Materials Planning and Demand Management

Introduction

Materials planning is the systematic process of determining what materials are required, how much is required, and when those materials must be available to support production and customer service. It connects market demand with purchasing, inventory, production, capacity, and supplier decisions. In a manufacturing organization, poor planning can produce two opposite outcomes: shortages that interrupt production and excess inventory that ties up capital, occupies space, becomes obsolete, or deteriorates.

Materials planning is therefore more than placing purchase orders. It is an integrated planning discipline. Demand must be estimated or translated from confirmed orders; products must be represented through bills of materials; inventories and scheduled receipts must be considered; lead times must be offset; and the resulting plan must be checked against available capacity. Modern systems perform many calculations automatically, but the quality of the output still depends on accurate data, sensible assumptions, disciplined review, and effective coordination among sales, operations, purchasing, finance, and suppliers.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain the relationship between demand management, forecasting, and materials planning.
2. Apply basic quantitative forecasting methods and evaluate forecast error.
3. Interpret bills of materials and product structures.
4. Calculate gross requirements, net requirements, planned receipts, and planned order releases.
5. Explain lead-time offsetting, lot-sizing, safety stock, and time fences.
6. Construct a basic master production schedule and material requirements plan.
7. Recognize capacity constraints and explain closed-loop planning.
8. Evaluate practical, technological, ethical, and governance issues in planning systems.

1. Demand Management as the Starting Point

Demand management coordinates information about customer requirements, market expectations, promotions, independent demand, and internal production needs. Demand may be classified as follows:

• Independent demand is determined outside the production system, such as demand for finished bicycles sold to customers.
• Dependent demand is calculated from the demand for another item, such as tyres required for bicycles.
• Known demand comes from firm customer orders, contracts, or a frozen production schedule.
• Forecast demand is an estimate based on historical data, market intelligence, and managerial judgment.
• Derived demand is generated mathematically from a parent item, usually through a bill of materials.

The distinction between independent and dependent demand is fundamental. Finished-product demand is often forecast, whereas component demand can usually be calculated from the production plan. If 500 bicycles are scheduled and each bicycle requires two tyres, gross tyre demand is 1,000 tyres before inventory and other supply information are considered.

Demand management normally includes four activities:

1. Demand sensing: gathering orders, point-of-sale data, market signals, and customer information.
2. Demand forecasting: estimating future independent demand.
3. Demand shaping: influencing demand through pricing, promotions, delivery promises, or product substitution.
4. Demand prioritization: allocating scarce materials or capacity among customers, products, and markets.

A useful managerial principle is that a forecast is not a promise. A forecast expresses expected demand; a production schedule expresses an operational commitment subject to capacity, materials, and policy constraints.

2. Forecasting for Materials Planning

Forecasting supports decisions about purchasing, workforce, capacity, and inventory. No forecast is perfectly accurate, especially when demand is affected by economic changes, competitor actions, weather, technology, or unusual events. The objective is not to eliminate uncertainty but to measure and manage it.

2.1 Time-series patterns

A time series may contain:

• Level: the average underlying demand.
• Trend: persistent upward or downward movement.
• Seasonality: a repeated pattern at a known interval, such as monthly or quarterly demand.
• Cyclical variation: longer-term movement associated with economic conditions.
• Random variation: unpredictable fluctuation.

The selected forecasting method should reflect the pattern, the planning horizon, the cost of error, and the availability of data.

2.2 Moving-average forecasting

A simple moving average uses the mean of the most recent observations:

where F_t+1 is the forecast for period t+1, D_t is actual demand in period t, and n is the number of periods included. It assumes that recent observations are representative and that each selected period deserves equal weight. It is easy to understand but responds slowly to trend changes.

Example. Demand for the last three weeks was 420, 460, and 440 units. The four-week moving average cannot be calculated because only three observations are available. A three-week moving average for week 4 is:

F₄ = (420 + 460 + 440) ÷ 3 = 440 units.

2.3 Weighted moving average

A weighted moving average assigns greater importance to selected observations:

where w_i is the weight assigned to an observation and the weights must sum to 1. The method is appropriate when recent demand is believed to be more relevant. For example, with weights 0.5, 0.3, and 0.2 applied to demands 440, 460, and 420 respectively, the forecast is (0.5 × 440) + (0.3 × 460) + (0.2 × 420) = 442 units.

