Inventory Planning & Replenishment is not just a new name for a traditional re-order point based system.
In 2010 IFS released a new solution for inventory planning. Even though the solution is a brand new development it was heavily inspired by a product extension that had been offered to our Scandinavian customer base for over ten years. In order to be able to offer this product globally it was included as a part the core IFS Applications. As we included the extension into core we also made some major enhancements of the solution. The most significant being vastly improved performance.
In this post I would like to explain the hallmarks of the solution, when it should be used and finally a few words about my first line experiences from customer implementations.
The product is called IFS Inventory Planning and Replenishment (IPR). It uses the demand forecast created by IFS Demand Planning and calculates optimal values for Reorder point, Lot Size and Safety Stock. The solution does not compete with MRP based planning systems, instead it is mainly used to plan parts with independent demands. Examples of parts with independent demands are spare parts, trade items and consumables. This planning approach is also interesting in industries where the bill of materials diverge into zillions of finished goods items. This often the case in the process manufacturing industry where often relatively few raw materials and intermediate result in an almost infinite number of finished goods items.
Inventory Planning & Replenishment is not just a new name for a traditional re-order point based system. It offers a couple of significant advantages over most traditional planning systems.
- Integrated with IFS Demand Planning
- Classification of parts based on lifecycle stage, turnover value and frequency
- Offers a multitude of planning models
- Calculation of Next Order Date for improved planning transparency
I will explain more in detail what these features actually means and why they are so valuable.
Integrated with IFS Demand Planning
IFS Demand Planning is used to create sales forecasts with consideration of seasonality, trends, campaigns or other types of events etc. The sales forecast as well as the forecast uncertainty is used when the IPR calculates the planning parameters. This means that when the season changes or for example a new sales campaign is added to the forecast this will immediately update the values for safety stock, re-order point and lot size.
The planning parameters will simply always be aligned with the latest forecast. In some industries characterized by fast pace supply chains such as retail or food & beverage you can actually continuously adjust the planning parameters to consider known variations in sales on a daily basis.
Classification of parts based on lifecycle stage, turnover value and frequency
The IPR solution also includes an automatic classification. It will group parts into Fast Movers, Medium Movers and Slow Movers based on their historical frequency. Parts are also grouped by turnover value with a traditional ABC classification and further into a number of pre-defined lifecycle stages.
This will give you a classification into three dimensions – where individual parts will travel as they move through lifecycle stages or as the customer demand changes throughout seasons.
This three dimensional matrix is used to define the planning policies that govern each group of parts. This will allow you to easily implement a differentiated inventory planning, where each group of parts is assigned the most sufficient planning model in line with its current classification.
Offers a multitude of planning models
Different groups of parts will require quite different planning models and different parameter settings for each of the available models. The solution provide a wide range of methods to allow inventory planning based on for example: Required Fill Rate, Economic Order Quantity, Cover Times and a range of models designed to handle slow moving parts.
Calculation of Next Order Date for improved planning transparency
The calculation of Next Order Date is done on the basis of the current inventory on hand, the largest of actual demand and the forecast as well as current value for safety stock. Usually this type of planning system just indicates when it is time to replenish a part. The Next Order Date feature allows the planner to “look around the corner” and see also what needs to be ordered within the near future. This is a huge advantage to create benefits of scale and reach volume discounts or order a full truck load or container.
How the IPR solution are used to implement differentiated inventory planning
I have recently worked with a couple of IFS customers to configure the IPR solution on the basis or their individual supply chains. The most important achievement in these projects has been the introduction of a differentiated planning strategy. This gives an optimal planning for each group of parts were the planners do not have to worry about planning parameters for individual part. The system requires a minimum of manual interaction as new parts are introduced and others are retired.
The planning system is also highly automated. Supply chain planners focus on the quality of the sales forecast (or in other words minimizing the forecast error). The rest will to a large extent take care of itself.
The precise configuration is different between companies. A fast mover in a company that uses IPR to plan spare parts would usually be a slow mover in most retail businesses. Also the average values as well as the length of the product lifecycles and the total number of parts planned by the IPR are of course elements that have a large impact on the final parameterization of the solution.
The result from these implementations has turned out to be great. Based on long experience from the IT industry I would say that there are few solutions a company can choose to invest in that has such a tangible and visible return on investment.