How to Segment the Supply Chain Product Location Database

Executive Summary

  • The Concept of Coding a Product Location Database.
  • The Forecast-ability of the Product Location Combination.
  • The Forecast Model Used.
  • The Master Data Review Cycle

Acronyms

PLC – Product Location Combination

The Concept of Coding a Product Location Database

Companies tend not properly to code their product location database. This is important to do so that different product locations can be treated appropriately by the system.

This coding can be valuable so that a short code can tell anyone who works with the product location combination (PLC) the following

  • The fundamental properties of the PLC.
  • How the PLC is setup in the system.

This coding is not static. The PLC is periodically reviewed, or reviewed based on market intelligence. If the coding is kept up to date, it can be useful for a number supply chain planning for purposes.

Forecast-ability of the Product Location Combination

One of the first places to start is with the forecast-ability of the PLC. Forecast-ability is a measure of how predictive the selected forecast model is. This is often presented within forecast systems as the fitted R-Square. Applications can sometimes provide the fitted R-Square for not only the individual PLC.

They can also do this for the complete product database — or a weighed PLC value. Variability factors can be used to determine the forecast-ability of a PLC with a formula as is explained in this article.
Forecast Error Assignment A PLC can then be coded for whether it is forecast-able. If it is forecast-able, this leads to another set of questions, and if it is not forecast-able, this leads to a different set of questions. To help people follow this conditional logic, it is programmed in the calculation form below. Try switching the first drop down between forecast-able and unforecast-able to see how the rest of the calculation form changes. 

Forecast Model Used

For the PLCs that are not assigned a level forecast, the forecast model that is assigned should be part of the PLC coding. In the calculation form below,  this selection is available.

Master Data Review Cycle

As explained earlier, the PLCs must be reviewed and updated on a periodic cycle. PLCs differ with their review. Before computers were available, PLCs were placed on a review cycle. This review cycle was for actually calculating order quantities.

A review cycle might look something like this:

  • Products 11234 to 11500 – 2nd Monday of the Month
  • Products 11500 to 1534 – 2nd Tuesday of the Month

Computers did not compute the order quantities; this was something that had to be performed my inventory analysts. When computers did arrive, software vendors began touting their “perpetual inventory” abilities.

This meant that when a goods receipt was recorded, the inventory was immediately recalculated.

  • This also allowed companies to carry less inventory. Before computers, safety stock had to cover not only variability in lead time and forecasts but also the longer period between reviews. In a computerized system, if a larger than forecasted order comes in, it may reduce the planned stock below the reorder point. The instantaneous calculation will cause a new order to be generated.
  • In a manual periodic review system, that product may need to wait until it was recalculated by an inventory analyst. That is unless the analysts reviewed the large orders and then recalculated just those PLCs ahead of the rest of the PLCs in their rotation.

The book Decision Systems for Inventory Management and Production Planning proposes an advantage to periodic review and periodic ordering.

“Items may be produced on the same piece of equipment, purchased from the same supplier, or shipped in the same transportation mode. In any of these situations coordination of replenishment may be attractive. In such a case periodic review is particularly appealing in that all items in a coordinated group can be given the same review interval. In contrast, under continuous review a replenishment decision can be made at practically any moment in time, hence the load is less predictable. A rhythmic, rather than random pattern is usually more appealing to the staff.”

This master data review cycle concept is the same concept as was applied previously to inventory management. Of course, a lot less work because this review cycle is for setting master data — and prevents the settings from falling out of date.

This is also important because master data is often changed in reaction to short-term needs. But is is often not changed back.

Supply Planning Method Used

The book Multi-Method Supply Planning in SAP APO lays out how different methods can be used for different PLCs. In most cases, this is applied by planning some PLCs in the ERP system and some in the advanced planning system — or APS. However, this is not the only alternative available.

If a PLC is forecastable, uses the seasonal method and has a four-month review cycle, and if it is planned by a heuristic then its PLC coding would be FS4H. This coding system can be added as a custom field onto the material master or product master so that any person reviewing the PLC can determine quickly how it is managed.

The coding can also be applied to the overall PLC spreadsheet, that is used to analyze PLCs outside of the system.

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References

Multi Method Planning Book

MULTI

Multi-Method Supply Planning in SAP APO

Choosing Supply Planning Methods

Which supply planning method meets your company’s business requirements?

The answer might surprise you! Here’s the truth: There is no one right supply planning method for all situations, even within one company! In fact, it is unnecessary to choose only one method, and using multiple supply planning methods is feasible and in most cases, has many advantages over using a single method.

Multi-Method Uses

This book explains why no one supply planning process meets all requirements and lists the many benefits of using multiple supply planning methods. This book gives practical advice about selecting supply planning methods and method modifiers, and goes deep into the “how to” of implementing mixed methods, and how specifically to setup them up in SAP APO, which are approaches taken from real projects. The book is also useful as a general document on how multi-methods can be used in supply planning applications.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: The Different Supply Planning Methods Available within SAP SNP
  • Chapter 3: Combining Supply Planning Methods Across External Systems and ERP Systems
  • Chapter 4: Preparing for the Prototype for Multi-Method Testing
  • Chapter 5: Prototyping the Multi-Method Supply Planning Model
  • Chapter 6: Coding the Product-Location Database /Spreadsheet
  • Chapter 7: Planning Beyond a Single Supply Planning Method Per Echelon
  • Chapter 8: Creating a Dynamic Master Data Selection for Automatic Product Location Switching Between Methods
  • Chapter 9: Overcoming the Human and Information Challenges of the Multi-Method Approach
  • Chapter 10: Combining SNP with Inventory Optimization and Multi-Echelon Planning
  • Chapter 11: Conclusion

https://en.wikipedia.org/wiki/Perpetual_inventory

Silver, Edward. Peterson, Rein. Decision Systems for Inventory Management and Production Planning, Second Edition. John Wiley & Sons. 1985.