Start of implementation
Create the birth certificate by giving an identification called "the code" to an item on your file.
The card already mentioned in planning tools will contain replenishment data for all materials, whether or not it has records of previous consumptions based on which the MRP works. If you do not have documented records, you appeal to experience or assimilation.
In the previous treatment, mention names of times and quantities that these systems handle in order to ensure continuity in production / sales.
As you will see, the terms that I use now are not necessarily the ones that were used to achieve your understanding. They are the ones used in the systems.
We logically assume the ideal case to be able to relate all the values put into play in these planning schemes.
If the average consumption is regular, greater than one, it is considered the optimum for the calculation process of the supply system for consumption.
The values in the following graph are dimensionless unit. In other words, the stock column expressed in this way can be read as units of measure of absolute quantity of stock or quantity of consumption in time. Being time in the unit of measure that measures lead time, that is, weeks, months.
Let's see if it is understood, it reads Stock = 1 critical, the lead time being 2 months, it should be understood that it is the stock that represents a value equal to the amount of consumption of 1 (one) but in a month that in this case explained with a unit graph of the dimensionless type it matches to make it easier to describe it but the reality is not that simple. But hey, this is to understand, achieved the purpose, each case can be treated with logical criteria.
The main thing now, of course, is to have a basic idea of how to forecast, it is interesting to place basic data on the elements that are consumed one or more per month. The rest we will see later.
The basic concepts to define before starting to work fully on the items would be the average consumption, the minimum stock or safety stock, the critical stock (if it is critical), the lead time, the maximum stock.
When I speak of concepts in the previous point, I do not refer to what is necessary to understand them but to the values that will be given "conceptually". It is expressed "conceptually" and it must be understood that values are because they are actually channeled through units of measurement of time that the operating system automatically translates into quantities.
We already mentioned that the quantities expressed in the graph for the purposes of a good understanding work to be able to plan are truly expressed in dimensionless units, mainly those of stock, since they can be translated and loaded into the system expressed in quantities or in time. In other words, we could put the order point value 3 or 4 units in quantities or in months, the system will interpret it as it is defined and will correct this value based on actual data from subsequent successive forecasts.
Only for educational purposes is stock in quantities more practical.
Initial data
All ready. Now you should echo the most important initial definitions (calculate previously) are:
1. Lead Time.
Dear, it is in applied unit, today generally days.
I regret that days are used in these measurements, they are not really accurate, they compute 7 days a week but only work 5. The best would be weeks, it is more realistic. Those who teach us (teachers) use it this way in their planning, and those who move finance and trade in the world (financial / commercial calendar) use it this way in their planning.
2. When to order (order point)
Data with which the quantity in stock must be controlled (available stock), if there is less, it will be necessary to go out to order. At the beginning of the implementation, it is worth placing a value below the existence, such as the third part or the same existence value. Then the difference will show.
That way if it is consumed, it goes out to ask at least before it is finished.
3. How much to order (purchase lot)
It is a very important consideration, at the beginning we must place a value. It could be the estimated consumption in lead time plus the safety stock. In this way, consider a little more than what has already been consumed, anticipating that it will continue to be consumed during the lead time. Or, a lower value anticipating that if the stock continues to fall (it continues to be consumed), it will be necessary to buy again.
It must be trusted that the system considers these values and accommodates them, along with all the others, based on their performance, that is, on the movements that are recorded.
Chart data
Let's look at the graphical movement data a bit to define the understandable concepts to choose in the different planning possibilities that are actually given, generally it does not behave in the ideal way.
Various values are indicated.
Let's see how to explain in words what is well understood in the graph.
When to order. Defined the order point. It would be ¾ of 4 = 3. It could also be 4 as indicated.
How much to ask. As indicated, it could be: consumption in lead time 2. Plus the safety (or critical) stock 1 = 3
When you go out to order, you continue consuming and you reach stock 1, which is the minimum or critical. It is 3 when you go out to order minus 2 that is consumed in the course until the order arrives. You could ask for less, say 2, or 1.
Upon reaching the replacement of 3. Added to 1 (which remained as the minimum stock) gives 4 which is defined as the maximum stock.
