Application of APS in inventory management-principles and practices of stocking production methods

The company’s production types are mainly divided into reserve production and make-to-order production. General products with large shipment volume usually adopt the reserve production method, such as clothing, building materials, home appliances, furniture, daily necessities, etc. Some companies that receive orders for production will also stock up on semi-finished products with high consumption, and package them according to customer requirements after receiving orders. This article discusses the algorithm of backup production and the application of APS in optimizing inventory management and production planning.

Market forecast data:

Enterprises that produce according to the reserve inventory method first need to predict future market demand. They can use past sales data, manual experience and some forecasting software to help achieve demand forecasting.

This article does not discuss demand forecasting methods and tools. We assume that after having a reasonable forecast, how to formulate a production plan, maintain a reasonable inventory level, balance shipments and turnover rates, so that the company can get the maximum benefit.

We assume that through market forecast analysis, we obtain the following three basic data as the basis for subsequent calculations:

• The overall forecast sales volume of each product in the next month, from which the average daily shipments can be calculated
• The total inventory capacity of the warehouse and the desired inventory target level
• Safety stock or safe salable days for each product

Safety stock management can be calculated in two ways: maintaining safety stock quantity or maintaining safe salable days.

Trigger production based on safety stock method:

For each product we define the following parameters:

• Safety stock: The theoretical amount of safety stock that should be maintained for a product
• Minimum inventory/trigger point: If the quantity of the product in stock is less than this quantity, a production will be triggered and a production work order will be created.
• Minimum production quantity: The minimum quantity that needs to be produced each time production is triggered. Switching on the equipment requires additional costs. If the production volume is too low, excessive switching will cause a waste of production capacity. If the production volume is too large each time, it will cause excessive inventory fluctuations.

Most ERP inventory management modules have the function of triggering production work orders based on safety stock levels.

Defect: Produced according to the safety stock method, ERP only triggers production once based on the current inventory and cannot generate forward work orders. An accurate calculation basis cannot be provided for material procurement with long lead times.

We can place a purchase order based on the total monthly demand, but when placing an order based on the monthly cumulative quantity demand, we cannot give an accurate delivery date and quantity for each material. The supplier’s delivery time is arbitrary, making it difficult to match production. The time matches. In order to avoid shortage of materials, companies can only increase inventory and ask suppliers to deliver goods in advance. This results in excessive inventory, takes up funds, and easily generates dead materials.

Trigger production based on days available for sale:

The days available for sale is in principle the same as safety stock and needs to be defined for each product:

• average daily sales
• Safe and salable days
• minimum production quantity
• Order creation cycle

When total inventory/average daily shipments < safe sellable days, production is triggered and a production work order is generated.

If production is only triggered once, there is no difference from the safety stock method. We assume that the actual shipments are consistent with the defined average daily shipments. With the help of the APS system, a series of production orders can be created.

Example:

Assume that product A has the following parameters:

Assume that it is currently 10/27

With this parameter, the current material shortage is 25000 – 17000 = 8000, and the work order created by the system should be as follows

As can be seen from the above, work orders can be created for a period of time in the future based on the number of sellable days. ERP can calculate the required quantity and date of various raw materials based on the order form.

Product sales days fluctuation curve

Adjust the plan according to the actual outbound quantity:

The above is theoretical data. The actual shipment volume will not be exactly the same as the average daily shipment volume. The inventory quantity will definitely change, and the production plan needs to be adjusted on a rolling basis. If a product is shipped more than the theoretical value, the production time of subsequent work orders must be advanced or the quantity must be increased. If the actual shipment is less than the theoretical value, production must be delayed or the quantity reduced.

Although the principle is not complicated, when there are many products, the calculation logic is complicated and the workload is heavy. Manual calculation is difficult and requires the use of software tools. The demand management module in PlanMateAPS can implement automatic calculation functions to help users achieve inventory management and formulate reasonable production plans.

The adjustment period can be based on inventory levels. Enterprises that maintain low inventory levels, for example, if the number of days available for sale is within 7 days, will need to adjust their work plans every 1-2 days. Customers with high inventory levels can make adjustments every 3 days or a week.

Timeline width: The length of the production work order timeline automatically created by APS mainly considers the lead time requirements of material procurement, because ERP generates purchase orders based on the quantity and start date of the work order and expands the BOM. Procurement and delivery according to planned production time can greatly reduce material inventory levels, increase turnover rate, and reduce inventory costs.

Automatically adjust according to total inventory capacity:

Defining days to sell for each product may result in overall inventory overshooting. Another more reasonable way is to set the total inventory capacity, all products share the inventory, increase or decrease the production quantity of each work order proportionally, and maintain the total inventory at the set level.

In the algorithm of PlanMateAPS, it supports setting the total inventory capacity and automatically creating a production plan for each product based on the total capacity. The following is the inventory curve generated by PlanMate’s algorithm

The inventory fluctuation curve is as follows: