The stocking analysis is an analysis that helps determine if an item should be made or purchased to stock or made or purchased to order. It is not a required analysis to run but can be helpful to see what the system suggests what to stock versus not to stock. The logic is applied throughout the BOM hierarchy as well as throughout the distribution network.
- Make/Purchase-to-Stock (M/PTS): A production or distribution environment where products are available before receipt of a customer order. Customer orders are typically filled from existing stocks, and production or purchase orders are used to replenish stock.
- Make/Purchase-to-Order (M/PTO): A production or distribution environment where are made or purchased after receipt of a customer’s order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer. Where options or accessories are stocked before customer orders arrive, the term assemble-to-order is frequently used.
For a manufacturing company, we encourage building lean processes that enable moving as much finished goods to the make / configure to order category. The key here is having a customer replenishment time (CRT the time the customer places the order to when they expect delivery of their order) greater than the time required to fulfill the order taking cumulative lead times and capacity into consideration.
Though this is a pretty straight forward rule, the real challenge is how best to determine the criteria for products that a company is selling particularly when bills of materials are involved. We offer this approach that is embedded in DemandCaster for consideration.
There are 3 variables that you should consider when applying the M/PTO or M/PTS logic scheme at your company.
- Customer Replenishment Time (CRT): As stated above, this is the time the customer expects their products to be shipped from their order date. Most ship from stock companies offer a same day or next day delivery thereby necessitating stock. By setting your CRT a few days longer than your products cumulative lead time to procure and/or produce the product, you may be able to get by without stocking.
- Production and Vendor Lead Times: This is the time it takes to either produce or procure a product (calculated in Lead Time Analysis UI). As stated above, if the lead time is less than the CRT time, you may be able to avoid stocking. Where it gets tricky is as you move down a BOM. For a pure MTO item with lets a three level BOM, you have to add the longest lead time of each level to determine where the MTO portion is versus MTS. For example, if the CRT is 14 days on item that takes 10 days to build and 14 days to procure material, stock must be carried for the material to maintain the fulfillment lead time to under 14 days. If stock is not carried the fulfillment lead time will be 24 days which will exceed the customer replenishment time.
- Product Segmentation: This is covered in the Segmentation section. We encourage low order frequency C-level items to set as M/PTO unless they are service parts or are strategically important i.e. an important customer purchases the item. DemandCaster stocking algorithm segments raw materials in a manner that assigns business importance by the revenue, cost, or margin contribution of their parents.
If an item is determined to be Make or Purchase to Order, the stock designation is changed to “Order” and in turn the safety stock is automatically changed to 0. You then assign the appropriate consumption type based on the planning needs of the business. There are two options: Make/Purchase to Order, MTO - Forecast, or MRO - Order/Forecast as described in the Systems Settings and as further explained in the Consumption Type article.
Stocking Analysis Interface Overview
- Details: Click to view the items requirement planning details
- Item or Name: The item name or number depending on the value to use in system settings. Placing your cursor over the value will show the item name or number depending on the primary view option chosen.
- Location: If the DRP module is enabled, the location of the item. This is a physical geographic location and not an inventory location within a warehouse.
- Stock: Stocking designation of item - Yes or No. Yes = Stock is when the item is maintained in inventory. When a customer order is received the item will be fulfilled directly from stock. In most companies the CRT time for a situation such as this is 1 business day. No = Make or Purchase to Order is when a customer order is received, the item will be fulfilled by making or purchasing to order. The time will be the lead time of the finished product, time to procure the product, or a combination of both for manufactured products if the components are not stocked.
- Make/Buy: M or B. Designates if the item is manufactured or configured (Make) internally or purchased (Buy) from a supplier.
- UDF CRT: Is the user defined customer replenishment time. The customer replenishment time is the stated customer service time to deliver goods to customers.
- Calc CRT: Is the calculated customer replenishment time. This is determined by calculating the number of calendar days between the items customer order date and its ship date. This can be set at the item level based on the calculation or user defined in system or item settings.
- % On Time Demand: This calculates the number of customer orders that were shipped at the agreed upon ship date. In system settings the user may enter a value in days that act as a buffer for on time. For example, entering a value of 1 will consider on time those orders arriving either 1 day earlier or later than the due date
- % Early: This calculates the number of customer orders that were shipped before the agreed upon ship date based on the due date buffer.
- % Late: This calculates the number of customer orders that were shipped after the agreed upon ship date based on the due date buffer.
- Total Lead Time: The lead time assigned to the item to procure or produce the item. This value is managed in the Lead Time analysis interface.
- Avg. Turns: Last 52W Demand I&D / Average Qty on Hand. For average qty on hand, we are summing the quantity on Hand for the last 52 weeks and then dividing it by the weeks count. The quantity and count are tied to the number of weekly data extractions executed over that time period. The weekly value is the first extraction performed during the calendar week (when multiple extractions are scheduled).
- Current Turns: Last 52W Demand I&D / Current Qty on Hand
- Current On Hand: On hand units as of the latest upload
- Current On Hand $'s: On hand $’s as of the latest upload (current on hand times current cost).
- Contr.: Average Contribution. Margin $ - (Average Quantity On Hand * Cost of Inventory Percentage defined in system settings).
- Days Forward: Measure of how many days of demand the current On Hand covers. The calculation is based on the last 52 week average independent and dependent demand. Calculated if there is demand in the next 12 weeks. The value for days of forward supply is calculated as 365 / current turns.
- Stock-Outs:The number of stock outs over the last month. Calculated when the Classification Analysis is run. It is how many times a stocked item has had an on hand that is zero or negative over its cumulative lead time (including the component lead time) or 5 weeks whichever is greater.
- Avg Stock-Out Time: The average time the item was out of stock during the measurement period.
- Wks no Demand: Is the time since the item was last ordered by a customer. In System Settings under General Planning Settings the option "Weeks with no demand stocking threshold" sets the number of consecutive weeks of no demand where an item will automatically be designated as an "Order" item. The classification analysis must be run for the value to be updated correctly.
Run Stocking Analysis
Click on "Run Analysis" to run the stocking analysis. This calculates the Calc CRT.
Specify Customer Replenishment Time
Use the calculated CRT as a guide to apply a desired CRT. Select the desired items to edit the CRT and click on the multi-edit button to change the CRT time under Stocking Settings.
Customer replenishment time may also be changed in the item planning detail options tab shown below.