Material Balance Planning

Origin. Soviet planning practice from the 1930s; the Gosplan method of balancing supply and demand for key commodities.

Mechanism. For each critical material, construct a balance: sources (domestic production, imports, inventory drawdown) must equal uses (intermediate consumption, final consumption, exports, inventory buildup). Iterate through materials: if a balance fails, adjust production targets or allocation priorities. The method is iterative and heuristic rather than optimizing.

Procedure. Identify critical materials (steel, energy, grain, etc.). For each, estimate available supply and required uses. If uses exceed supply, either increase supply (raise production targets, authorize imports) or reduce uses (cut allocations, reduce exports). Propagate changes: if steel production is increased, more coal and iron ore are needed. Iterate until all balances are satisfied (feasibility) or determine that the plan is infeasible.

Applies to. Aggregate planning, capacity planning, any situation where feasibility must be checked before optimization.

Limitations. Material balances are solved sequentially and heuristically; the solution is feasible but not necessarily efficient. The method cannot identify the best plan, only a consistent one. Also: balances are aggregated (total steel, not steel by type), hiding mismatches. Soviet practice showed chronic imbalances because information was distorted and the aggregation too coarse.