How to Best Understand a Forward Stocking Location

ByShaun Snapp

Executive Summary

  • The term forward stocking location has a specific definition.
  • The forward stocking location applies to service parts, 4PL and transportation management systems.

Introduction

I recently had a discussion that involved the topic of a forward stocking location. We decided to look up this term and did not find very much about it. None of the major sites such as Wikipedia have anything more than a vague one-sentence definition of it. We found no mention of it in any book in Google Books and only one article in Material Handling News. However, it is used commonly on 3PL websites. The broad definition is that it is a location that provides inventory to locations on an emergency or short lead-time basis. One company that strongly associates itself with the term is Flash Global Logistics. Flash lists some value-added services on its website.

See our references for this article and related articles at this link.

The Forward Stocking Location and Service Parts

Forwards stocking is often mentioned in the same articles as service parts logistics. This is natural, as service parts are often required on a short lead-time basis. However, there is some value added services connected to forward stocking locations that don’t have anything to do with service parts. For instance kitting is connected to service parts operations (i.e., repair kits for automotive, industrial equipment or airplanes). However, other value added services such as packaging and configuration apply to both finished goods and service parts.

To find out more about VASs, see this article.

Broadly speaking forward stocking locations, for finished goods, is a subset of the concept of product postponement, which allows a company to defer the final stage of a product to provide maximum flexibility. You can read more about postponement here.

Forward Stocking and 4PLs

Now the question we are interested in…what about forwarding stocking and 4PLs? 4PLs are an excellent fit with forward stocking because of a 4PL’s technical ability to provide visibility into the on-hand balances of many companies that are not necessarily part of the same ownership structure. Currently, there is very little written about this. I am not aware of any 4PL which is providing inventory visibility in this way. If anyone knows of one, please feel free to comment on this post.

The Forward Stocking Location and the TMS

The regular flow between a factory, DC or Forward Stocking Location to transportation is normally described as very simple. Shipments are created, and these shipments are sent to the TMS system, which then schedules the shipments by putting them out to tender, receiving responses from carriers, and so on. However, this standard flow is not how all companies want to or manage the relationship between their outbound and transportation operations.

Forward Stocking Location List

Some companies have requirements that are much more complex than this. For instance, some companies want to be able to take into account the following things:

  • Optimized weekly volume in cases by Origin/ Destination and SKU·
  • Volume needs to be Minimum order quantity increments for small volume SKU’s
  • Logic TBD based on Province or Store requirements
  • Stores will have different min order quantities from DCs.
  • Volume needs to be rounded to Pallet qty’s when possible.
  • Volume needs to be rounded to Truckloads in with (preference given to straight loads) to one destination.
  • Min/Max volumes (Days converted to volumes) at Destination to be used in rounding weekly volumes up or down.
  • This is needed to prioritize what product is needed to arrive sooner during load configuration.
  • Order Writing software should not allow a destination to go below three days of inventory by SKU before generating an order (partially taken care of by supply planning)
  • Available supply at origin by the hour
  • Production schedule
  • Rounding allowed to write full loads (ex. to trade off between things like priorities vs. single location shipment)  rounding allowed to minimize partial pallets.
  • Reschedule and reconfigure loads to attain order writing objectives
  • System generated schedule time and pickup time (both by the hour to arrive at wholesaler receiving window).
  • Smoothing of loads
  • Minimize inventory violations
  • Consolidate SKU so that multiple shipments of same SKU to the same destination is minimized
  • Generate pooled loads

Which Requirements are Met

Many of these requirements are not met by the supply planning application, the WMS or the TMS. This white space substantially performs a series of checks and performs rounding based on the following factors:

  • The output of the production line
  • The limitations of the ship to locations regarding capacity
  • The priorities of different items (removing items that are low priority to make room for items on the truck that are high priority)
  • The capacity

The Problem: Modeling Service Levels and Stocking Locations

Where stock should be located, and therefore the use of forward stocking locations can be modeled. One supply network can be modeled and then compared to a second supply network. This is an example of a question we received on this topic.

Is there an industry-standard way to think about the number of source points impact on Case Fill Rate? For example, we are considering reducing our stocking points for a volatile customer like Amazon, to just 2 DC’s (east & west coast) versus our normal 6 regional DC’s. Wondering if this consolidation of inventory and demand variability could account for some calculable improvement in CFR?

There is no heuristic to answer this question as it really depends upon the exact math.

However, this can be modeled. Two approaches come to mind.

Scenario 1: The Simpler Approach

  1. Step 1: Calculate the total stock and safety stock for the two or more locations that you have currently.
  2. Step 2: Find a similar item with a very similar demand that is stocked at few locations.

Then calculate the difference. You have to use real data because any assumption is going to change based upon the specific math. This is ok as a first cut, but it is not going to be very accurate.

Scenario 2: The Overall Supply Network Modeling Approach

  • Step 1: Take a sample of product locations that you intend to change the number of stocking locations.
  • Step 2: Calculate the as is stock and safety stock.
  • Step 3: Change (reduce) the locations for the second product location upload.
  • Step 4: Calculate the new stock and safety stock.

When I do modeling like this, I have a tool that I use that makes this easy.

This allows me to upload scenarios and this shows the total system inventory that is calculated. The safety stock calculation is a modification of the standard dynamic as the standard dynamic is not accurate and is not used. So this adjusted formula gives a realistic service level adjustable safety stock output.

This allows for modeling given service level assumption. This is important because the service level assumptions have to be kept constant for the comparative analysis to have any meaning.

In our testing, the approach, which is within the Brightwork Explorer is one of the most effective methods for managing planning in supply planning applications.