The Order Point Calc Analysis comprises of two primary elements:
- The items forecast value over its lead time
- Safety stock value added on top of the forecast value to mitigate the risk of a stock-out due to unforeseen issues in supply and/or demand.
Determining the correct safety stock level is crucial to avoid stock-outs and production delays, while avoiding high inventory costs and product expiration.
The Safety Stock component calculation is atomic. Atomic operations are program operations that run independently of any other processes. This means that the safety stock calculation can be triggered whenever necessary as follows:
- Manually via the Order Point Calc UI.
- Automatically from Requirement Plan analysis when clicking yes to generate a new forecast when the S&OP module is not enabled
- Automatically from the Supply Plan analysis when the S&OP module is enabled.
Since there is no readily accepted safety stock calculation method, DemandCaster offers numerous methods for our users. The method you choose will be based on your companies unique operating needs. It is important to note that the safety stock is tied to an items stocking as well as lead time settings. Users must ensure the settings are correct in DemandCaster or else the calculations will be wrong.
In regards to stocking, there are two options:
- Stock: The item is maintained in inventory with a reorder point that is derived by a forecast and safety stock. A stocked item will have safety stock calculated based on the option chosen unless otherwise assigned.
- Order: The item is considered Make/Purchase to Order and is not maintained as a stocked (inventoried) item. There is no reorder point calculated thus no forecast or safety stock unless otherwise assigned. When a customer order or production order is created, the DemandCaster requirement plan will generate only the required quantity for the item taking into account any minimum order or case pack / batch size quantities assigned to the item.
The logic of the safety stock calculation is not to duplicate safety stocks from finished goods to component when the finished good is carrying safety stock. This logic also applied to source to destination when the destination location is carrying the safety stock. This is because safety stock is primarily a cushion for variable demand. For some, this appears to be illogical because in most cases components have longer lead times than the finished goods as well as source has longer lead times than the transfer time to the destination. In these cases, we recommend adding a safety time value at the component level.
Running the Order Point Analytic
To run a new Order Point Calculation, click generate analysis in the Order Point Calc interface. Upon completion new safety stock values will be calculated and will be applied to the requirement planning or supply planning process the next time they are run.
Order Point Calc Interface
- Stock: If the item is maintained in inventory (yes) or one that is made or purchased to order (no). Stocked items will have safety stock calculated unless otherwise designated.
- Forecast: The items forecast value over its lead time.
- Total Safety Stock: The total safety stock of an item including coverage at higer levels of the items BOM as well as destination locations when DRP is enabled.
- Upper Level Forecast: Independent forecast at the upper level of the items BOM as well as destination locations when DRP is enabled.
- SS at Upper Level: In a hierarchical bill of material (BOM), if an item is a component level item or a portion of its demand is dependent on the sale of another item, this value shows what portion of safety stock is allocated at the upper levels of the BOM as well as destination locations when DRP is enabled.
- Calc Order Point: Calculated as forecast + selected safety stock + safety time (if applied).
- Total Order Point: This is the sum of the items dependent upper level forecasts, SS at upper level, and calculated order point. It is largely used to show the total cover of a dependent demand item based on all of its dependent forecasts and safety stocks.
- Safety Stock (Days): The equivalent number of days the selected Safety Stock option is equal to using history as the basis for the calculation. This value also appears in the options tab of the requirement planning item detail view.
- SS as % of LT: Safety stock as percentage of lead time using history as the basis for the calculation.
- ERP SS: Displays the ERP safety stock value for this item.
- Actual to Forecast SS: Displays the actual to forecast safety stock value for the item otherwise know as the Root Mean Squared Error (RMSE) method.
- Std. Dev. SS: Shows the weekly standard deviation of the safety stock calculation. The company setting is chosen as the default calculation period. The calculation period can be overridden at the item level.
- User Defined SS: Displays the user defined safety stock value for this item.
- Days On Hand SS-History: A safety stock value calculated as a desired number of days of safety stock to be carried. The days are user defined and the level of safety stock is based on a historical daily average over the std. deviation calculation period defined in system settings. or the weekly forecasted value over lead time. If the forecast approach is chosen, the safety stock value varies over time.
- Days On Hand SS-Forecast: A safety stock value calculated as a desired number of days of safety stock to be carried. The days are user defined and the level of safety stock is based on the weekly Forecasted value over lead time. If the forecast approach is chosen, the safety stock value varies over time.
- Days On Hand SS-Total Demand: A safety stock value calculated as a desired number of days of safety stock to be carried. The days are user defined and the level of safety stock is based on the weekly Total Demand value over lead time. Total Demand is the forecast plus dependent demand. If the Total Demand approach is chosen, the safety stock value varies over time.
- Lead Time SS: Same as Days on Hand Safety Stock except the value is based on a percent of lead time. Either historical average for forecast may be used as the basis.
- Safety Time: If safety time is taken into account in the safety stock analysis calculation, the value will be reflected here. The value can be overridden at the item level under ViewDetails and Options. The choices are No (safety time set to 0), Days (shows the safety time value per day entered), or Yes (the general safety stock value for all items).
- Total Lead Time: For safety stock using lead time as the basis, the lead time value is provided. Total lead time is calculated as the selected Lead Time plus Lead Time Cushion. This value is what is used for the reorder point calculation.
Changing Safety Stock Type and Values
The user may choose to modify the safety stock type and value as necessary as follows:
- Via Option Tab by clicking on the View Detail icon
- Via the Edit button
From Options Tab
Upon clicking on view detail, click on the options tab for the item. The four settings that effect the safety stock value of an item are:
- Classification value if the service level is based on the A, B, or C business importance of an item.
- Make/purchase to stock or make/purchase to order
- Service level if classification basis is not chosen.
- Safety stock type.
- Safety time.
- Safety stock standard deviation period.
Change the safety stock setting by selecting the appropriate options and then scroll to the bottom of the interface and click Save to apply the settings.
Please note that you must run a new analysis to allow the settings to be applied. This is done in order to not effect the settings of the current analysis.
Upon selecting the items to change and clicking on the edit button, the Multiple Settings Edit interface opens. The same logic as the options tab applies.
- Service level if classification basis is not chosen
- Classification value if the service level is based on the A, B, or C business importance of an item
- Safety stock standard deviation period
- Safety stock type
- Safety time type
- Make/purchase to stock or make/purchase to order
As in the options tab, you must run a new analysis to allow the settings to be applied. This is done in order to not effect the settings of the current analysis.