All this is very practical in the ideal scheme, it happens that it is not so in reality.
Observations to consider
Note that had the delivery been delayed, it still remained to consume the minimum or critical stock.
Note the Point of Order in average stock.
Notice the fixed purchase lot.
Note that upon receipt the maximum stock is reached.
From order point to order point
Let's see what happens with the other scheme that is very possible to apply and is currently used by many systems.
It is scary because it defines the highest order point = maximum stock and it is indicated to order up to the same maximum stock or as it is said up to the order point, which in this case is equal to the maximum stock.
It would be then.
Always starting from the same maximum stock.
When the stock drops to 3, he asks for 1. Remember that two (2) are consumed in the lead time.
When the ordered item arrives, the stock will reach 3.
Summary: There were 4, 2 were consumed and 1 arrived. There is then 4-2 + 1 = 3.
Note the amount to ask would be less (less investment in fixed assets).
Note the stock at the time of receipt. It does not reach a maximum (less investment in fixed assets).
However, it is not only these benefits.
To regulate this scheme, take into account that when the second of the lead time is consumed, you must go out to order in the next replenishment list since the stock plus the requested, (available quantity) is less than the value of the order point. That is, 2 + 1 = 3 with order point 4. You will have to go out to order again and we would have two orders in process, that is, two orders for the same item in equal quantities.
With this scheme, you can have more than one order during the lead time.
To understand this we must, on the one hand, separate lead times into short lead times and long lead times.
If it is a short lead time, it is not convenient to have two orders, but in the long lead time it is convenient.
Orders or orders are generated (if necessary) after each review, that is, after each stock control versus order point. It may be that it is not necessary to ask. Do not consume more, do not ask for more.
Now then, it should be understood what is called the review time within the lead time.
Already mentioned when discussing production planning. It is conceptually defined as the time that separates one review or control of needs from another. Now this should be well understood.
It is not easy to tell when you have a short lead time, say a week, and the review is once a week. Since it is something that must be added to the list of components of the lead time and they complete the time used with just one. Something is wrong with the calculations.
The other times in question cannot disappear.
It is easy to see that a long lead time is applicable, which may require several reviews and several requests may arise.
It happens that with this scheme the variations are detected immediately. That is to say: If consumption drops, that is, less than predicted is consumed, in this case ask for less or not.
It may be that consumption accelerates, that is, it consumes more than the expected or predicted average. In this case, he asks for more and more in each requirement. In this case, no matter how much the extremes of reaching the minimum and / or critical stock are consumed. At each replenishment the stock can be rebuilt.
Calculations
These schemes have an algorithm for calculating the forecast of the need for an order or purchase based on previous consumptions that always benefit / consider the necessary preponderance of the last consumptions.
Let's see how to understand this.
If the consumptions period by period prior to the review are: 90/110/85 / 115. The average is 100.
Although the forecast formula or calculation of future needs based on previous consumption is not a simple average calculation, in order to achieve a clear didactics it would be good to say that a future consumption of 100 units is expected (and could be predicted).
Now, if consumption is given by the sequence of: 85/90/110 / 115. The average is 100, but it is easy to see that the consumption forecast should not be the same.
It would then fall into understanding why the need to apply specific formulas that consider and support this concept.
There are several methods, one that SAP uses is to calculate the dispersion of the values with respect to the average and based on them produces a reinsurance to ask for more or less according to what corresponds.
There is another method that seems exceptionally fair for these types of consumption. It uses a weighting factor based on the latest consumption.
Weighting factor
The weighting of the last months of consumption over the rest has formulas and tables for the application of correction factors that are perfectly understood and applied very easily in a complete system.
It is not my intention in this treatise to recognize or teach application formulas. That is already analyzed in the minds of the excellent developers out there. But if it is necessary to understand how the system based on these formulas works, since it is the only way to achieve an effective application of it.
If you want a weighted forecast that compensates the average consumption values of the last periods analyzed, exponents or factors should be used. Understanding how the latter affect the formulas is the question.
Let's see another example: The previous forecast is 1000 because the annual consumption gives an average 1000, with the consumption of the last three months 1200. Forecast error. We said it in the example above, it's easy to spot. Now it is also easy to realize that an annual calculation is being shown detailing the number of months (3) considered to be the highest consumption. In this case, the formula to be applied would give 1040.
