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Planning Method B and On Hand quantity

  • 15 July 2022
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Userlevel 1
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I have question regarding Planning Method B and On Hand quantities.

We use planning method B for inventory management on higher volume items. When a customer order line is entered using “Invent Order” as the Supply Code, the parts from stock are reserved. This makes the On Hand Qty remain the same (until shipping the stock, if I understand correctly) and the Availably Qty drop.

The issue I have is the Order Proposal is triggered by the On Hand Qty falling below the Order Point, rather than the Available Qty. So if I have 6 months lead time, by the time the On Hand Qty drops below the Order Point, I might already be too late to purchase more stock to avoid back order.

Could perhaps someone explain the replenishment process behind Planning Method B and why it uses On Hand Qty instead of Available Qty?

Thank you!

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Best answer by ShawnBerk 29 September 2022, 23:34

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Userlevel 7
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I always find this help topic is pretty good about explaining this:

 

[yourifsinstance]/ifsdoc/documentation/en/default.htm?openpage=https://ifshelp.instron.com/ifsdoc/documentation/en/MaintainInventory/AboutOrderProposals.htm

 

The short answer is that Order Point is different than MRP and ignores any current demand in the system, it operates only on the Projected Quantity On hand which is different than Available Qty.  Available is based on a viewpoint of time = now (unless you simulate future availability), but Projected Quantity On Hand is a calculation that is one leadtime into the future, but future demand is not part of the equation.  Unless you are picking the inventory to the orders that require it on a realtime basis, just reserving doesn’t help you with Order Point.

Userlevel 5
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Hello,

If your safety stock and reorder point are well calculated, they should cover the average demand during the procurement lead time (the 6 months then), plus the variability of the demand and the supply. Your explanation is only true if you have a peak of reservations that far exceeds the average consumption. In that case, it means you are above the 97% of service rate we usually take as input in the safety stock calculation. And that’s the game with the method of replenishment, which supposes the part is compatible which such an approach. Or you should change your plans and use a demand-driven model.

Userlevel 2
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I agree with the above explanations. I order to detect potential shortages for B and C parts where you may have some exceptional demands, maybe an unexpected supply shortage or when supply exist but to late to meet actual demands, is to use the “inventory part availability exceptions”. This is a background job that will create alerts if for example your projected (future) inventory is going negative. Creating a lobby that displays a list of those parts with potential shortages goes a long way in my experience. 

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Is this issue resolved completely? We are facing the same problem. this might help.
 

Userlevel 1
Badge +2

Hello,

If your safety stock and reorder point are well calculated, they should cover the average demand during the procurement lead time (the 6 months then), plus the variability of the demand and the supply. Your explanation is only true if you have a peak of reservations that far exceeds the average consumption. In that case, it means you are above the 97% of service rate we usually take as input in the safety stock calculation. And that’s the game with the method of replenishment, which supposes the part is compatible which such an approach. Or you should change your plans and use a demand-driven model.

Hello @Bertrand Dousset, thank you for your reply. You are correct, we have calculated reorder point and safety stock based on standard method, however our industry has a very unpredictable demand pattern and many demands for parts will often exceed the standard deviation.

What you say is Planning Method B shouldn’t be used in such cases then, correct? If yes, how in IFS should I then plan my inventory replenishment? Ideally, I would like the same feature as Planning Method B, but instead of making the calculation on Hand On Qty, the calculation for replenishment is made on Available Qty (meaning it takes into account part reserved by customers).

Is there something? If not, which planning method is the closest?

Userlevel 1
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I always find this help topic is pretty good about explaining this:

 

[yourifsinstance]/ifsdoc/documentation/en/default.htm?openpage=https://ifshelp.instron.com/ifsdoc/documentation/en/MaintainInventory/AboutOrderProposals.htm

 

The short answer is that Order Point is different than MRP and ignores any current demand in the system, it operates only on the Projected Quantity On hand which is different than Available Qty.  Available is based on a viewpoint of time = now (unless you simulate future availability), but Projected Quantity On Hand is a calculation that is one leadtime into the future, but future demand is not part of the equation.  Unless you are picking the inventory to the orders that require it on a realtime basis, just reserving doesn’t help you with Order Point.

Hello @ShawnBerk,

This issue seems to be precisely what you say: future demand is not considered. Our problem, is we have customers buying parts but asking for delivery only in months from now.

Example, we have 1000 units protected On Hand in one lead time period (which is 6 months). Our customer buys 500 units to be delivered in 4 months (the 500 units are reserved). I would like for IFS to tell me know to buy more because in 4 months I will have a large chunk of my stock taken. If they tell me now, I’ll only be exposed for 2 months.
I assume now that Planning Method B is not correct for this type of part, but I’m unsure which method would be correct.

Thank you for your support.

Userlevel 7
Badge +22

I don’t have a good solution for your scenario.

The only option I see is to issue the material to the order, this would trigger the re-order, but immediately, not 4 months from now.  So just a different version of the problem.

 

Have you tried Planning Method G?  I haven’t used it, but it seems it might offer what you are trying to do with the right cover time value.

G. Order Cover Time

If an order must be placed, the lot size is determined by the total demand during the order cover time, which is specified in days in the inventory part register. The order cover time can be complemented with minimum, maximum, and multiple lot sizes.

Day 0 1 2 3 4 5 6 7 8 9 10
Demand   8 27 30 40 25 40 25 30 0 50
Calculated Balance 10 2 95 65 25 0 55 30 0 0 0
Order Proposal   0 120 0 0 0 95 0 0 0 50

Example: The order cover time for the part is 4 days. On the second day, the estimated quantity on hand is 2, making the demand 27 - 2 = 25. MRP totals the demand, 25, with the demand of the four following days. The calculations for this period are:

Day 2: 25 + 30 + 40 + 25  = 120 The lot size is 120.
Day 6: 40+ 25 + 30 + 0= 95 The lot size is 95.
Day 10: 0+ 50 = 50 The lot size is 50.
Userlevel 1
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Thank you @ShawnBerk, I will test it!

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