2.4 Exponential smoothing

Simple exponential smoothing is expressed as:

where α is the smoothing constant, with 0 < α < 1. A larger value responds more rapidly to recent changes; a smaller value produces a smoother forecast. The method is most suitable for demand with a relatively stable level and no pronounced trend or seasonality. Trend-adjusted or seasonal methods are required when those patterns are material.

2.5 Forecast-error measures

Forecast accuracy should be monitored using actual demand and forecasts. Common measures include:

where e_t is the forecast error.

MAD is expressed in demand units, MSE gives greater influence to large errors, and MAPE expresses average absolute error as a percentage. MAPE is unsuitable or unstable when actual demand is zero or very close to zero. Forecast bias may be assessed using:

A persistent positive or negative cumulative error can indicate systematic under-forecasting or over-forecasting. Forecast accuracy must be interpreted in context: a low error for a low-volume item may matter less than a larger error for a critical, high-value component.

3. Product Structures and Bills of Materials

A bill of materials (BOM) is a structured record of all components, subassemblies, raw materials, and quantities required to make one unit of a parent item. It is both an engineering description and a planning record. A BOM normally includes item identification, quantity per parent, unit of measure, revision or effectivity date, scrap factor where applicable, and sometimes operation or work-centre information.

A product structure represents the hierarchical relationship between parent and component items. The finished product is usually level 0. Its direct components are level 1; components of those components are level 2, and so forth. A single-level BOM lists only immediate components. An indented BOM shows all levels in hierarchical form. A modular BOM organizes common subassemblies that may be used in several finished products.

BOM accuracy is essential. An incorrect quantity, obsolete revision, missing component, or incorrect unit of measure can cause systematic shortages or unnecessary purchases. Engineering change control must identify when a new design becomes effective and when the old design ceases to be valid.

Product-structure example

Consider one desk consisting of:

• 1 desktop;
• 4 legs;
• 1 drawer assembly.

Each drawer assembly requires 1 drawer box and 2 runners. Each drawer box requires 1 front, 1 back, 2 sides, and 1 base. For 100 desks, the gross requirements are:

This calculation assumes no scrap, rework, substitutions, or yield loss. If a component has a planned scrap factor, the planning quantity must be increased according to the organization’s defined policy. The factor must be applied consistently and must not be confused with safety stock.

4. Master Production Scheduling

The master production schedule (MPS) translates the aggregate production plan and demand information into a time-phased plan for specific end items. It states which finished products or major options are to be completed, in what quantities, and in which time periods.

The MPS is not simply a sales forecast. It is a feasible statement of intended production after considering inventory, customer orders, capacity, and management policies. The MPS provides the principal demand input to MRP for end items and is often maintained in weekly buckets, although daily buckets may be needed near the production date.

A typical MPS record includes:

• forecast demand;
• customer orders;
• available inventory;
• scheduled receipts;
• projected available balance;
• available-to-promise quantity;
• planned production receipts;
• time fences and planning rules.

A basic projected available balance can be calculated as:

where PAB_t is projected available balance at the end of period t, MPS_t is planned production receipt, SR_t is scheduled receipt, and D_t is the demand used by the organization. The equation assumes all quantities use the same unit and that receipts are available in the stated period.

The MPS should be reviewed through a sales and operations planning process. Aggregate plans address product families and resource levels; the MPS disaggregates them into specific items. Changes inside a frozen time fence should require authorization because they can destabilize purchasing, production, and customer commitments.

5. Material Requirements Planning

Material requirements planning (MRP) is a time-phased planning technique that converts the MPS into planned orders for components and materials. It uses four primary inputs:

1. The MPS or other independent-demand schedule.
2. The BOM or product structure.
3. Inventory records, including on-hand balances and scheduled receipts.
4. Planning parameters such as lead times, lot-sizing rules, safety stock, and order policies.

MRP performs a logical sequence:

1. Determine gross requirements from parent planned-order releases.
2. Identify scheduled receipts and available inventory.
3. Calculate net requirements.
4. Create planned-order receipts according to lot-sizing rules.
5. Offset receipts by lead time to determine planned-order releases.
6. Explode those releases through the BOM to calculate lower-level requirements.

