All manufacturing companies have the same challenge
All manufacturing companies have the same fundamental challenge – how quickly and reliably can customer orders be shipped and how much inventory will be required to do so?
Use the Demand Driven order policy for improved inventory efficiency
With the Demand Driven order policy, your intent is to have stock on hand of an item readily available to meet a high probability of your anticipated needs. Using this order policy you will have stock on hand for immediate use or sale. If you are fortunate enough to have sales greater than anticipated and you run out of stock on hand, the system will create a new Job or PO for that item and it will automatically receive priority in all work centers that it goes through to get you back on track and cover the shortage efficiently.
The Demand Driven order policy eliminates time to shipment for many orders
Setting a Demand Driven order policy for sell items eliminates time to shipment altogether because items are available for immediate shipment from stock on hand.
Demand Driven components reduce time to shipment for custom to order manufactured items
Setting a Demand Driven order policy for key subassemblies and purchased components instead of making and buying them to order means that jobs can be started immediately without delay and thus reduces time to shipment for made to order items.
The Dell Computer example
Dell Computer provides a good example of how having key components on hand reduces time to shipment for make to order items. Dell ships custom configured products to order almost immediately without delay. It can do this because all required components are on hand and available for immediate assembly on a just in time basis.
Strategic inventory reduces time to shipment using the least amount of inventory
“Strategic inventory” is a plan for reducing times to shipment using the least amount of inventory to do so. You decide which items are to be made or purchased Demand Driven and against those items you enter a monthly potential demand and supply days target to minimize inventory.
Reducing times to shipment gives you a competitive edge
Strategic inventory enables you to dramatically reduce times to shipment, which gives you a competitive edge in the marketplace over slower rivals. Increased customer satisfaction boosts sales and faster payment cycles boost cash flow.
Shipping dates will be reliable and achievable
Whenever you enter a sales order line, the program uses strategic inventory settings to calculate a required date, which is the driver of your MRP system and target dates throughout. You always leave the line item requirement date unchanged and you have an Expected Ship Date that you can use as your communication date to customers. Instead of guessing when orders can be shipped, you will now operate with reliable and achievable shipping dates that reflect your strategic inventory plan.
Orders that exceed your stock on hand are auto-prioritized in all work centers
If you are fortunate enough to have a sale that exceeds your potential monthly demand value and you run out of inventory on hand, the system will automatically prioritize jobs in the system in all of the work centers that they flow through. This helps you get back on schedule in the most efficient way possible.
Late Supply screen helps you improve customer communications on shipment dates
The Sales > Late Supply screen will provide feedback to help update the Expected Ship Date for items that are running behind schedule.
Apply Demand Driven order policies to applicable items
Strategic inventory is achieved by applying a Demand Driven order policy against any item you wish to have on hand to meet your anticipated needs. See What to Do below for guidance in making these determinations.
Enter a Monthly Potential Demand and Supply Days target
When you assign a Demand Driven order policy, you must also enter a Monthly Potential Demand and Supply Days target. These settings drive two calculations:
•A Reorder Point is automatically calculated from the item’s monthly potential demand and replenish time to trigger job or PO generation whenever net demand falls below the Reorder Point.
•A Min Order amount is calculated from the supply days target so that each job or PO quantity covers so many days of forecast demand.
Dynamic Reorder Point and Min Order updating
The Reorder Point and Min Order amounts are dynamically recalculated whenever a change is made to the item’s monthly demand value or replenish time variables (Lead Days or Job Days).
The Supply Days minimizes stock on hand
The Supply Days target minimizes stock on hand and enables widespread use of strategic inventory without massive inventory investment. For example, if your average Supply Days target is 30 days, the total stock on hand for your entire strategic inventory will be roughly equal to 15 days of potential demand. This is because stock on hand peaks when supply is received, but then declines close to zero prior to the next receipt. 15 days supply is the midpoint of the replenishment cycle and therefore represents the average stock on hand at any given time.
Strategic inventory is the foundation of manufacturing efficiency
Planning a strategic inventory is the foundation of manufacturing efficiency and sets the table for all your other key processes. Item reorder points and replenish time settings establish sales order required dates and are used by MRP to generate a coordinated master schedule. The master schedule gets adjusted based on actual material availability from inbound jobs and POs. Jobs get prioritized within work centers relative to their required dates. The Late Supply screen helps you update your expected ship dates and keep your customers informed. All of these processes function smoothly and efficiency when they emanate from a strategic inventory.
Boosting your manufacturing efficiency
Planning a strategic inventory is an essential element in boosting your manufacturing efficiency. Instead of using guesswork with shipping dates and operating with an inventory that is out of control, you plan a stocking strategy that reduces times to shipment using the least amount of inventory to do so.
