From Gross Demand to Net Demand: An Operative Buyer Case at LHTS AB
Learn how gross demand becomes net demand, a purchase requisition and finally a purchase order in this practical operative buyer case at LHTS AB.
Customer demand does not become a supplier purchase order immediately.
In a manufacturing company, customer orders and forecasts first create a requirement for finished products. The Bill of Materials translates that requirement into demand for components. Available inventory, confirmed incoming deliveries, safety stock and planning parameters are then considered before the system proposes what must be purchased.
This matters to an operative buyer because an incorrect calculation can produce two costly outcomes: missing material that stops production or unnecessary inventory that ties up working capital.
In this case, you take the role of an operative buyer at LHTS AB’s Västerås plant. You will follow the flow from customer demand to gross demand, net demand, purchase requisition and purchase order.
You will also decide where the operative buyer should trust the ERP system, where information must be checked and when an issue should be escalated.
LHTS classification
Role: Operative buyer Process: Purchase-to-Pay – purchase requisition, ordering and supplier confirmation Upstream process connection: Material Requirements Planning Level: Basic Content type: Case / assignment Related course:Operative Procurement Processes
Quick answer: How does gross demand become net demand?
Gross demand is the total quantity of material required before available supply is considered.
Net demand is the remaining requirement after usable inventory and confirmed incoming supply have been considered. Safety stock and planning rules may also affect the calculation.
The ERP system can use the resulting requirement to create a purchase requisition. The operative buyer reviews the requisition and decides whether it is ready to become a purchase order.
The basic flow is:
Customer demand → Bill of Materials → Gross demand → Inventory and supply check → Net demand → Purchase requisition → Operative buyer review → Purchase order
What is gross demand?
Gross demand is the total quantity of a component or raw material required to satisfy production demand before inventory or incoming deliveries are deducted.
The calculation normally starts with a requirement for a finished product.
For example, assume that LHTS AB must produce 120 premium air-handling units. If each unit requires two electronically commutated fans, commonly called EC fans, the gross demand is:
120 air-handling units × 2 EC fans = 240 EC fans
At this point, the calculation does not consider whether LHTS already has fans in stock or whether a supplier is about to deliver more.
Gross demand only answers one question:
How much material would be required if no supply were already available?
What is net demand?
Net demand is the remaining material requirement after relevant available supply has been considered.
A simplified calculation is:
Net demand = Gross demand – Usable available inventory
This formula is useful when introducing the concept, but an actual ERP calculation may consider more information.
This means the calculated shortage and the final purchase requisition quantity are not always identical.
The LHTS AB case context
LHTS AB is a fictitious Swedish industrial technology group used in Learn How to Source cases.
The company designs, manufactures, sells and services climate-control, power-management and industrial automation equipment.
This case takes place at the Västerås plant in Sweden. The plant belongs to the Climate and Thermal Systems division and assembles and tests premium air-handling units and heat-recovery systems.
LHTS AB uses a mixture of forecast-driven production and customer-order-driven assembly. Standard components such as fans, motors, controls and sensors can therefore be replenished through Material Requirements Planning, while the finished equipment is configured for specific customer requirements.
SAP S/4HANA is the strategic ERP platform used for purchase orders, material and supplier master data, inventory, receipts and invoices. Siemens Teamcenter is used for drawings, specifications, Bills of Materials and engineering changes.
All quantities, lead times, supplier conditions and operational events below are fictional assumptions created for this learning assignment.
The process from customer demand to purchase order
Step 1: Customer demand creates the production requirement
LHTS AB has received confirmed customer orders that require the Västerås plant to assemble 120 premium air-handling units during the next production period.
Customer demand may come from several sources:
confirmed customer orders;
project schedules;
distributor orders;
sales forecasts;
service and spare-parts requirements;
internal stock-replenishment targets.
The reliability of the demand signal matters.
A confirmed customer order is normally more certain than a long-term forecast. However, even a confirmed order may change if a customer project is delayed.
The operative buyer should understand what type of demand is behind an urgent material requirement. The buyer does not own the sales forecast or production plan, but the demand source affects the purchasing decision.
Step 2: The Bill of Materials creates gross demand
The Bill of Materials, or BOM, describes which components are needed to manufacture one finished product.
For this simplified case, each air-handling unit requires:
Component
Quantity per air-handling unit
EC fans
2
Control panel
1
Temperature sensors
4
The gross demand for 120 units is therefore:
Component
Quantity per unit
Production quantity
Gross demand
EC fans
2
120
240
Control panels
1
120
120
Temperature sensors
4
120
480
The BOM is owned and maintained by engineering or an authorised product-data function.