5.1 Gross and net requirements

For a simple period-by-period calculation, net requirement may be represented as:

where NR_t is net requirement in period t, GR_t is gross requirement, SS_t is required safety stock, OH_t-1 is usable projected inventory from the previous period, and SR_t is scheduled receipt. The maximum function prevents a negative order quantity. More complete MRP records carry projected balances forward and account for prior planned receipts, allocated stock, scrap, and policy-specific availability.

The net requirement is not automatically the purchase quantity. The planned receipt must obey the lot-sizing rule. Under lot-for-lot sizing, the planned receipt equals the net requirement. Under fixed-order-quantity sizing, the receipt is the smallest allowed multiple that covers the net requirement.

5.2 Lead-time offsetting

A planned-order receipt is placed in the period when material is needed. The corresponding planned-order release is placed earlier by the relevant lead time:

Lead time may include supplier processing, transportation, receiving, inspection, queue, setup, and internal manufacturing time. The planning system must use the lead-time definition appropriate to the item and supply source. If a component is required in week 6 and its lead time is 2 weeks, its planned order should be released in week 4, subject to calendar conventions and supplier cut-off times.

5.3 Worked MRP example

A product requires 2 units of component A. The MPS requires 50 finished units in week 4. Component A has 20 units on hand, no scheduled receipts, a two-week lead time, and lot-for-lot ordering. Ignore safety stock and scrap.

The gross requirement for A in week 4 is:

GR₄ = 50 × 2 = 100 units.

The net requirement is:

NR₄ = 100 − 20 = 80 units.

Therefore, the planned receipt is 80 units in week 4. With a two-week lead time, the planned release is 80 units in week 2. If the supplier’s minimum order is 100 units, the planned receipt becomes 100 units and 20 units remain as projected excess after satisfying the requirement.

A compact record is:

The table illustrates the difference between a receipt and a release. Confusing these concepts is a common operational error.

6. Lot-Sizing, Safety Stock, and Planning Policies

Lot-sizing determines the quantity ordered or produced when a net requirement exists. Common approaches include:

• Lot-for-lot: order exactly the calculated net requirement. It minimizes planned ending inventory but may create frequent orders or setups.
• Fixed order quantity: order a predetermined quantity, often based on supplier packaging, machine economics, or minimum order requirements.
• Economic order quantity: balances ordering and holding costs under restrictive assumptions.
• Period-order quantity: groups requirements over a selected number of periods.
• Minimum–maximum policy: replenishes inventory toward a defined maximum when it reaches a reorder trigger.

For the classical economic order quantity model:

where Q^* is the order quantity in units, D is annual demand in units, S is ordering or setup cost per order, and H is annual holding cost per unit. The model assumes relatively constant demand, known costs, instantaneous replenishment, no stockouts, and no quantity discounts unless modified. These assumptions often do not hold exactly in MRP environments, so EOQ should be treated as a decision aid rather than an automatic answer.

Safety stock protects against uncertainty in demand, supply, or both. It is not a substitute for correcting poor records or unreliable suppliers. For demand uncertainty during a fixed lead time, a common statistical expression is:

where SS is safety stock, z is the selected service-factor value, and σ_L is the standard deviation of demand during lead time. This expression assumes a suitable probability model and a defined service interpretation. If lead time is also variable, demand and lead-time variation must be combined using an appropriate model; simply adding separate safety stocks may be incorrect.

Planning parameters must be reviewed. Excessively long lead times create early releases and inventory; unrealistically short lead times create chronic shortages and expediting. Safety stock should reflect item criticality, demand variability, replenishment reliability, and the cost of shortage.

7. Capacity Considerations and Closed-Loop Planning

MRP answers the materials question, but materials availability alone does not guarantee a feasible production plan. Capacity requirements planning (CRP) compares the workload generated by planned and released orders with available capacity at work centres. Capacity includes machines, labour, tooling, inspection resources, docks, storage, and sometimes supplier capacity.

A simplified load calculation is:

where Load_wc,t is the load at work centre wc in period t, Q_j,t is the quantity of item or order j, and the time terms are expressed in consistent time units. If capacity is measured in available hours, load should not exceed practical available hours without an approved adjustment.

Capacity adjustments may include overtime, subcontracting, alternate routings, additional shifts, setup reduction, order rescheduling, or product prioritization. A planner should distinguish between theoretical capacity and practical capacity. Practical capacity allows for breaks, maintenance, absenteeism, quality losses, and normal interruptions.

