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Stocking Analysis

The stocking analysis is an automated means to assess if an item should be made or purchased to stock or made or purchased to order. It is not a required analysis to run but can be helpful to see what the system suggests what to stock versus not to stock. The logic is applied throughout the BOM hierarchy as well as throughout the distribution network.

  • Make/Purchase-to-Stock (M/PTS): A production or distribution environment where products are available before receipt of a customer order. Customer orders are typically filled from existing stocks, and production or purchase orders are used to replenish stock.
  • Make/Purchase-to-Order (M/PTO): A production or distribution environment where are made or purchased after receipt of a customer’s order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer. Where options or accessories are stocked before customer orders arrive, the term assemble-to-order is frequently used.

For a manufacturing company, we encourage building lean processes that enable moving as much finished goods to the make / configure to order category. The key here is having a customer replenishment time (CRT the time the customer places the order to when they expect delivery of their order) greater than the time required to fulfill the order taking cumulative lead times and capacity into consideration.

Though this is a pretty straight forward rule, the real challenge is how best to determine the criteria for products that a company is selling particularly when bills of materials are involved. We offer this approach that is embedded in DemandCaster for consideration.

There are 3 variables that DemandCaster considers when applying the M/PTO or M/PTS logic scheme at a company.

  1. Customer Replenishment Time (CRT): As stated above, this is the time the customer expects their products to be shipped from their order date. Most ship from stock companies offer a same day or next day delivery thereby necessitating stock. By setting your CRT a few days longer than your products cumulative lead time to procure and/or produce the product, you may be able to get by without stocking.
  2. Production and Vendor Lead Times: This is the time it takes to either produce or procure a product (calculated in Lead Time Analysis UI). As stated above, if the lead time is less than the CRT time, you may be able to avoid stocking. Where it gets tricky is as you move down a BOM. For a pure MTO item with lets a three level BOM, you have to add the longest lead time of each level to determine where the MTO portion is versus MTS. For example, if the CRT is 14 days on item that takes 10 days to build and 14 days to procure material, stock must be carried for the material to maintain the fulfillment lead time to under 14 days. If stock is not carried the fulfillment lead time will be 24 days which will exceed the customer replenishment time.
  3. Product Segmentation: This is covered in the Segmentation section. We encourage low order frequency C-level items to set as M/PTO unless they are service parts or are strategically important i.e. an important customer purchases the item. DemandCaster stocking algorithm segments raw materials in a manner that assigns business importance by the revenue, cost, or margin contribution of their parents.

If an item is determined to be Make or Purchase to Order, the stock designation is changed to “Order” and in turn the safety stock is automatically changed to 0. You then assign the appropriate consumption type based on the planning needs of the business. There are two options: Make/Purchase to Order, MTO - Forecast, or MRO - Order/Forecast as described in the Systems Settings and as further explained in the Consumption Type article.

The process of running a stocking analysis is described below. The process is run at the beginning of a new DemandCaster deployment and periodically thereafter.

Stocking Analysis Interface Overview

  1. Order/Stock: Stocking designation of item. Order = When a customer order is received the item will be fulfilled by making or purchasing to order. The time will be the lead time of the finished product, time to procure the product, or a combination of both for manufactured products if the components are not stocked. Stock = When a customer order is received the item will be fulfilled directly from stock. In most companies the CRT time for a situation such as this is 1 business day.
  2. Conflict Y/N: Designates if the item has situations where it could either be order or stock after running an analysis.
  3. Make/Buy: Designates if the item is manufactured or configured (Make) internally or purchased (Buy) from a supplier.
  4. UDF CRT: Is the user defined customer replenishment time. The customer replenishment time is the stated customer service time to deliver goods to customers.
  5. CRT: Is the calculated customer replenishment time. This is determined by calculating the number of calendar days between the items customer order date and its ship date. This can be set at the item level based on the calculation or user defined in system or item settings.
  6. % On Time: This calculates the number of customer orders that were shipped at the agreed upon ship date. In system settings the user may enter a value in days that act as a buffer for on time. For example, entering a value of 1 will consider on time those orders arriving either 1 day earlier or later than the due date
  7. % Early: This calculates the number of customer orders that were shipped before the agreed upon ship date based on the due date buffer.
  8. % Late: This calculates the number of customer orders that were shipped after the agreed upon ship date based on the due date buffer.
  9. Total Lead Time: The lead time assigned to the item to procure or produce the item. This value is managed in the Lead Time analysis interface.
  10. Wks no Demand: Is the time since the item was last ordered by a customer. In System Settings under General Planning Settings the option "Weeks with no demand stocking threshold" sets the number of consecutive weeks of no demand where an item will automatically be designated as an "Order" item. The classification analysis must be run for the value to be updated correctly.
  11. Order Point: The level of inventory that triggers a replenishment order. This is calculated in the Order Point Calc Analysis as forecast over lead time plus safety stock.
  12. Periodic Order Quantity: Quantity to order at one time based on the order period. Calculated in Segmentation analysis.
  13. Cost: The item cost. A C business importance L order frequency item that has a high cost may not be an item that a company would want to stock.

Step 1: Run Stocking Analysis

Click on "Run Analysis" to run the stocking analysis.

The stocking analysis will run the analysis calculating the items calculated customer replenishment time against its stated lead time.

Step 2: Specify Customer Replenishment Time

In most cases, the calculated CRT is not desirable.

Use the calculated CRT as a guide to apply a desired CRT. Select the desired items to edit the CRT and click on the multi-edit button to change the CRT time under Stocking Settings.

Customer replenishment time may also be changed in the item planning detail options tab shown below.

Step 3: Rerun Stocking Analysis

Rerun the stocking analysis following the steps described in Running the Stocking Analysis Step 1 to establish a new stocking analysis based on the new CRT's applied.

Step 4: Address Conflicts

  1. Conflict means that the stocking analysis calculated conflicting examples where an item is suggested to be stock or not stocked. The conflicts number show the number of items that have a conflict.
  2. To identify conflicts click on the Conflicts button to filter the selection.
  3. You "fix" the status by choosing one of the stocking statuses by selecting all or a sub-selection of the conflict items.
  4. Click "edit" to apply the new stock status.
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