Planning based on number of days supply

This topic describes how a supplier in a vendor managed inventory (VMI) setup can perform supply planning based on the number of days of supply that the customer should have in inventory.

Goal of the planning method

This planning method is a variant of the To work with minimum and maximum inventory planning method.

The goal of this planning method is to keep the customer's inventory at a sufficient level to safeguard the customer's continuing operation in case of temporary supply problems. The inventory level must be such, that, if all supply would suddenly stop, the customer would have sufficient inventory to continue operations for a particular number of days before the customer runs out of stock.

Meanwhile, this method reduces the risk that inventory becomes obsolete, because the delivered quantity will no more than needed.

Relevant parameters

The following fields on the Terms and Conditions Line (tctrm1620m000) session's Planning tab determine how this method is applied.

  • Use Min-Max Inventory Levels
  • Min-Max Specification
  • Min-Max Number of Days
  • Minimum Factor
  • Maximum Factor

To use the planning method described in this topic, set the Min-Max Specification field to Number of Days.

Note: If you set the Min-Max Specification field to Number of Days, you cannot select the Confirm Supply check box or the Use Confirmed Supply check box anymore and the Replenishment Based On field is automatically set to the fixed value of Inventory Level.

Minimum levels, maximum levels, or both

To use this method to plan the supply to the customer, set the Use Min-Max Inventory Levels field to Minimum Levels, Maximum Levels, or Minimum and Maximum Levels.

Minimum factor and maximum factor

In this planning method, you can determine the lower and upper bounds between which the inventory can fluctuate.

Example

Suppose, you have set the following parameters:

  • Min-Max Number of Days = 10 days
  • Use Min-Max Inventory Levels = Minimum and Maximum Levels
  • Minimum Factor = 0.9
  • Maximum Factor = 1.5

Then, this planning method aims to keep the customer's inventory sufficient for at least 9 days (0.9 * 10) and at most 15 days (1.5 * 10)

Calculation

When the customer approves a forecast revision, the maximum and minimum levels are frozen for that revision.

For each forecast period, LN performs the following steps:

  1. LN adds the value of the Min-Max Number of Days field to the start of the concerned forecast period. This addition produces the horizon date.

  2. LN calculates the sum of the forecast for every forecast period between the start of the designated forecast period and the horizon date.

    If the horizon date falls in the middle of a forecast period, LN uses a proportional part of the forecast of that forecast period.

    Only the forecast periods' start dates are recorded. A forecast period's finish date is derived from the next forecast period's start date. Therefore, the length of the ultimate forecast period is unspecified. For the purpose of this calculation, LN assumes that the length of the ultimate forecast period equals the preceding forecast period.

  3. The effective minimum inventory for the relevant forecast period is the calculated sum of the forecast values multiplied by the value of the Minimum Factor.
  4. The effective maximum inventory for the relevant forecast period is the sum of the forecast values multiplied by the value of the Maximum Factor.
Note: The number of days is expressed in calendar days, not in working days. The calculation does not take a working calendar into account. Therefore, the procedure also calculates minimum and maximum inventory levels for not workable days.

Example

In this example, the following values apply.

Parameter Value
Min-Max Number of Days 10 days
Use Min-Max Inventory Levels Minimum and Maximum Levels
Minimum Factor 0.9
Maximum Factor 1.5

The following table shows the forecast in each forecast period.

Forecast period Period start date Forecast demand
22 April 2 150
23 April 9 49
24 April 16 84
25 April 23 35

The following table shows how the calculation of the minimum and maximum inventory proceeds.

Period 10-day period Sum of forecast Inventory levels
First day Last day Minimum Inventory Maximum Inventory
22 April 2 April 11 150 + (3/7) * 49 = 171 153.9 (=171 * 0.9) 256.5 (=171 * 1.5)
23 April 9 April 18 49 + (3/7) * 84 = 85 76.5 127.5
24 April 16 April 25 84 + (3/7) * 35 = 99 89.1 148.5
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