Many companies invest money in the purchase of raw material, to later incorporate it into your production process, where it is transformed into finished products that they sell to their customers.
WFP It is part of the average maturation period and corresponds to the phase that comes after the purchase of raw materials.
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In this article you will find:
What is the PMA?
The Average provisioning period It is the time that elapses from the moment the company buys said raw material, until the moment they go into the production process.
For this reason it is also known as the average raw material storage period.
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In other words, if the company has an average PMA of 30 days, it is understood that it owes it every 30 days. balance with your supplier the purchase of the raw material necessary to continue with the process of production.
The higher the EMP, the longer the dwell time is expected to be. stuff in warehouse and as a consequence the investment is also higher.
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It is also important to highlight that this raw material storage is a key factor in two different aspects:
- Product quality:
It is vital to keep a check on these days because the quality and good condition of the raw material must be preserved so that it does not interfere with the quality of the final product.
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- Liquidity of the company:
Although it is convenient to minimize this period, it should be taken into account that the company should not be short of supplies at any time, since it would harm production and on the other hand it would entail an expense excessive.
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How is the average provisioning period calculated?
The provisioning period is calculated using the following formula:
PMA = Average inventory balance / raw material consumption x 365
The warehouse balance of the raw material stock is divided by the amount of material consumed per year, and then multiplied by 365, which corresponds to the days of the year.
There is another way to calculate it, which is done through the so-called inventory turnover.
The inventory turnover corresponds to the number of times the company renews the raw material warehouse in the year. This rotation is obtained by dividing the purchases of raw materials per year by the average inventories.
MP turnover = Purchases per year / Inventories
After obtaining the rotations, it should only be used as a dividend for the 365 days of the period or year and the PMA is obtained.
PMA = 365 / rotations
Important considerations
Taking into consideration that a company has storage of raw materials and storage of finished products, the so-called Average Warehouse Period which is understood in first impression as the average time that elapses since a unit enters the warehouse, until the moment it leaves the same.
For a correct analysis of it, it is necessary to differentiate between:
Industrial business:
Those that use certain resources to create finished products ready for consumption.
- Average Storage Period of Raw Material: Defined above.
- Average Storage Period of Finished Products: Average time that finished products remain in the warehouse until they are sold.
Trading or distribution companies:
His main one is in the purchase and sale of products, without producing any transformation in himself. The cycle of these companies is very simple, it is reduced to three elements: money-goods-money.
Therefore, it only involves the Average Storage Period for finished products.
It is important to know and be very clear about these considerations, since the mean period should not be confused of PMA provisioning with the storage period, since it even sometimes uses the same acronym.