The operative buyer should not change BOM data independently. However, the buyer should recognise unusual purchasing signals and involve engineering when quantities, revisions or component relationships appear incorrect.
Step 3: Available inventory and incoming supply are checked
Gross demand does not automatically become a purchase requirement.
The ERP system must first check what is already available or expected to arrive.
The following supply information is available:
Component
Gross demand
Usable inventory
Confirmed incoming supply
Required safety stock
EC fans
240
70
60
30
Control panels
120
25
40
15
Temperature sensors
480
210
100
80
The word usable is important.
A warehouse may physically contain material that cannot be used for the current requirement. Stock may be:
reserved for another production order;
blocked because of a quality issue;
awaiting inspection;
stored at another plant;
connected to an old product revision;
damaged or obsolete;
recorded in the wrong unit of measure;
unavailable before the required production date.
The buyer should not assume that every quantity shown as physical stock can cover the current demand.
Step 5: Planning parameters affect the purchase requisition
The calculated requirement is not necessarily the quantity that appears in the purchase requisition.
The following ordering rules apply:
Component
Calculated requirement
Ordering rule
Proposed requisition
EC fans
140
Minimum order quantity of 50
150
Control panels
70
Ordered in multiples of 10
70
Temperature sensors
250
Supplier pack size of 100
300
The ERP system proposes 150 EC fans because the quantity must be ordered according to the applicable lot-sizing rule.
The proposal for control panels remains 70 because it already matches the order multiple.
The proposal for temperature sensors becomes 300 because the supplier delivers full packs of 100.
This is an important lesson for the operative buyer:
The net requirement explains the shortage. The purchase requisition reflects how the company proposes to cover that shortage.
The difference may be valid, but it should be understood.
What is a purchase requisition?
A purchase requisition is an internal request or system proposal to purchase a product or service.
In a manufacturing environment, Material Requirements Planning may create a purchase requisition when the planning calculation identifies an uncovered material requirement.
The purchase requisition should normally contain information such as:
material number and description;
required quantity;
unit of measure;
required delivery date;
delivery location;
purchasing organisation or plant;
proposed supplier or source of supply;
contract or purchasing information record;
account assignment when relevant;
approval status;
requester or planning reference.
A purchase requisition is not normally the document sent to the supplier.
It must first pass the applicable workflow, approval and buyer controls.
Where the operative buyer enters the process
Demand planning, production planning and the ERP system create the purchasing signal.
The purchase requisition is the starting point for the operative buyer’s decision.
The buyer should not simply convert every system proposal into a purchase order. The buyer must determine whether the requirement is commercially and operationally executable.
Typical checks include:
Requirement
What material is required?
Why is it required?
Is the demand connected to a customer order, production order or forecast?
Is the required date still valid?
Is the material revision correct?
Inventory and incoming supply
Is the inventory usable?
Is stock reserved, blocked or under inspection?
Are open purchase orders already covering part of the requirement?
Have suppliers confirmed the incoming deliveries?
Could an existing order be brought forward?
Supplier and agreement
Is the supplier approved for the material and the Västerås plant?
Is there a valid contract or agreed price?
Are the payment and delivery terms correct?
Is the supplier capable of meeting the requested date?
Are the minimum order quantity and pack size still correct?
Purchase order data
Is the unit of measure correct?
Is the delivery address correct?
Is the requested quantity reasonable?
Does the purchase order require approval?
Are technical documents or specifications connected to the correct revision?
Risk and escalation
Will a late delivery affect production or a customer commitment?
Is the problem a one-time order issue or a recurring supplier problem?
Does planning need to verify the demand?
Does engineering need to verify the BOM?
Does tactical procurement need to address supplier capacity, price or agreement conditions?
Case assignment: Review the LHTS AB purchase requisitions
You are the operative buyer responsible for selected production materials at the LHTS AB Västerås plant.
The ERP planning run has generated purchase requisitions for EC fans, control panels and temperature sensors. Approved suppliers and existing commercial arrangements are available for all three components.
Your task is to review the proposals before they become purchase orders.
Additional purchasing information
Component
Proposed requisition
Material required in
Current supplier lead time
Source status
EC fans
150
5 weeks
4 weeks
Approved supplier and valid agreement
Control panels
70
4 weeks
6 weeks
Approved supplier and valid agreement
Temperature sensors
300
3 weeks
2 weeks
Approved supplier and valid agreement
Your tasks
Task 1: Verify the demand calculation
Recalculate the net requirement for each component.
Explain how gross demand, safety stock, usable inventory and confirmed incoming supply affect the result.
Task 2: Explain the requisition quantity
Explain why the purchase requisition quantity differs from the calculated requirement for:
EC fans;
temperature sensors.
