Updating Planning Methods

They are two quite different methods of planning, what would be the basis for the report?

Planning Method A is demand driven based on orders.

Planning Method B is parameter driven based on calculated values for order lot size and trigger point.

Planning Method A operates on MRP while Planning Method B requires the Order Proposal function.

Are you just looking for a volume per time analysis of certain parts? 

How would you define a threshold for the rate?

There are a lot of dependencies on the supplier if it is a purchase part or manufacturing capacity if is a manufactured part to optimize the values for Order Point.

You can do a calculation of an item once set to Order Point B or C to determine values using built in calculations, but these switch the values automatically which can be a different sort of validation.

Calculations

Depending on the type of calculation, inventory parts with different planning methods are subject for calculations. You must have enabled at least one of the automatic update functions. These functions are safety stock, order point, and lot size.

Calculation of Safety Stock

The safety stock is calculated for all planning methods.

Safety stock (pieces) = Safety factor [-] * standard deviation for demand (pieces/period) * square root of part lead time (period)

• The lead time is retrieved from the inventory part record, purchase or manufacturing lead time depending on part type.
• The safety factor is retrieved from the service rate connected to the inventory part. Here the normal standard distribution is used to define the service rate and the safety factor. The service rate is considered as the probability and the safety factor is considered as the standard score of normal standard distribution. It is also possible to retrieve the safety factor for a given service rate by using the standard Excel function NORMSINV(Probability).

Note: The safety stock will not be updated if the predicted yearly demand is used, as standard deviation is zero because of constant demand. Also note that if lead time is zero, the safety stock will be zero.

Calculation of Order Point

Only inventory parts with planning methods B or C uses order point.

Order point (pieces) = [Average demand (pieces/period)] * [Lead time (period) + Safety stock (pieces)]

Calculation of Lot Size

Only inventory parts with planning methods B or C uses lot size.

Economic lot size = square root of {(2 * Ordering Cost (value) * Average issues per period (pieces/period) * [number of periods per year (periods/year) / (Carrying cost (value/year)] }

• The Carrying cost is calculated as (inventory interest * inventory value per part).

Note: If the carrying cost is zero, the lot size will not be updated.

When the planning method is C, a validation is performed after the calculations to prevent validation error when trying to update the inventory part. If the replenishment level is less than or equal to the order point the system will set the replenishment level to the order point plus one item.