Skip to main content

2.1 The Planning Hierarchy

Procurement cannot function if it chases conflicting signals. When Sales forecasts one number, Production schedules another, and Engineering changes the BOM simultaneously, the result is chaos—excess inventory or line-down shortages. To stabilize the supply chain, we must define a hierarchy of demand signals. Procurement executes against a single, validated dataset (the "Source of Truth"), not against hallway conversations or email threads.

The Signal Hierarchy

The ERP system is the only valid mechanism for demand generation. Sourcing decisions are driven by the highest fidelity signal available, cascading down in priority.

Priority 1: Firm Sales Orders (SO)

  • Definition: Contracted demand with a customer PO and defined ship date.
  • Action: Immediate execution. Buying against SOs requires no approval up to the contract value.
  • Risk: Low. Inventory is legally allocated to revenue.

Priority 2: Approved Master Production Schedule (MPS)

  • Definition: The "Build Plan" authorized by Operations Leadership, usually blending Firm SOs and statistical Forecast.
  • Action: Execute buys to support the build start date.
  • Risk: Moderate. Depends on forecast accuracy.

Priority 3: The "Hotlist" / Forecast

  • Definition: Uncommitted demand or speculative projections.
  • Action: Do Not Buy based solely on this signal without a Risk Buy Authorization. Use this data only for pipeline visibility and supplier capacity planning.

MRP to Buy Signal: The Conversion Protocol

Material Requirements Planning (MRP) generates raw suggestions. The Buyer’s role is to validate these suggestions before converting them into Purchase Orders. A "Buy Task" is only actionable if it contains the following mandatory fields.

If MRP Output is Missing:

  1. Need Date (Dock Date): When must the parts arrive to clear Receiving/QC?
  2. Quantity: Net demand (Gross Requirement – Stock on Hand – Open POs).
  3. Approved Source: Link to the active AVL.
  4. Buffer Policy: Is Safety Stock included?
  • Then: The signal is Invalid. Return to Planning for remediation. Do not guess the date.

Decision Logic: Actioning the Signal

If Lead Time < Time to Need Date:

  • Then Process as Standard PO. Aggregate demand to optimize pricing.

If Lead Time > Time to Need Date:

  • Then Process as Expedite / Shortage.
    • Check Distributor Stock (Spot Buy).
    • Escalate to Planning: "Date unachievable. Reschedule Production or authorize Broker premium."

Pro-Tip: Configure your MRP to "dampen" noise. Set a "Reschedule In/Out" horizon (e.g., 7 days). If the need date shifts by only 2 days, the system should not scream for a PO change. This prevents "nervousness" in the supply base.

The Planning Handshake Contract

Alignment between Planning (Demand) and Procurement (Supply) is non-negotiable. This "Handshake" defines the rules of engagement.

Responsibilities

  • Planning: Owns the "What" and "When". Responsible for forecast accuracy and timely BOM release. Must freeze the schedule inside the "Frozen Zone" (e.g., 2 weeks).
  • Procurement: Owns the "How" and "From Whom". Responsible for executing the buy at the target cost and securing the commit date.
  • Joint: Responsible for resolution of "Gap Lists" (Shortages).

Cadence

  • Weekly MRP Regen: Monday Morning. New signals generated.
  • Shortage Review: Tuesday Morning. Review logic for unfulfillable demand.
  • Clear to Build (CTB): Thursday Afternoon. Confirm material availability for next week’s production start.

Escalation Rules

  • Scenario: Planning requests dates inside the Lead Time.
    • Rule: Procurement will attempt expedite. If premium > $500 or risk is high, Planning must authorize the variance or push the schedule.
  • Scenario: Procurement finds significant price increase (>10%).
    • Rule: Stop. Request budget adjustment or engineering alternative before placing PO.

No-Go Rule: The "Ghost" Demand

Rule: No Purchase Orders shall be issued against "verbal" or "email" demand.

Why: If it is not in the ERP, it does not exist. Buying against ghost demand creates inventory that Finance cannot track and Sales cannot sell. If a stakeholder wants parts bought, they must enter a demand line in the system.

Final Checklist

Control Point

Requirement

Critical Threshold

Source of Truth

ERP Demand Signal

100%

Buy Authority

Firm SO or Approved MPS

Required

Data Integrity

Need Date + Qty defined

No Null Fields

Frozen Zone

Schedule Stability

2 Weeks (No changes)

Conflict Resolution

Lead Time vs Need Date

Escalate to Planning

Unauthorized Buys

Speculative/Verbal Orders

Forbidden

Back to top