We should clearly know that it is based on the consumption of the previous 12 months, it can be annual (annual forecast for the following year) but… what we are really needing is the data necessary to supply (order / buy) at this time. This data 12480/12 = 1040.- is the quantity to order.
The factor 0.8 (used in this opportunity of the example) is the only thing that the system asks to define in order to be able to properly calculate the quantity to be suggested for procurement. In current systems they call it efficiency and the value offered as acceptable is 0.75, which would be to weigh the last four (4) months.
Remember
At one point the recent review of stock and movements is analyzed and everything should be managed before the next review is released. The next review should take place as planned in a week or two months, and it should start all over again. Regardless of whether the lead time is a week or a month. The system records and evaluates everything in its processes.
Following the topics
Since the importance of lead time and order point is already understood. Let's see the quantity to order.
Purchase lot
To analyze how to determine the amount to buy based on an ideal consumption, we return to a look at the graph. But now we are going to look at it with other concepts, months of stock / months. As we have already explained, it is applicable because it is a unit graph.
Relations
It seems that everything is related to order quantity or orders / investment quantity / work quantity.
Many orders represent a lot of work but little investment, this is what should prevail in companies.
It happens that each order has other expenses added at the same time (apart from those corresponding to the work itself), such as transport / insurance, etc. That in the case of being many orders, these costs increase relatively and can affect other items such as losses.
Like any investment, it goes through a very simple analysis that in this case translates into: We invest in earning interest or we invest in buying immobilized stock plus transportation costs, insurance, etc. Or, the million dollar question. Do we give people more work?
We realize that the gravitating item is salary. In the case of low wages (which is closely related to us in Argentina), it is convenient to place multiple orders of small quantities, giving more work and paying only a little more expenses.
It happens that if it is handled in this way with so many repetitions of attempts to lower the items that gravitate the most, in fact there will be few people who work. And performing so many operations of this type with the same people falls into the obvious need to use the computer tool.
It happens that if they are not enough, it denotes a great shortcoming in training, a situation that also affects us closely in Argentina.
It seems that Argentine companies do not realize that all this necessarily works against the organization itself. A person performing multiple repetitive tasks (manually or with computers) to earn her salary with dignity, which is not enough for her and, if she does not even have enough time for it and, she does not have enough training. Less will be enough to think about carrying out ideas of things such as improving your management. Regarding the subject, I have written about what is necessary to realize an idea.
For the time being, it will try to carry out the law of least effort and this generalized unfailingly redounds against the company itself.
Rotation and Stock
With this tool that we will analyze, important values of the stock are defined.
A stock with high turnover is the ideal, that is to say that if a stock needs constant supply, anyone is convinced of the need to work like this.
It is an index, stock rotation index: IRS = Annual demand / stock.
If the value of the index decreases, it means that the denominator is increasing, that is, there is more and more immobilized stock or that it is being badly invested.
It happens that if the stock falls too low there is a risk of rupture of the production / sale system causing losses that may be greater.
The inverse of this calculation is also used and is defined as coverage. It is even better interpreted.
Coverage
It gives us something like how long the production / sales is covered with the current stock. It happens that it is extremely necessary to cover this demand, but if the coverage is exceeded, the investment stock increases and we end up reaching the same result as the IRS analysis. Then a minimum should be defined.
Coverage or minimum or security stock
In principle it is in the planning. By definition, stock management has to maintain a minimum amount of stock without missing stocks that endanger the continuity of production / sale. We know that the safety stock is there to cover problems that arise such as higher consumption than predicted or delays in deliveries. But, if they represent an immobilized investment and we are not going to analyze everything again to see what should be done or not.
It always happens that the one who manages the finances of the company wants to have the fixed assets converted into money generating interest and the one who sells / produces does not want problems that cut off his management and reinsures himself with high stock.
It is easy to calculate interest, it is not easy to calculate how much the lack of stock costs. But estimates can be made with the following sales examples.
If the sale is done, there are no real losses, the malicious customer will have to wait a little longer.
