No safety stock proposal for procured components

[former_member696146]

Hello Experts,

I am currently working on a three level BOM and with introduction of forecast error CV ,Lead time variability or production lead time variability,I always get a safety stock recommendation only at the assembly level.With forecast error CV or production lead time variability,I find the suggestion logical but with lead time variability( maintained with vendor and procured component combination) ,I was expecting to see safety stock proposed for procured components rather than for produced assemblies.Can i know as what is the rationale behind the suggestion by IO run ? Is it possible that i get safety stock recommendations at component level ? Am i missing anything ? Please suggest.

Thanks,

Praveen

[former_member696146]

Hello Experts,

Also we do not have a spares scenarios at my client location, hence we cannot find a scenario of customer placing orders directly at component level.The components are procured purely for the production assembly aspects.Just bringing this clarity as well.

Thanks,

Praveen

[chris_topf · Accepted solution]

Hello Praveen,

if you are not maintaining the inventory holding cost, then more often than not IO will not calculate Safety Stock at a component level but instead place it in the stocking locations closest to the customer. It may calculate safety stock due to service variability, but safety stock due to demand variability will not be calculated on components most likely when holding cost is not provided. The IO multistage algorithm sets inventory levels to minimize the cost of the inventory and if there is not cost to hold it, it will be placed as close to the customer as possible.

As for the "Component Non-stockout probability" key figure, create a planning view at the Tech Week level and include the attributes Product ID, Location ID, Component Product ID and Source ID. Filter the planning view on the finished good (i.e. Product ID = PROD1). Select the INTERNALLOCTOPRDAIF key figure.

This will show you the calculated internal service level on each component in the BOM. I'm sure the value is 0.5.

For the "Internal Non-Stockout Probability" key figure, set the planning view at the Tech Week level and include attributes Product ID, Location ID and Ship-From Location ID. Filter the planning view on one or more of the components. Select the INTERNALAVAILABLEINFULL key figure.

Regards,
Chris

[former_member696146 · Accepted solution]

Hello Chris,

Thank you for your expert opinion.I have created my planning views as instructed by you and i am able to see that the "Component Non-stockout probability" key figure is having the value as 0.5 but safety stock is being proposed for the components.Also the "Internal Non-Stockout Probability" key figure has the value of 0.5 except for last leg of supply chain.Can you please let me know as what modifications i have to do from my side since safety stock is being proposed for the component as well even with Component Non-stockout probability as 0.5.Also what is the understanding of the "Internal Non-Stockout Probability" ? Is this ISL or internal service levels between various supply chain nodes ?I am attaching the screenshots with regards to same.Why do we see 0.95 value as Internal Non-Stockout Probability instead of 0.5 ?

Details relating to the screenshots attached :

Assembly material : 100.FIN.0009.000

Components : 100.SFR.0009.900 and 100.SFR.0009.910

Production plant : Y410 (orders received from head office)

Head office : Y160 (customer places the order and also this is a hybrid node)

Sale company : Y150 ( no orders placed into head office in this example)

One last question with regards to your statement :

"It may calculate safety stock due to service variability, but safety stock due to demand variability will not be calculated on components most likely when holding cost is not provided "

My understanding on demand variability is more to do with final assembly and may i know as how is the same applicable for components (even if there is some input with regards to holding cost)component-nonstockout-probability.png? Can you please throw some light on the same ?

Thanks,

Praveen

[chris_topf]

Hello Praveen,

are you maintaining Inventory Holding Cost at all the product/locations (finished goods as well as components)? If you do not maintain the holding cost information, the IO algorithms will place the inventory as close to the source of demand as possible. Most likely if you checked the INTERNALAVAILABLEINFULL key figure (Week | Product | Location | Ship-From level) and/or INTERNALALLOCPRDAIF key figure (Week | Product | Location | Component | Source level) you would see those values at 50%. With a 50% service level, no need to hold safety stock.

Regards,
Chris

[former_member696146]

Hello Chris,

Thank you once again for your inputs.How do i read the "Internal Non-Stockout Probability" and "Component Non-stockout probability" numbers proposed by the system ? Can you please support me with the calculations or any hints on this topic ? With many different trials,I am of the opinion that IBP suggests safety stock for the components only if the assembly in the production plant is maintained as non-stocking node .Otherwise the IO algorithm always suggests safety stock for the header assembly.Another exception is when ,I maintain for the vendor component combination, the particular node as stocking node(location source) then the safety stock is proposed for procured components as well.I am kind of unsure as the rationale behind the suggestions from IO run.Kindly guide me on the same.

Thanks,

Praveen

[former_member696146]

Hello Chris,

Also to add,I do not maintain inventory holding cost for the product/location combination.

BR,

Praveen