Closed-loop MRP adds feedback from shop-floor control and capacity analysis to the materials plan. The cycle is:

Figure: Closed-loop planning links the demand plan to execution and uses actual feedback to revise future decisions.

Closed-loop planning is more reliable than a one-way explosion because it recognizes that schedules must respond to actual completions, scrap, late suppliers, machine breakdowns, and changing demand. Manufacturing resource planning (MRP II) extends this logic by integrating materials, capacity, finance, engineering, and other organizational resources.

8. Integrated Planning Process

A practical planning cycle may follow these steps:

1. Clean and validate item, BOM, inventory, supplier, and calendar data.
2. Collect orders, forecasts, promotions, and constraints.
3. Reconcile demand through sales and operations planning.
4. Prepare or revise the MPS within agreed time fences.
5. Run MRP using current inventory, scheduled receipts, lead times, and policies.
6. Review exception messages such as shortages, reschedule-in, reschedule-out, cancellations, and overdue receipts.
7. Check supplier, labour, machine, tooling, warehouse, and transport capacity.
8. Resolve conflicts according to business priorities and customer commitments.
9. Release authorized purchase and manufacturing orders.
10. Monitor execution and feed actual results back into the next planning cycle.

Exception management is important. Planners should not treat every system message as equally urgent. Criticality, customer impact, material value, lead time, and recovery alternatives should guide attention.

9. Technology, Data, and Artificial Intelligence

Enterprise resource planning (ERP) and advanced planning and scheduling systems integrate forecasts, orders, BOMs, inventory, purchasing, production, and capacity. Barcode scanning, radio-frequency identification, supplier portals, and shop-floor data collection can improve transaction speed and traceability. However, automation does not eliminate the need for professional judgment.

Artificial intelligence and machine learning can support demand sensing, anomaly detection, probabilistic forecasting, supplier-risk analysis, and dynamic safety-stock recommendations. Their usefulness depends on representative data, stable definitions, explainable outputs, and monitoring for drift. A model trained on a period of abnormal demand may produce misleading recommendations after conditions change. AI-generated recommendations should therefore be subject to human approval, audit trails, and clear accountability.

A sound data-governance framework should define ownership of item masters, BOMs, revisions, lead times, inventory transactions, forecast overrides, and planning parameters. Important controls include user access permissions, approval workflows, version history, reconciliation of physical and system inventory, and documented changes to planning rules.

10. Applied Case: Illustrative Office-Chair Manufacturer

Background

Northstar Seating, a fictional office-chair manufacturer, produces a standard chair called the N-200. Demand is seasonal and a major customer has ordered 600 chairs for delivery in week 8. Each chair requires one seat assembly, one back assembly, one five-wheel base, and one gas cylinder. The base requires five wheels. The seat assembly requires four bolts, and each chair is planned with a 2% allowance for bolt loss during assembly.

Problem

The planner discovers that the MPS includes 600 chairs in week 8, but the purchasing system has treated all components as independent forecasts. This has caused excessive wheels and bolts while gas cylinders are at risk of shortage. The organization must determine requirements and release orders at appropriate times.

Analysis

The chair order is independent demand. Component demand is dependent and should be exploded through the BOM. Gross requirements for 600 chairs are:

The bolt quantity is 600 × 4 × 1.02 = 2,448. The allowance is a planning factor, not a substitute for investigating the cause of loss.

Suppose 150 gas cylinders are usable on hand and 100 are due in week 6. If no safety stock is required, the net requirement for week 8 is 600 − 150 − 100 = 350 cylinders. If the supplier lead time is three weeks, the planned release is in week 5. If the supplier sells only cartons of 100, the planned receipt is 400 cylinders and the planned release is 400 in week 5. The additional 50 cylinders should be recorded as projected inventory, not hidden in an unexplained adjustment.

Approach and solution

Northstar should revise the BOM and item policies, verify the 2% bolt allowance, and use the MPS as the source for dependent demand. The planner should confirm gas-cylinder supplier capacity, place the approved order in week 5, and monitor the week-6 scheduled receipt. Capacity should also be checked for seat and back assembly operations in weeks 6–8. The customer order should be protected by a time fence once the required materials and capacity are committed.

