked example
Let's walk through a real calculation. Say you're planning for March production.
Your data:
- March finished goods forecast: 15,000 units
- BOM quantity for oats: 40 grams per unit
- Current oat inventory: 200 kg
- Oats on order (arriving early March): 150 kg
- Desired safety stock: 100 kg
The calculation:
- Gross requirement: 15,000 × 40g = 600,000g = 600 kg
- Net requirement: 600 kg - 200 kg - 150 kg + 100 kg = 350 kg
You need to order 350 kg of oats for March production. Now the question is when to place that order, which depends on your supplier's lead time.
Working backward from production dates
Raw material orders need to arrive before production starts, not before products ship. This means you're working backward through multiple lead times.
Start with your ship date. When does the finished product need to leave your warehouse or your co-packer's facility?
Subtract production time. How long does manufacturing take from start to finish? This includes mixing, filling, curing, quality holds, and packaging.
Subtract raw material lead time. How long from placing the order until materials arrive at your production facility?
Add buffer time. Things go wrong. Shipments are delayed. Quality issues require rejections. Build in reasonable buffer.
Example: Product ships April 15. Production takes 5 days. Raw material lead time is 14 days. Buffer is 3 days. You need to place the raw material order by: April 15 - 5 - 14 - 3 = March 24.
Aggregating across products
Most CPG brands use the same ingredients across multiple products. Almonds might go into your protein bars, your trail mix, and your granola. Effective raw material planning aggregates demand across all products.
Here's how to approach this:
- Build individual product forecasts for each finished SKU
- Apply each product's BOM to calculate gross requirements per ingredient
- Sum gross requirements for each ingredient across all products
- Apply the net requirement calculation at the ingredient level
This aggregation is where spreadsheets start to break down. With 50 SKUs and 200 ingredients, the formula complexity becomes unmanageable. Planster handles this automatically—enter your forecasts and BOMs, and the system calculates aggregated material requirements across your entire product catalog.
Handling variable lead times
Not all materials arrive on the same schedule. Some suppliers deliver in a week; others need two months. Your planning needs to account for these differences.
Group materials by lead time buckets. You might have "quick turn" items (1-2 weeks), "standard" items (3-4 weeks), and "long lead" items (6+ weeks). Plan further ahead for long-lead items.
Use rolling forecasts. Your immediate forecast (next 4 weeks) should be fairly accurate. Your 3-month forecast is directional. Your 6-month forecast is rough. Match your ordering horizon to your lead times—order long-lead items based on longer-range forecasts.
Consider minimum order quantities. If your supplier requires a 1,000 kg minimum order but you only need 350 kg, you'll need to plan for excess inventory or coordinate orders across multiple production periods.
Common mistakes in raw material planning
Planning to finished goods demand, not production demand. Your forecast shows what you'll sell, but you produce ahead of sales. If March sales are 15,000 units but you produce for both March and April in March, your material needs are higher than a simple March forecast suggests.
Forgetting about yield loss. If your BOM says 40 grams of oats per unit, but production typically wastes 5%, you actually need 42 grams. Small percentage errors multiply across thousands of units.
Not communicating forecast changes to suppliers. If your forecast jumps significantly, your suppliers need warning. They have their own lead times for materials and production capacity. Surprise orders often mean expedited shipping costs or allocation issues.
Treating all materials equally. An $0.02 label and a $15/kg specialty ingredient don't deserve the same planning attention. Focus precision on high-value and high-risk materials.
Key takeaways
- Convert finished goods forecasts to material needs using BOM quantities: Forecast × BOM quantity = Gross requirement
- Calculate net requirements by subtracting current inventory and incoming orders, then adding safety stock
- Work backward from ship dates through production time and supplier lead times to determine order dates
- Aggregate material demand across all products that use the same ingredient
- Match your planning horizon to your supplier lead times—plan further ahead for long-lead items
Frequently asked questions
How accurate does my forecast need to be for material planning?
It depends on your lead times and safety stock levels. If materials arrive in a week and you keep two weeks of safety stock, a 20% forecast error is manageable. If lead times are 90 days with thin safety stock, you need much more forecast precision. Build your safety stock and supplier relationships to give yourself room for forecast error.
Should I plan materials weekly or monthly?
Match your planning frequency to your ordering and production cycles. If you produce weekly and order weekly, plan weekly. If you do monthly production runs with monthly orders, monthly planning is sufficient. More frequent planning catches issues earlier but requires more effort.
How do I handle suppliers with unreliable delivery?
Increase safety stock for materials from unreliable suppliers, and order earlier to give yourself recovery time. Also track supplier performance so you have data for negotiations or to justify switching vendors.
What if my BOM quantities change frequently?
If your recipes are still being optimized, use version control on your BOMs and plan based on the current version. Review material plans whenever BOMs change significantly. Frequent BOM changes are a sign you should wait for stability before over-ordering materials.
Can I use the same process for packaging components?
Yes. Packaging goes in your BOM just like ingredients. The same gross-to-net calculation applies. Just remember that packaging often has longer lead times and higher minimum order quantities than raw ingredients, so plan accordingly.