Assess whether the difference appears reasonable.
Task 3: Review the delivery situation
Compare the required timing with the supplier lead time.
Identify which component creates the greatest immediate delivery risk.
Task 4: Decide the buyer action
For each requisition, decide whether the operative buyer should:
convert the requisition into a purchase order;
contact the supplier before placing the order;
request a partial or expedited delivery;
ask planning to review the requirement;
ask master data to review a parameter;
escalate the issue to production planning or tactical procurement.
Explain your decision.
Task 5: Create a process chart
Create a visual process chart showing:
Customer demand → Production plan → BOM calculation → Gross demand → Inventory and incoming supply check → Net demand → Purchase requisition → Approval → Operative buyer review → Purchase order → Supplier confirmation
Add the main responsible function at each step.
Task 6: Create an action log
Document the actions you would take as the operative buyer.
Your action log should contain:
Field
Example content
Material
Component name or material number
Issue
Delivery, quantity, data or supplier issue
Business impact
Production, inventory or customer effect
Buyer action
Order, contact, verify or escalate
Responsible stakeholder
Planning, engineering, supplier or tactical buyer
Due date
When the action must be completed
Status
Open, in progress or closed
Suggested solution and buyer reasoning
EC fans
The net requirement is 140 units, while the purchase requisition proposes 150.
The difference is caused by the minimum-order or lot-sizing rule. The supplier lead time is four weeks, and the material is needed in five weeks.
The timing appears achievable, but the buyer should still verify:
that the agreement and price are valid;
that the supplier can confirm the requested date;
that the additional ten units will not create an unreasonable inventory effect;
that no existing order can be rescheduled instead.
Suggested action: Convert the requisition into a purchase order after completing the standard checks. Request supplier order acknowledgement.
Control panels
The net requirement and proposed purchase requisition are both 70 units.
However, the material is required in four weeks while the supplier’s current lead time is six weeks.
The quantity calculation may be correct, but the requested date is not aligned with supplier reality.
Possible actions include:
contact the supplier immediately;
ask whether a partial delivery is possible;
check whether another confirmed order can be brought forward;
check whether available stock exists at another LHTS site;
inform production planning about the shortage risk;
establish which customer or production orders have the highest priority;
escalate a recurring capacity problem to tactical procurement.
Suggested action: Do not process the requisition as a normal order without addressing the timing gap. Contact the supplier and planning before finalising the delivery schedule.
Temperature sensors
The net requirement is 250 units, while the proposed requisition is 300.
The difference is caused by the supplier pack size of 100.
The supplier lead time is two weeks, and the material is required in three weeks. The requested timing therefore appears achievable.
However, the additional 50 sensors will remain in inventory after the immediate demand and safety-stock requirement have been covered.
The buyer should confirm that:
the pack-size rule is still valid;
the sensors are standard components with continued future demand;
there is no planned engineering change;
the extra quantity will not create an obsolescence risk.
Suggested action: Convert the requisition after confirming the pack-size rule and future demand. Request supplier acknowledgement.
How the case connects to the operative buyer role
The operative buyer works at the point where an internal material requirement becomes an external supplier commitment.
In this case, the operative buyer is responsible for:
reviewing purchase requisitions;
checking the source of supply;
verifying commercial conditions;
creating purchase orders;
obtaining supplier confirmation;
monitoring delivery risk;
managing order changes;
escalating shortages;
identifying incorrect purchasing or planning data;
communicating with suppliers and internal stakeholders.
The operative buyer does not normally own:
customer forecasts;
the production plan;
the Bill of Materials;
engineering revisions;
physical inventory accuracy;
the overall category strategy;
supplier selection for a new sourcing event.
However, the buyer must understand how these areas affect the purchase order.
A professional buyer does not ignore a problem merely because another function owns the data. The buyer identifies the issue, involves the correct owner and protects the supply flow.
Where this fits in the procurement process
At LHTS AB, the basic Purchase-to-Pay flow is:
Business need
Purchase requisition
Approval
Purchase order
Supplier confirmation
Goods receipt
Invoice matching
Payment
The gross-to-net calculation takes place upstream of the purchase requisition.
The operative buyer becomes directly involved during requisition review, purchase-order creation, supplier confirmation and delivery follow-up.
The connection can be summarised as:
Material planning creates the purchasing requirement. Purchase-to-Pay converts the approved requirement into a controlled supplier transaction.
This case therefore connects planning and procurement without confusing their responsibilities.
When should tactical procurement become involved?
An operative buyer can manage normal order execution and many individual delivery deviations.
Tactical procurement should normally become involved when the issue requires a change to the commercial or supplier setup.