Outcome

The corrected plan reduces unnecessary wheel and bolt purchases, identifies the gas-cylinder shortage before it becomes a production stoppage, and makes the excess created by carton sizing visible. The organization also gains a more reliable basis for supplier communication and customer delivery promises.

Learning points

1. Dependent demand should normally be calculated from the parent schedule.
2. BOM accuracy and revision control are as important as the MRP algorithm.
3. Lot sizes can create excess inventory even when the net requirement is correct.
4. Planned receipts and planned releases are different events.
5. A materials plan must be checked against capacity and supplier feasibility.

11. Challenges, Limitations, and Professional Judgement

MRP can produce misleading plans when inventory records are inaccurate, BOMs are incomplete, lead times are unrealistic, demand is unstable, or scheduled receipts are not trustworthy. System precision can create false confidence: a result calculated to several decimal places is not reliable if its inputs are poor.

Common failure modes include nervousness caused by frequent schedule changes, excessive safety stock used to conceal unreliable processes, duplicated demand from both forecasts and customer orders, invalid unit conversions, and failure to record scrap or substitutions. Planners should use cycle counting, supplier performance reviews, engineering change control, parameter audits, and exception-based management to address these weaknesses.

Ethical and governance responsibilities include truthful delivery promises, fair allocation of scarce materials, protection of commercially sensitive data, non-discriminatory supplier evaluation, and avoidance of deliberate inventory manipulation to improve short-term performance measures. Performance indicators should balance service, inventory, schedule adherence, forecast quality, supplier reliability, and total cost. Optimizing one measure in isolation can damage the wider system.

Best-Practice Checklist

• Use one controlled source for the active BOM and revision.
• Separate forecast demand from firm customer orders.
• Review forecast bias as well as forecast accuracy.
• Validate on-hand quantities through disciplined inventory control.
• Define lead times using actual process components and realistic calendars.
• Apply lot-sizing and safety-stock policies by item class rather than blindly.
• Protect a short-term frozen zone while allowing controlled flexibility farther out.
• Check material plans against practical capacity and supplier capability.
• Investigate exceptions by business impact and urgency.
• Record assumptions, overrides, approvals, and changes.
• Use technology to improve visibility, not to replace accountability.

Chapter Summary

Materials planning converts demand information into coordinated decisions about products, components, quantities, timing, suppliers, capacity, and inventory. Independent demand for finished products may be forecast or confirmed through orders, while dependent demand for components is derived from the MPS and BOM. Forecasting methods such as moving averages, weighted averages, and exponential smoothing provide structured estimates, but their assumptions and errors must be monitored.

The MPS specifies planned production of end items over time. MRP then explodes the MPS through the product structure, subtracts inventory and scheduled receipts, applies lot-sizing and safety-stock policies, and offsets requirements by lead time to create planned-order releases. Capacity requirements planning tests whether the resulting workload can be executed. Closed-loop planning uses actual production, inventory, supplier, and capacity feedback to revise the plan. Effective practice depends on accurate data, disciplined governance, cross-functional review, and professional judgement. ERP, advanced planning tools, and AI can improve responsiveness, but they cannot compensate for poor master data or unclear accountability.

Key Terms

Aggregate planning: Medium-term planning of product families, output, workforce, and resources.

Available-to-promise: Quantity that can be committed to customers after considering supply and existing commitments.

Bill of materials: Structured list of components and quantities required for a parent item.

Capacity requirements planning: Comparison of planned workload with available work-centre capacity.

Dependent demand: Demand calculated from the requirements of a parent item.

Demand management: Coordination of forecasts, orders, market signals, priorities, and demand-shaping actions.

Economic order quantity: Order quantity derived by balancing ordering and holding costs under stated assumptions.

Exponential smoothing: Forecasting method that combines recent actual demand with the previous forecast.

Forecast error: Difference between actual demand and forecast demand.

Independent demand: Demand determined by external customers or markets.

Lead time: Time between releasing an order and having the material available for use.

Lot-for-lot: Lot-sizing rule that orders exactly the calculated net requirement.

Master production schedule: Time-phased plan for producing specific end items.

Material requirements planning: Time-phased calculation of component and material orders.

Net requirement: Remaining requirement after considering available inventory and scheduled supply.

Planned-order release: Authorization or intended timing for placing or starting an order.

Planned-order receipt: Quantity expected to become available in a specified period.

