Material shortage: how to calculate it

Material shortage: how to calculate it

Running out of material halfway through a production order costs far more than having bought too much. When the line stops because a supply item is missing, you do not only lose the time of the people working on the floor: the delivery is delayed, the machine is tied up with a half-finished job, whatever was already processed is at risk, and very often you end up buying in a hurry, at a worse price and from a supplier that is not your usual one. The cost of keeping an item stored for a few weeks is small compared to that mess.

That is why a shortage should not be discovered on the shop floor: it is calculated beforehand. Before the order starts, with the recipe in hand, the stock in sight and a firm date for the purchase. Throughout this article we will look at which data you need, how the formula works, how to convert the shortage into purchase packages, how to set the deadline for the order, how many units can be made today with what is on hand, and what to do when the shortage turns out small, medium or large.

What a material shortage is and when to detect it

A material shortage is the difference between what is needed to manufacture something and what is actually available to do it. It is not a warehouse mistake or a shop floor failure: it is a number, and like any number it can be calculated in advance. The goal is not to keep the warehouse always full, because that ties up money; the goal is to know, before starting, whether what you have is enough or whether you have to go out and buy.

The right moment to detect it is just before approving or releasing the production order, when you can still change the date, adjust the quantity or get the material calmly. If you leave the calculation for the day the machine is already set up, your options come down to paying for an urgent shipment or stopping the line.

To do this calculation you need two reliable things: the recipe and the stock. In Kardex Tauro the bill of materials of a finished product is stored in two ways depending on how it is used. As a KIT or COMBO it is a mandatory list: when you sell, the system validates that the components are there and deducts them from inventory automatically. As a PRODUCTION LINE it is an informational list: it works as the product's theoretical recipe and is useful for comparison and reporting, but it does not block production and does not deduct components on its own.

That bill of materials records how much material one unit of the finished product consumes, and there is support for nested lists: a component can have components of its own, down to three levels. This matters for shortages, because a second or third level item can stop an entire order.

The production order, for its part, only accepts products created as PRODUCTION LINE type. It records what will be made, how much and for when; when the order is finished, actual consumption is recorded and those consumptions stay linked to the order. With that information the system lets you compare the theoretical consumption of the recipe against actual consumption and produce raw material consumption reports. You can also check current stock by warehouse and see the ledger of every component.

Put another way: the software provides the recipe, the stock, the record of actual consumption and the consumption reports. Calculating the shortage is the user's job. There is no screen that does it for you and no automatic alert; what there is, is every piece of information you need to do it well and on time. That is precisely the advantage: once the recipe is loaded and the stock is up to date, the calculation takes a few minutes on a sheet of paper or in a spreadsheet.

The data you need before calculating

Before you reach for the calculator, gather the data in the table. If any of it is missing, the result will be a number with fine print that you cannot defend in front of the supplier or the customer.

Notice one detail that is often overlooked: the stock that counts is not the stock of the whole company, but the stock available in the warehouse where the material will be consumed. If the item is spread across two warehouses and one of them does not feed production, that material does not count for the calculation even though it appears in the company total. That is why it is worth checking stock warehouse by warehouse and not just the consolidated figure.

The shortage formula in words and in symbols

In words, the calculation reads like this: first you get the material required by multiplying what the recipe calls for per unit by the units to be made. Then you work out what is available, which is what is in the production warehouse plus what is already on its way with a firm date. Finally you subtract: you take the available amount away from the required amount and, if the result is positive, that is the quantity you must obtain before the order date. If the result is zero or negative, there is no shortage and you can start.

In symbols, with easy to remember letters: R = Q x U, where R is the material required, Q is the quantity per unit according to the recipe and U is the number of units to be made. Then A = S + T, where A is what is available, S is the stock in the production warehouse and T is the material in transit with a firm date. And finally F = R - A, where F is the shortage. If F is greater than zero, you have to buy; if F is equal to or less than zero, the order can start with what is already there.

Two warnings about the formula. First: material in transit only counts if it has a firm date and that date is before the order starts; an order without a confirmed date is not a plan, it is a hope. Second: the calculation is done item by item, not on the total. A product can have plenty of material for nine of its ten components and still stop because of the one that is missing. The shortage of the whole set is the worst case shortage, not the average.

The worked example, step by step

Let us look at a complete case with round numbers. You are going to make 300 units of a finished product. The recipe calls for 0.25 kg of an input per unit. The production warehouse holds 40 kg of that input, and there is a confirmed order for 10 kg arriving with a firm date before the start. The supplier sells that input in 20 kg bags and its lead time is 4 days. The order is scheduled to start in 6 days.

Read the full result: you have to obtain 25 kg before the start, the input is bought in 20 kg bags, so you order 2 bags for a total of 40 kg, 15 kg are left over as a cushion against the normal process waste, and the order has to go out today or tomorrow at the latest. With those fifteen extra kilos the risk is minimal; if the process wastes more than expected, that cushion is what keeps the line from stopping halfway through the order.

Converting the shortage into purchase packages and adding waste

A classic mistake is to stop at the shortage figure and go out to buy "25 kg". The supplier does not sell loose kilos: they sell 20 kg bags, rolls of a given length, boxes with a fixed number of units or drums of a certain volume. The correct conversion has three steps: turn the shortage into the purchase unit, always round up, and add the normal process waste.

