Projected available balance (PAB) is an essential concept in inventory management. In simple terms, PAB is the amount of inventory projected to be available for use shortly.
This article will discuss what PAB is and how it can improve inventory management.
Projected available balance definition
It is defined as the balance projected in the future, as the available balance of the on-hand inventory. It is derived after netting the requirements and adding the scheduled receipts and planned orders that are about to arrive.
An MPS will be released when the projected availability is determined and how much inventory is left. If the projected available balance,
- Is more than zero
- Or equal to zero
No net requirement exists, and thus MPS is not released. That is because the available balance is a substantial amount, and the demands for the next batch could easily be met with it.
If the projected available balance were less than zero, there would only be a release from the MPS according to a specified lot size.
An MPS is also known as a planned order schedule. This lot size is specified, keeping in mind the company’s gross requirements and regular proceedings.
Projected available balance formula
Projected available balance is calculated using the general formula
on-hand inventory+scheduled receipt-Total demand.
Projected available balance example
Let us suppose our company generally has a lot size of 60 units.
The on-hand inventory present at a given moment is 40.
The demand for the first week is 45.
Now, as the demand is more than the projected balance, the entire balance is used up with five more units.
That makes the projected available balance for the next week negative (-5). So now, as the projected balance is negative, an MPS is released of 60 units which makes the balance 55.
Now, this week, there is a demand for 40units. That makes the projected available as 15. As the projected availability is now positive, it does not require any MPS to be released. Hence, MPS is 0.
Now, in the coming week, already a scheduled release of 60 units is set up from beforehand.
That makes the next projected available as 60+ (15-40) = 35.
The balance will be used up in the next week. There is already a demand of 40 and a scheduled order of 60.
Hence the projected available is 60+ (35-40) =55.
These 55 units are now available for the next week as an on-hand inventory.
What is MPS?
An MPS or Master Planning Schedule is a computer-based program that maintains orders for a firm. It keeps a tab on the orders scheduled to arrive and how much to be ordered.
An MPS also maintains a clear schedule of the projected available balance, scheduled receipts, planned releases, etc., and does not allow any order to be placed when projected available is 0 within a given time fence. But once outside the time fence, it will automatically order if the projected available is negative.
The formulas used by an MPS
The projected available balance calculator can use the below rules for their calculations.
Projected Available Balance (PAB) in the first period = Current on-hand inventory + MPS Receipts – Safety Stock – Orders
Projected Available Balance (PAB) after the first period before time fence = Prior period PAB + MPS receipts – Customer Orders.
Projected Available Balance (PAB) after the first period after demand fence = Prior period PAB + MPS receipts – Greater Forecast/Customer Orders.
Benefits of MPS
- It helps to prevent stockouts.
- It helps to balance demands, the capacity of the equipment, requirements of the laborers.
- It gives a clear picture of the number of products to be manufactured in a given period of time.
- It helps to improve efficiency.
- With rough-cut capacity planning, it helps to find the real capacity to meet customer demands.
Hence, the MPS is a master planner, which efficiently keeps track of the order schedule.
PAB is an essential concept in inventory management and should be considered while making purchasing decisions. By understanding your projected available balance, you can ensure that you are not overstocking or understocking inventory.