What Is Resource Leveling?

Malcolm Tatum

Resource leveling is a type of allocation process that seeks to match the demand for specific resources with the availability of those same resources. The idea is to make sure that when and as those resources are needed as part of the day to day process of doing business, they are on hand and ready for use. Managing this balance between demand and availability typically requires accurately projecting future needs and taking steps to acquire the resources in a manner that benefits the production process.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

One way to understand the concept of resource leveling is to consider a manufacturing plant that requires certain raw materials in order to produce a line of goods. In order to keep costs within reason, the business will project the influx of orders from customers and the number of finished units required to fill those orders in a timely manner. That information is used to determine the volume of raw materials needed to create those units within the time frame allotted. Orders are placed so that the raw materials arrive just ahead of when they are needed to keep the production flowing without any interruption.

It is important to note that resource leveling is not just about knowing what is needed to keep a production line going, but when to have those resources delivered and available. In many nations, taxes are assessed on the inventories of raw materials that are kept on hand. By structuring the delivery of those materials so they do not languish in a warehouse for weeks on end before entering the production process, companies enjoy less of a tax burden, a move that helps to enhance the overall profitability of the operation.

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At the same time, resource leveling requires accounting for any shifts in demand that would also affect the arrival of resources at the plant site. For example, if a large customer should cancel an order, the business would in turn revise the delivery schedule for various lots of raw materials so that only the resources needed to fill other orders are received. In the event that a new customer places a large order and requests delivery as soon as possible, there may be a need to work with suppliers to increase the frequency of materials deliveries in order to keep up with the increased demand. From this perspective, resource leveling should be viewed as an ongoing process and not a single event that is considered complete at any given point in time.

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