I need to draft a replenishment plan for a product. The problem I face is that the target stock on hand in days is expected to be less than the lead time(20 days stock on hand & 35 days lead time. I am not able to get my head around that. Any suggestions.
Hi Abhiman Sawant,
You really need to work on MRP based on BOM linked through S&OP if the item is a manufacturing direct Material. ROFO Rolling Sales forecast should have a frozen period where no changes to be done by Sales & Marketing. This frozen time will be equivalent or greater than to your Procurement Lead-time.
If the Item is a finished SKU and the business is, trading or it is an indirect material. You need to Keep Safety Stock and set a reorder point, which will be your replenishment trigger. This is to perform through trend analysis.
Let me know if you need any elaboration will try sorting the problem you are encountering.
Assuming your company defines inventory upon physical receipt and system input, here are the options, in the order, that I would explore:
1. Have the supplier increase the amount of inventory on the product to shorten the lead-time.
2. Talk with the supplier about maintaining consignment inventory at your site. The material becomes actual inventory upon receipt into your system.
3. If 1 & 2 fail, discuss a product price increase appropriate for supplier to carry the additional inventory. Compare this cost to your company's inventory carrying cost and determine if a business case can be made for the higher product price.
4. Investigate the possibility of dual sourcing the product in-order to manage the lead-time.
5. Source the product with another supplier. Determine quantity of inventory they need to maintain to meet your target and build this into the contract.
6. If 1 - 5 fails, take this information back to your management and, speaking with data, make a case for expanding the 20 day stock target.
Hi Abhiman, if your product stock level is so sensitive why not check with the supplier to set up a vendor managed inventory? If you already are stuck with a 20 days stock target see if you can work on your lead time (check on sourcing opportunity or VMI options).
It works as long as your supply and demand are both reliable. Effectively you are gambling that you will not have a supply shortage or a spike in demand. As Sid says, as long as the payoff in reduced inventory costs is big and the risk is low, it would make sense.
Sounds like a dangerous policy to run out of stock when anything goes wrong. Obviously, there are goods in transit and you would have to look at either the manufacturer or distributor holding stock. The cost of error should neve be ignored. This risk taking structure was discontinued by many companies decades ago
Thanks everyone for the feedback. The target at the moment was to prepare a replenishment plan. I have managed to prepare a rolling plan with little tweaks and adjustments. Will wait for the next stop. Thanks again for the suggestions.
Just a thought but why not work with your supplier for them to manage the stock levels in a form of Kanban system?
Hello Fellow MCIPS! The target stock strategy is risky by design and I think is pushing for max efficiency. You can also understand the root cause for such target stock strategy set point. Sometimes, it is over correcting for exaggerated estimates by the operations, manufacturing team. However, a little bit of critical analysis here is required. Have this stocking strategy failed to deliver the product in time before? If this was the case, what was the cost of loss of opportunity? What was the probability of this incident happening again and in what frequency. You might have a compelling argument by building a business case for that the efficiency achieved by this edgy target stocking strategy (in terms of $XX) is less than the probable loss ($XXXX). You may have stories around this from production, sales, or customer services team to support your argument.
Excellent question, Abhiman. As I understand it, if you don't want your stock level to go below, say, 10 days worth of stock, you would be best ordering 10 day's worth of stock every 10 days, but you will have to forecast weeks ahead what your real consumption is going to be so this is definitely risky.