Should I use manual planning for extremely long lead day items?
Purchased items with extremely long lead days, meaning several weeks or months, are ideally handled using the Demand Driven order policy and a Monthly Potential Demand rate in combination with the item Supply Days target. This is far superior to any form of manual planning because it enables MRP to generate a pipeline of staggered POs that minimizes the risks of over-stocking or shortages.
You simply enter a monthly potential demand rate of anticipated usage for the item. You then enter the number of Supply Days you wish to be covered by each PO. Because the item has such a large planning period because of its long lead days, the program will calculate a relatively large Reorder Point.
For example, let’s say you have an item with a 6-month Lead Days allocation, which equates to a 180 day planning period. The monthly potential demand is 100 units per month. The program will calculate a Reorder Point of ‘600’, which is the amount required to cover total potential demand within the item’s planning period.
If you wish to generate a PO every 30 days, set the Supply Days amount to ‘30’. This will result in POs being generated in approximate 30 day intervals for a quantity of 100 each, which covers 30 days of forecasted demand. At any given time, six POs would be in progress, each due to arrive in 30 day intervals. This insures a steady supply that minimizes the risk of shortages or severe over-stocking. If a shortage does occur, the next PO will arrive shortly, which minimizes the shortage duration.