Product structure: Hierarchical relationship between a parent item and its components.

Safety stock: Inventory held to protect against uncertainty in demand or supply.

Time fence: Defined planning boundary controlling how freely a schedule may be changed.

Review Questions

Short Answer Questions

1. Distinguish between independent demand and dependent demand, giving one example of each.
2. What information is required to run a basic MRP calculation?
3. Explain the difference between a planned-order receipt and a planned-order release.
4. Why is BOM revision control important?
5. What is the purpose of safety stock?

Long Answer Questions

1. Explain how demand management, aggregate planning, the MPS, and MRP are linked in a manufacturing organization.
2. Compare moving-average, weighted-moving-average, and exponential-smoothing forecasts, including their assumptions and limitations.
3. Describe the complete MRP logic from gross requirements to planned-order releases.
4. Explain how capacity requirements planning and closed-loop MRP improve the feasibility of materials plans.
5. Discuss how poor master data, unrealistic lead times, and excessive schedule changes affect inventory and customer service.

Analytical / Application Questions

1. A product requires three units of component X. The MPS calls for 240 products in week 7. There are 300 units of X on hand and 100 due in week 5. Calculate the gross requirement and net requirement for X, ignoring safety stock and scrap. If lead time is two weeks and lot-for-lot applies, state the planned receipt and release periods.
2. A planner uses exponential smoothing with α = 0.30. Actual demand in period 5 is 800 units and the forecast for period 5 was 760 units. Calculate the forecast for period 6 and explain how changing α would affect responsiveness.
3. A work centre has 420 practical hours available in a week. Three planned orders require 120 units at 1.2 hours each, 80 units at 1.5 hours each, and 40 units at 0.8 hours each, excluding setup. Calculate the processing load, compare it with capacity, and recommend two possible responses if setup and maintenance make the actual load higher.

Multiple Choice Questions with Answers

Question 1

Which item normally represents independent demand?

A. A tyre required for a scheduled bicycle

B. A bolt required for a chair assembly

C. A finished product ordered by a customer

D. A motor required for a planned subassembly

Correct Answer: C. A finished product ordered by a customer

Question 2

A three-period moving average uses demands of 420, 460, and 440 units. What is the forecast for the next period?

A. 420 units

B. 440 units

C. 460 units

D. 1,320 units

Correct Answer: B. 440 units

Question 3

In the equation F_t+1 = αD_t + (1 − α)F_t, what does α control?

A. The supplier lead time

B. The number of BOM levels

C. The responsiveness to recent demand

D. The fixed order quantity

Correct Answer: C. The responsiveness to recent demand

Question 4

A product requires four components of item Z. The MPS schedules 150 finished products. What is the gross requirement for Z before inventory adjustments?

A. 37.5 units

B. 150 units

C. 154 units

D. 600 units

Correct Answer: D. 600 units

Question 5

Which document shows the hierarchical relationship between a parent item and its components?

A. Bill of materials

B. Capacity report

C. Supplier invoice

D. Cash-flow statement

Correct Answer: A. Bill of materials

Question 6

A component has a gross requirement of 500 units, 120 usable units on hand, and 80 units scheduled to be received. Ignoring safety stock, what is the net requirement?

A. 300 units

B. 320 units

C. 400 units

D. 700 units

Correct Answer: A. 300 units

Question 7

A planned receipt is required in week 9 and the item lead time is three weeks. In which week should the planned order be released, assuming simple weekly offsetting?

A. Week 5

B. Week 6

C. Week 7

D. Week 12

Correct Answer: C. Week 7

Question 8

What is the main purpose of capacity requirements planning?

A. To calculate customer credit limits

B. To compare planned workload with available capacity

C. To replace the bill of materials

D. To eliminate all safety stock

Correct Answer: B. To compare planned workload with available capacity

Question 9

Which statement best describes closed-loop MRP?

A. It ignores shop-floor feedback after orders are released

B. It uses actual execution and capacity feedback to revise plans

C. It forecasts only seasonal finished-product demand

D. It orders every item in equal quantities

Correct Answer: B. It uses actual execution and capacity feedback to revise plans

Question 10

Under lot-for-lot sizing, the planned receipt generally equals the:

A. Economic order quantity

B. Gross requirement plus all inventory

C. Net requirement

D. Supplier’s annual capacity

Correct Answer: C. Net requirement