Rounding up is not a whim. If the calculation gives 1.25 bags, ordering a single bag leaves the shortage exposed as soon as the material is consumed, and reordering costs more than having bought the full bag: another shipment, another wait, another round of paperwork. You round up because purchase units do not come in halves.

Waste, for its part, is the material lost in the normal process that never shows up in the recipe: cuts, leftovers, machine adjustments, start-up samples, material damaged while being handled. That figure is defined by each business from its own experience, and it should be written down so it does not have to be reinvented every time. In the example, the 15 kg cushion left over from ordering 2 bags plays exactly that role: it absorbs the waste without forcing an extra purchase. When the shortage is exactly a whole number of packages, the cushion is zero and it is worth asking whether an extra package would not be worthwhile, especially if the item is used every month.

The order deadline and what to do if it has already passed

The shortage tells you how much to buy; the date tells you when. The order deadline is calculated by taking the date when the material is needed and subtracting the supplier lead time. If the material is needed on day 6 and the supplier takes 4 days, the order has to go out on day 2 at the latest. It is worth adding a small margin in case the supplier is late or transport is delayed, because the start date does not allow for negotiation.

If the subtraction shows that the deadline has already passed, there is nothing left but to decide coolly among four paths. The first is to prioritize another order: if an item arrives sooner and serves the same purpose, bring that one forward and push the rest back. The second is a partial purchase: get part of the shortage to start and the rest later, accepting that the order finishes in two batches. The third is to substitute the item: look for an equivalent input that is already available, checking that it meets the same technical conditions. The fourth is to reschedule the order: move the start date to a day when the material is guaranteed, telling sales and the customer in advance.

What is never wise is to start production with a known shortage and trust that the material will arrive on time. That is the most expensive road: the order sits half finished, the operators move to another task, the work in progress takes up space, and in the end the cost of the hurry far exceeds that of having bought one more bag.

Today's production window

The same shortage calculation works in reverse and answers another very useful question: how many units can be made today with the material you have. To find out, you take what is available and divide it by the quantity per unit from the recipe. In the example, 50 kg available divided by 0.25 kg per unit gives 200 units. In other words, with what is in the warehouse and in transit you can make 200 of the 300 scheduled units.

That number is a daily decision tool. If today's production window is enough to cover the most urgent orders, you can start with them and leave the rest waiting for the material that is coming. If the window does not even cover the most urgent order, the problem is not scheduling but supply, and it has to be solved before touching the machine. Calculated item by item, the window also shows which component is the constraint: the one that gives the smallest window is the one to watch.

What to do according to the result

Not all shortages are handled the same way. A small shortage is solved with a quick purchase; a large shortage may force a reschedule. The table sums up the scenarios and the decision each one calls for.

Chronic shortages: when the problem is not buying

There is a symptom worth learning to read: when the same component shows up on the shortage list every month, the problem is not buying. If an item is repeatedly missing, buying faster relieves the current month but fixes nothing, because the same crunch returns the following month. A chronic shortage almost always points to one of three causes.

The first is a badly defined minimum stock: the reorder point sits below real consumption, so the warehouse runs short systematically. The second is the recipe yield: the quantity per unit has gone out of date, whether because the supplier changed, because the presentation of the item changed or because the product was redesigned and the bill of materials was not updated. The third is real waste: the process loses more material than was believed, and that excess was never part of the calculation.

To tackle a chronic shortage you have to look at the consumption reports and compare theoretical consumption against actual. If actual consumption is consistently higher than theoretical for the same product, the difference is not an accident: it is information. With that comparison you correct the recipe, adjust the minimum stock or acknowledge the waste, and the shortage stops repeating. Until that is done, the business will keep buying in a hurry every month and paying the surcharge of haste.

Common mistakes when calculating a shortage

These are the stumbles that repeat the most when the calculation is done by hand:

• Using the company's total stock instead of the stock in the production warehouse, counting material that in practice is not available for that order.
• Ignoring material in transit and buying the same thing twice, or, the other way around, counting it without checking that the delivery date is firm and earlier than the start.
• Forgetting the normal process waste and ordering exactly the shortage, so the material is enough for almost the whole order but not to finish it.
• Ordering the shortage in recipe units instead of converting it to the purchase unit, so the purchase order does not match what the supplier sells.
• Not writing down the firm date promised by the supplier or the lead time, and being left unable to calculate the order deadline.
• Checking the shortage only once at the beginning, and not looking again when the quantity to be made changes or a new customer order arrives.
• Discovering the shortage when the machine is already set up, which is the moment when no cheap options are left.
• Not recording actual consumption when closing the order, which throws away the only reliable source for correcting the recipe and the minimum stock.

A ten minute calculation that avoids a week of delay

Calculating a material shortage does not require a complicated system or a long meeting: it requires the recipe loaded, the stock up to date and the discipline to do the subtraction before starting. With the quantity per unit, the units to be made, what is available in the production warehouse and what is on its way with a firm date, the result appears on one sheet. After that you only have to convert it into packages, round up, add the waste and look at the calendar to see whether the purchase makes it in time.

That is where Kardex Tauro does its part: it stores the bill of materials of every finished product, lets you check stock by warehouse, records actual consumption when the production order is closed and produces the raw material consumption reports, besides showing the ledger of every component. The calculation is yours to make, with that data in front of you; the difference between stopping a line and starting with peace of mind lies in doing it before the order begins.