Inventory Planning and Replenishment

Inventory Planning and Replenishment (IPR) is a solution for inventory control based on reorder points. The main features of the solution are:

Scope of Solution

The solution is aimed for inventory planning of parts with independent internal or external demands. Independent demands are those that are not just a function of a demand for another part. Typically this implies the demand for sales parts, requested by customers or for spare parts needed for repair. Also supply should be decoupled since a reorder point system will plan each part independently of other parts. It means that in case a part is supplied through transformation of other parts, no advanced signal will be given to supply also those parts one level down in the bill of material.
In practice this means that the IPR solution should be used mainly in distribution and spare parts management. The solution can also be used in businesses where a component is used in a large number of structures as the demand for that component can be seen as decoupled from the demand for the products the component is used in.
IPR can be used as a single planning solution within a company or in combination with other components such as Kanban for rate-based planning and for master-scheduling and MRP for parts with dependent demands.
It can also be used to plan parts that are purchased, manufactured or distributed from internal suppliers such as upstream warehouses. The solution does not include any particular support for repair, where parts are supplied through repair of defect parts.

Define Basic Data

Like any planning solution the IPR is dependent of accurate and complete basic data. The solution depends on a couple of basic parameters and attributes such as lead-times, ordering cost and inventory interest rate. Those parts that should be planned by IPR should have the Planning Method on the inventory part set to B for reorder point based planning.

One of the most important elements in the solution is the classification of parts. The classification is based on historical transactions and will group parts along four dimensions:

The result can be seen as a matrix where for example, fast moving A parts and slow moving C parts are easily recognizable. The system will create one of those matrixes for each lifecycle stage and combination of site and asset class.

In order for the classification to work some basic data has to be defined:

It is possible to distinguish how many months of history that should be used for the classification using the field Classification Periods on the asset class. It is also possible to indicate the number of periods to use when the classification job is launched.

Perform ABC, Frequency and Lifecycle Classification

The classification of parts is done on basis of the history of issue transactions. In order to simplify the switchover, for example when IFS Cloud is replacing another, system data can be imported into a special transaction table which will be used together with the transactions created in IFS during the switchover period.
The classification is useful on its own in order to understand what the most important parts are, to identify candidates for termination as well as parts that require extra attention. The classification is also used to define inventory planning policies as described in the next section.
The classification type that a part has received is shown on the Inventory Part page.
The classification values set by the classification job in the Inventory Part page can be manually overriden and the time-period for this manual setting of a classification parameter should then be defined. Meaning that via a locked until date the manual values set for classification of the part will still be the values used even after running classification job. When running the classification job on a date later than the defined time-frame, the classification will revert to be based on historical data. This can be used to adjust planning parameters for new parts where the sales history is not available but where the forecast of future demand is considered as input for planning.

Define Planning Policies

The IPR calculates four planning parameters which are used to create replenishment proposals. They are:

Planning Hierarchy

In order to calculate lot size, safety stock and order point a number of parameters must be defined. These parameters can be defined on the individual part, but the better way to do it is to use a hierarchy where the lowest level is the actual parts. Any value defined in the hierarchy will be inherited downwards. The levels in the hierarchy, starting from the top are:
1. Company
2. Site
3. ABC – Frequency – Lifecycle
4. Asset Class
5. Commodity Group
6. Supplier

A value defined on a lower level in the hierarchy always override a value defined on a higher level. The attributes that can be defined on each of the levels are:
• Inventory Interest Rate
• Ordering Cost
• Service Rate (%)
• Demand Model
• Safety Stock Model
• Lot Size Model
• Order Point Model
• Lot Size Cover Time
• Safety Stock Cover Time
• Max Order Cover Time
• Lead Time Factor

Together with available quantities, lead-times and demand this constitutes all the information the system needs to calculate lot size, safety stock, order point and next order date.

Demand Model

The value for demand model controls how the system will predict future demands for a part. In order to calculate the planning parameters it is necessary to have an estimate of demand and demand variation during the lead-time.

This estimate can be calculated in different ways depending on circumstances. The possible values for demand model are:

Safety Stock Model

The selection safety stock model decides which method that is being used to calculate safety stock. The following options are available:

Lot Size Model

The selection of lot size model decides which method that is used to calculate the lot size. The following options are available:

Three additional parameters also control the lot size


Order Point Model

The selection of order point model decides which method that is used to calculate the order point. The following options are available:

In addition to this four different models are available for slow moving parts, for example spare parts. These models are based on the assumption that the demand for the part is Poisson-distributed rather than Normal-distributed. Typically the models for slow moving parts give more accurate results when the demand variation is high in comparison to the average demand for the part. Accuracy in this case is how well the actual service rate aligns with the specified target service rate. A rule of thumb is that these models are applicable when the historical standard deviation is larger than half of the historical demand.
The models for slow movers are based on the likelihood that a demand for a certain quantity occurs during the replenishment lead-time. This is after having compared against the defined target service rate, an order point that gives a theoretical service rate that is equal to or exceeds the target service rate is assigned. This means that no explicit safety stock is calculated for these parts.
The available options for slow movers are: