Planning for long lead day purchased items is an extremely challenging task for all manufacturing companies. Our Demand Driven Order Policy combined with the use of Supply Days to control your PO intervals is the ideal way to handle long lead day purchasing. The supply days will create a pipeline of multiple inbound POs, each due to arrive at staggered intervals, to meet and adapt to your actual demand.
KB - How do I handle long lead day purchasing?
Plan a supply pipeline for long lead time items
When a purchased item has an extremely long lead time, such as several weeks or months, it is highly risky to generate and receive one PO at a time. If a shortage occurs, it could take weeks or months for the next PO to arrive. Such a lengthy shortage would bring all dependent jobs to a standstill.
The ideal planning method for long lead time items is to generate a pipeline of multiple overlapping POs, each due to arrive at staggered intervals. If a shortage happens to occur, it will be relatively short in duration because the next PO is likely to arrive soon and delays to dependent jobs will be of minor impact.
MRP Settings - Demand Driven order policy - Enter a Monthly Potential Demand value and Supply Days target
A PO pipeline is achieved by assigning the item a Demand Driven order policy. Enter a Potential Monthly Demand value, which combine with the item's Replenishment Time to calculate a dynamic Reorder Point that triggers PO generation. Enter a planned Supply Days for the desired interval between POs, which combines with the monthly demand rate to calculate a dynamic Min Order quantity.
The Reorder Point will have a relatively high value
An extremely long standard Lead Days will cause the Reorder Point to have a relatively high value compared to items with short standard Lead Days. Do not be concerned by the high value because the Reorder Point is a trigger point and not a stocking level.
Net Demand will also have a relatively high value
Net Demand is calculated as follows:
Net Demand = Stock On Hand + All Inbound POs - Actual Demand
Take note all inbound POs are included in the calculation, which gives Net Demand a relatively high value.
Actual demand triggers the next PO
The next PO gets triggered when Net Demand falls below the item’s Reorder Point. So even though the item has high Net Demand and Reorder Point values, it is the difference between the two values that triggers the next PO.
PO intervals are self-adjusting
The intervals between POs are self-adjusting with actual demand. For example, if actual demand happens to be less than planned, the next PO is automatically delayed and the supply days interval becomes longer than planned. Conversely, if actual demand happens to be greater than planned, the next PO is automatically generated earlier and the supply days interval becomes shorter than planned.
