3S – Optimal MRP is a unique calculator that focuses exactly where other systems for supply and production planning do not. This ability to leverage existing systems in a short period is what makes 3S so high value. The graphic below shows the stocking relationship between common inventory parameters over time.
Understanding Supply and Production Planning Systems
If one analyzes supply and production planning systems ranging from ERP to specialized external systems (which we have as implementers for some time), it becomes readily apparent that most of the effort goes into what is referred to as the “method.”
The following are the method available in supply and production planning.
Methods of Supply and Production Planning
|Method||Description||Inbound / Outbound?|
|1||MRP||The first method of calculating quantities and dates based upon demand.||Inbound|
|2||DRP||Deploys the MRP plan through the supply network.||Outbound|
|3||Heuristic||Typically emulates MRP/DRP in an external planning system.||Both|
|4||Allocation||A heuristic approach that allows for prioritization of supply and demand by using queues.||Inbound|
|5||Cost Optimization||Sets up costs for various activities and minimizes on total costs.||Both|
|5||Inventory Optimization & Multi Echelon||Uses service levels to drive inventory.||Both|
Putting Together All the Pieces of the Puzzle
The method is the procedure that is used to run the system and drive the output. It is important, but its only one piece of the puzzle that must be fit into place to obtain high-quality planning output. However, the procedure seems to get that vast majority of the focus.
Right now there are many companies that are unhappy with their supply chain planning output, which is thinking of moving to a more complex system before they have even set up their parameters properly. Parameters are often thought to be set up correctly by the implementation partner — but our evaluation of many systems indicates that this is rarely the case. In most cases, companies have little idea how underutilized their parameter fields are.
Regardless of whether a company wants to get more out of a present system, or leverage a new implementation, intelligent parameter data setting is necessary.
What Are Inventory Parameters?
Every method in supply and production planning interacts with inventory parameters. They are the control fields that you provide the model with important assumptions. For instance, if an order is received for 100 units, without parameters, in most cases a production order for 100 cases would be scheduled.
It is a parameter that tells the system that because of costs, a minimum production order is 500 units – therefore to meet this demand a production order of no less than 500 units should be scheduled. A few of these better-known parameters include the following:
|Parameter||Description||Status At Companies
|1.||Service Levels||The service level that should control safety stock.||Sales wants the highest possible service level on all products, but the company often has no good way of allocating differential service levels.|
|2.||Procurement Lot Size||The quantities in which to order material.||This is a feature of service level, inventory carrying cost and other factors like production changeovers. Companies carry higher inventories than necessary as trade-offs are frequently not mathematically determined.|
|3.||Production Batch Size||The production run sizes.||Companies battle between production, inventory and sales to adjust batch sizes to meet various goals.|
|5.||Safety Stock||The amount of inventory to hold to protect against demand and supply variability.||Companies struggle with applying consistent safety stock rules, and those that try standard dynamic safety stock often back off of this.|
|6.||Reorder Point||The stock level at which a new order should be placed.||Companies generally under use reorder points.|
Understanding the History of Supply and Production Planning Systems
The history of computerized supply and production planning going back to the early 1960s has been an example of the increased sophistication of the method being employed.
Some of the mathematics behind these methods is quite impressive. However, the problem is that there has been little change and in fact little focus on parameters that maintain a powerful control over the planning output. This has reduced the value that these systems have been able to provide to the companies that purchased them. It is as much of a problem in the most advanced systems as when MRP systems first began being used back in the 1970s.
The thought pattern has been that previous limitations in effectiveness could be solved with more sophisticated methods – while missing out on the opportunity to improve parameters. One software category to be related to this issue is the master data management (MDM). The trend of MDM came and went, having virtually no impact on this type of parameter data — because MDM did not bring expertise in the business logic or mathematics of what parameter values should be. MDM was an IT initiative.
Giving the Business the Parameter Support it Needs
On implementations, it is assumed by both software vendors and consulting companies that these values are all worked out by the client and that all that remains is to only take these values and populate the system. The reality is that for the most part, the business sides of companies do not have effective ways of setting these parameters. They must manage a system, but are not expert in inventory management and normally need help to translate their business knowledge into the best parameter values. And most systems, even the most expensive, generally don’t help the company figure out what they should be.
- Setting the parameters effectively essentially is requires a research project where the individual product locations are analyzed.
- Inventory formulations are customized for the specific requirements and needs of the company. This point is sorely missed by companies; the parameters are set within the context of the overall product location database so that a usable policy is created. Planning departments are simply not staffed to perform this type of research.
3S – Optimal MRP
This is where 3S comes in. 3S is not a replacement for your MRP/supply planning/production planning system. Instead, 3S tunes your present system by adjusting the parameters to those systems, making them far better able to meet their potential.
We have high confidence that 3S is of use to many if not most companies because through many projects we have reviewed the settings and parameters of many supply and production planning systems that the opportunities are quite obvious.