If the sale is not done yet but the customer has no problem waiting, it is the same.
It happens that if you can wait you will go to the competition and this is very expensive.
Not only expensive due to the loss of a sale (which could then be made to another client), a client could be lost because the competition, just like any company is waiting for the opportunity to win more clients.
Therefore, a balance must be achieved.
Coverage balance
The idea is to define the safety stock to be applied in replenishment and this depends on two factors.
To interpret how to achieve balance, aspects within a safe / unsafe range designed to cover more or less expressed in units in this case of months should be analyzed.
They seem like very high safety stock values, it seems that with these values it would not be possible to convince anyone and many times it is true.
These values can be redefined periodically.
But…, if it is one way or another, continually lowering the stock at whatever cost and, if the data is also not safe, breaks can occur at any time mainly due to poor definitions.
In fact, if we talk about a weighted forecast, which has been talked about so much, it should be considered quite safe. But if we talk about Lead Time, to which all those responsible try to lower it to its minimum expression by removing adding among which are these. Therefore, lead time will rarely be reached. Unclear.
It happens that having unsafe lead time and working with very low values causes supply breaks, mainly due to forecasting errors and enters a dangerous vicious circle.
Since a forecast error causes the supply break due to lack of stock.
And the lack of stock feeds back the forecast erroneously since it is not consumed because there is not but time passes and the system believes that consumption decreased.
The latter is an issue to be resolved even by developers because I see that even the latest programs do not adequately consider the forecast given in the presence of these vicious circles.
The rest
We have considered the detailed concepts for a good supply of elements that are consumed with a constant and regular flow greater than one unit per month.
The other items must be replenished by the fixed schedule.
In other words, by experience, the values of the Order point and order / purchase lot (quantity) are defined. If the stock is below the order point, it goes out to order the indicated quantity.
The lead time is only considered the effects of recognizing the expected time of arrival. Does not perform calculations.
It happens that in reality all this item is itself a large mass of items that widely exceed in numbers and amounts those of regular consumption.
On the one hand they are perfectly defined that so are the critics. But these are only a small portion.
Those that gravitate to investments in fixed assets are those that are bought just in case, those that buy two when one broke and…, they remain in stock, that is, they enlarge the package that at some point is going to burst.
They should be treated differently because they are actually the ones who harm the whole scheme. They go out to buy these, generally to requests from users who want infinite reinsurance and, the budget is not enough to ask for those of regular consumption that must be cut even more than what is cut above all with a poor definition of the indicated values higher.
There are ways, everything is already thought out, it is very difficult to enter to carve something different, new in this discipline. You just have to control the living with more living people.
Audits
These systems are generally audited because they manage the assets of the companies.
It happens that controls are established that are believed intelligent but are applied with a lack of intelligence.
So it doesn't make sense.
If in life it matters to do your work with intelligence and trying to improve yourself by getting a good deal.
In my life I have had many jobs of service to others, shoeshine, quill, waiter. But the job that jettisoned many previous concepts was that of municipal inspector of fiscal lands. Everything followed its normal and current lane as it had always been shown that it should be and it is at school, at home, at work…, it is cleaned and fixed and painted with care (as almost never) for an expected visit, mainly if it is authorities.
Until one day a new boss appeared who filled the position of director of the office during his vacations, being the legal advisor of the municipality (Don Cecilio Doner) and told me. García…, the inspections requested should not be agreed upon because people expect it and are enlivened by us. Seems OK.
But I see in life that inspections are agreed, even those that are neither requested nor preferred. And that's how the world moves, at least Argentina, the country where the most alive lives and reigns.
I can't even make my co-worker understand that he calls me on the phone before going to audit my sector.
I tell him: come and when you are at the entrance, I just said that you are going to do an audit. Of course it goes with all the authority granted by the company and, you have to attend to it. But she doesn't understand, she always calls first.
But hey, you have to attend to it. He is an employee like me and the ones who tell him what to do are the bosses, not the colleagues. I understand that the living are the ones who say you have to agree before.
And we continue as they led us by example in elementary school, painting the school because the inspector is coming, he can't see how bad we are. This is how it went with education, always attentive to training seeking the lack of control of the lived reality.
