In our fourth installment in our series, we explore ways to improve replenishment planning.
Intelligent replenishment planning includes several components, of which forecasting is just one element. Complete, automated planning systems handle all behavior including low volume items as part of a total process. Advanced planning solutions also incorporate inventory optimization, which dramatically improve replenishment planning. Why? Because optimization considers the wild cards in planning. It considers how random the demand of an item is, i.e., standard deviation and service level objectives, and it does it for each item, at every location, leaving nothing to chance (no spreadsheet can do that!).
Time-phased planning examines a sequence of periods, looking at projected demands and replenishments, and determines both the timing and quantity of future orders. Other factors that should be included in the calculations are:
- performance metric (no stock-outs, fill rate)
- target performance (Customer Service Level)
- forecast (future anticipated demand)
- replenishment lead time (time to get part back in stock)
- planning frequency (frequency of actual planning process)
- planning horizon (length of future covered in planning process)
- planning buckets (days, weeks, months, quarters or variable)
- demand variance
- supply variance
- unit cost
- fixed cost of placing a replenishment order
- inventory holding cost %
- backorder or stock-out cost
Advanced Planning Solutions:
1. Are dynamic, changing automatically as business conditions change – manual intervention is not required. This saves time, money, and effort.
2. They account for many variables insuring the right coverage without over-or under-investing in inventory
3. They calculate an optimal quantity which means you save money without sacrificing service by procuring or producing just the right amount of stock
4. They replace the need for manually reviewing every item and manipulating data against the best guess approach.
Now that we have explored the planning processes and the use of advanced planning solutions, in our final installment, we’ll cover the achievable bottom line results.