A customer asked once to be able to have an estimation of its inventory by the end of the the planning horizon in its advanced planning software. Could he just take at the sum of the projected inventory at the end of the horizon…?
Let’s take a simple example:
The plan is obvious on a horizon of daily buckets: a plan of 90 units every 9 days and the average inventory is 50 units (on a period greater or equal to 9 days).
Using weekly buckets
For good reasons details might not be needed after a while, but what happens if the bucketing horizon includes week buckets after 15 days?
… risky scenario.
let’s have a look on the same case and we take the decision that one plan made in week N is delivered in week N+1… the projected inventory and plan become like this:
we can notice several unwanted effects due to something similar to a moiré pattern.
- The inventory seems to grow week after week.
- The production plan and deliveries do not match with the daily plan.
- The average inventory on 9 days (green dashed line) gets funny.
- The average inventory over 4 weekly buckets does tend to the correct value (dark blue dashed line).
Also considering that what is ordered in week N will be delivered in week N+1 is not always true, or example what if order is placed on Friday…. it will be delivered on Monday N+2. So in order to be on the safe side, most will take this model. Let’s have a look to the projected inventory evolution:
We can notice a similar Moire pattern, and an increase of the planned quantity in day 16 (as expected as now this plan needs to service an increased leadtime. We also notice that this time the 4 weeks moving average is not close to the expected figure, meaning that we can’t estimate the inventory from the bucket 22.
Another point is that we only have demand data for 5 days in the last bucket (for example if this last bucket ends after the last available forecast…) and this influences clearly the value of the projected inventory.
And what about a monthly bucket?
Now we take monthly buckets to be in line with the S&OP process at the end of the Master Planning horizon. The result will be mostly the same whatever is the leadtime hypothesis… (Production made on N delivered in the N monthly bucket or in the N+1 monthly bucket).
As soon as the bucket duration is bigger than the delivery leadtime, the inventory equation will indicate that the inventory at the end of the bucket is equal to the safety stock: 10 units.
So be very careful when you take inventory figures from a master planning projected inventory. the meaning of this figure might not exactly be what you will have in your warehouse at that moment. There are ways to make this estimation
At RoadToSee we help our customers avoiding these pitfalls, do not hesitate in reaching supply chain planning experts in order to know what can or can’t be done with your planning tool.