The replenishment variables for an item will be updated when an item transaction is recorded. An item transaction is defined as receiving or disbursing an item from a warehouse by any system document. When a register operation or update routine is performed, the Order Point and Line Point values for an item will be recalculated and stored in ICWHSE for reference to replenishment.
The following topics detail how replenishment variables are calculated:
Item by Warehouse Replenishment Variables
Usage by Item will be summarized by the Daily Sales Register (DSR) from the item’s transactions recorded in the ICRDST table. The summary table ICUSED will provide usage information for replenishment calculations. Qualified usage adjustments recorded in ICRDST will be reflected in ICUSED upon the next DSR. Therefore, the daily usage for an item will not be stored in the system until the daily sales register has been performed but can be calculated at any time from the disbursements of the item.
Item by Warehouse Replenishment Variables
The calculation of an appropriate Order Point / Line Point values per Item by Warehouse is instrumental to the AIM process. The factors of Lead Time, Vendor Review Cycle, Economic Order Quantity (EOQ), ASQ, Five-Hi and usage trending are factors in determining an accurate Order Point and Line Point set of values. The addition of daily transactional usage by warehouse and item combination allows these values to be updated to meet the current system state.
The Order Point is calculated using the Lead Time from the ARP and Safety Stock value for the item by warehouse. The Lead Time is the average number of days prior to the product being received to the replenishing warehouse. The number of Lead Time days, the period in which the Lead Times must occur, and the minimum and maximum days for Lead Times are all configurable at each level of the AIM Hierarchy. Once the average Lead Time has been established, the Average Daily Usage (ADU) is calculated and a Safety Stock Percentage or Days is applied for the calculated Order Point. Since the Order Point may not have sufficient history to be calculated according to the buyer’s metrics, a T-Minimum Order Point (T-Min) can be established to serve as a “floor”, which Order Point cannot fall below in the AIM Hierarchy.
The calculated Order Point will then be compared to the ASQ and Five Hi calculations for the item. The maximum of Calculated Order Point, T-Min, ASQ and Five Hi are utilized to ensure proper quantities can be made available based on Sales Order Demand for the warehouse. Therefore, if ASQ, Five Hi, or T-Min exceeds the Calculated Order Point, the highest value will become the Order Point for the item. A threshold may be configured for ASQ and Five Hi to keep the Order Point from increasing more than a specified dollar amount. This threshold will also be applied to the final Order Point calculation where applicable.
Line Point is essentially the target stocking level we want to reach when we place the order and is based on the ARP’s Review Cycle (RC). If our review cycle is 14 days, line point will be based on 14 days of usage, or the amount we expect to sell before we plan to place another PO with this vendor.The Line Point for an item is the stocking level to achieve based on the Review Cycle for the item by warehouse. The calculated usage based on the Review Cycle is added to the Order Point to determine the Line Point for the item. When an item’s PNA falls below the Line Point, it will appear for replenishment in the system. During the replenishment process, a temporary Line Point can be calculated by adjusting the review cycle in order to meet the buying target, or synch a product line to a Stocking Level.
The Order Quantity is a comparison of the adjusted usage during the review cycle and the EOQ for the item. The greater of the two values is used for the order quantity, and the quantity is rounded to the next standard pack based on the ROQ setting for the item.
A minimum order quantity can be applied to replenishment so that if the calculated suggested order quantity falls below the minimum order quantity, the suggested order quantity will be rounded up to the new minimum order quantity.
Movement Class for an item by warehouse will now be replaced with Rank. An item’s Rank is determined by the number of Hits the item incurs during a number of periods at the document level. An item’s ranking will be updated during the Daily Sales Register (DSR). Therefore, the parameters determining an items’ Order Point / Line Point will be updated to reflect current system requirements. An item’s Rank will also determine the number of periods to apply a slope percentage when calculating ADU.
Ranking for an item will be performed for stocking items that are flagged as Replenish for a warehouse. If a non-replenished item is changed to a replenished item, the system will utilize the usage information captured for the item to calculate the appropriate rank.
The usage data will be collected daily for all stocked items in the system. This will allow for accurate calculation of ADU for Order Point and Line Point. The extrapolated data points for seasonal usage will employ a T-Backward usage calculation. The usage for an item will be examined for 12 periods in arrears, backing up a number of periods based on an items Rank. The number of periods utilized for trending will be based on an item’s Rank. The higher the activity Hits for an item, the higher the Rank and thus a smaller the window to be utilized for trending. An “A” ranked item will have a 3 month backward and forward trend and require 15 months of history. A “B” ranked item will have a 4 month trend window and require 16 months of history, and so on.
Trending for a non-seasonal item will employ either a B-Backward or F-Forward ADU calculation. For B-Backward, an “A” ranked item will look at the prior 3 periods of usage to calculate the ADU. An F-Forward “A” ranked item will go back 12 periods and use the 3 Forward periods for the ADU calculation. The trending type for an item can be configured at the Warehouse / Item level.
See also
Replenishment Parameter Maintenance Procedures
Replenishment Variables Calculations
Inventory Control Replenishment Parameters