Examples include:
no approved supplier is available;
no valid agreement or price exists;
supplier capacity problems occur repeatedly;
the minimum order quantity is commercially unreasonable;
the supplier refuses agreed conditions;
an alternative supplier must be qualified;
recurring delivery failures require a supplier-development plan;
the material should be included in a sourcing event;
the supply model or contract must be changed.
The operative buyer manages the immediate requirement. Tactical procurement addresses the underlying sourcing or supplier issue.
Common mistakes when moving from gross demand to a purchase order
Treating all inventory as available
Material can be physically present but reserved, blocked, obsolete or connected to another product revision.
Ignoring open purchase orders
Placing a new order without checking confirmed incoming supply can create duplicate supply and excess inventory.
Using an oversimplified net-demand formula
Gross demand minus physical inventory may be a useful starting point, but safety stock, confirmed receipts, timing and planning parameters can change the result.
Confusing net demand with order quantity
Minimum order quantities, pack sizes and order multiples may make the purchase requisition larger than the calculated shortage.
Trusting the requested date without checking supplier lead time
An ERP date may be mathematically correct but commercially unrealistic.
Converting a requisition without verifying the source of supply
The supplier, agreement, price and approval status must be correct before the purchase order is sent.
Ignoring units of measure
A mismatch between pieces, boxes, metres, kilograms or other units can produce serious quantity errors.
Changing technical data without authority
The buyer should flag possible BOM or revision errors but should not independently change engineering-controlled information.
Treating recurring problems as isolated order issues
Repeated delivery failures, unrealistic lead times or unsuitable lot sizes may require tactical procurement or supplier-development action.
Assuming automation removes the need for control
Automated purchase-order creation can work well for stable, repetitive and low-risk material flows. It can also create incorrect orders faster when master data is unreliable.
The Learn How to Source course Operative Procurement Processes introduces the day-to-day responsibilities of an operative buyer.
The course explains the difference between operative and tactical procurement and introduces the important processes that an operative buyer manages in daily purchasing work.
This article applies that foundation to a manufacturing case in which an ERP-generated purchase requisition must be reviewed before it becomes a supplier purchase order.
Use the course to place this assignment within the wider operative procurement framework.
Related reading
Continue the learning journey with these related resources:
What is the difference between gross demand and net demand?
Gross demand is the total material requirement before available supply is considered. Net demand is the remaining requirement after relevant inventory and incoming supply have been considered.
Is net demand the same as the purchase requisition quantity?
Not always. Minimum order quantities, pack sizes, order multiples, safety stock and lot-sizing rules can make the purchase requisition quantity different from the calculated net shortage.
Does MRP automatically create a purchase order?
That depends on the ERP configuration and company controls. MRP may create a purchase requisition, planned order, order proposal or exception message. Some stable purchasing flows can be automated, while other requisitions require buyer review and approval.
What should an operative buyer check before creating a purchase order?
The buyer should check the demand, quantity, delivery date, inventory situation, open orders, supplier, price, agreement, lead time, unit of measure, approval status and any relevant planning exceptions.
Who owns the Bill of Materials?
Engineering or an authorised product-data function normally owns the BOM. The operative buyer should report suspected errors but should not change engineering-controlled data without authority.
Who owns inventory accuracy?
Inventory accuracy is normally managed by warehouse, logistics or inventory-control functions. The operative buyer should still question inventory data when it creates an unusual purchasing signal.
What should the buyer do when supplier lead time is longer than the available time?
The buyer should contact the supplier, investigate partial or expedited delivery, check existing orders and alternative stock, inform planning and escalate the supply risk. A recurring problem may require tactical procurement involvement.
Why is supplier confirmation important?
An open purchase order does not guarantee that the supplier has accepted the quantity and date. Supplier confirmation gives planning and procurement a more reliable picture of incoming supply.
Is gross-to-net planning an operative or planning responsibility?
The calculation is primarily part of planning and ERP logic. Reviewing the purchasing output and converting an approved requirement into a supplier order are operative procurement responsibilities.
Conclusion: The ERP calculation is the starting point
Moving from gross demand to net demand is more than a mathematical exercise.
The calculation connects customer requirements, production planning, engineering data, inventory, supplier deliveries and procurement execution.
For the operative buyer, the purchase requisition is the starting point—not the end of the decision.
A competent operative buyer understands why the requirement exists, checks whether the planning signal is reliable, confirms that the supplier can fulfil the order and escalates problems before they become shortages or excess inventory.
The main lesson from the LHTS AB case is:
Do not convert a purchase requisition blindly. Understand the demand, verify the supply situation and make a controlled purchasing decision.
From gross demand to net demand
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