Reorder Point Planning

Reorder point planning uses to order a quantity when the quantity falls to a predetermined reorder point. Ideally it is the best to reorder at some point before inventory levels fall into the safety zone. Safety stocks typically provides a buffer from which to fill orders between reorder points. At the end of the lead time, on-hand quantity should equal to the safety stock. The suggested order quantity is an economic order quantity that minimizes the total cost of ordering and carrying inventory. Oracle Inventory can automatically generate requisitions to inform your purchasing department that a replenishment order is required to supply your organization.

Re-Order Point=Safety Stock + Forecast demand during Lead Time.

Uses of  Reorder point planning:

We can perform reorder point planning for entire organization

We can use reorder point planning for items under independent demand

We can specify reorder point planning as the inventory planning method when we define an item.

We can use reorder point planning for items that we do not need to control very tightly and that are not very expensive to carry in inventory.

We can use reorder point planning to decide when to order new quantity before using safety stock.

Reorder-point planning uses the following pieces of information:

·         Available Quantity

·         Reorder point

·         Safety stock

·         Item demand

·         Replenishment lead time

·         EOQ

·         Order cost

·         Carrying cost

Available Quantity: It’s the sum of Inventory On hand + Quantity on Order.

Quantity on Order: The sum of purchase order, requisition (internal and supplier), and in-transit quantities owned by the organization. Quantity on order represents supplies that you have not received in your organization.

Reorder Point: Reorder timing will be when the following is true:

(quantity on hand + quantity on order) < reorder point

Where Reorder Point = safety stock + [(lead time) * (average demand during lead time)]

Safety Stock: Safety stock for an item is the quantity of an item that you plan to have in inventory to protect against fluctuations in demand and supply. You can enter your own safety stock quantities, or Oracle Inventory can calculate safety stock based on an existing forecast for the item.

Item Demand: The reorder point planning routine uses the average demand during the replenishment lead time. Oracle uses forecast information to calculate average demand.

On a normal circumstance it’s a summation of all the forecast.

Replenishment Lead Time: Replenishment lead time is the total time in days between recognizing the need for items and the receipt of items. You can enter three components of order-processing lead times:

• Preprocessing lead time: Time duration to collect order from marketing/sales persons.

• Processing lead time: Time duration to prepare documentation and get the approvals.

• Post processing lead time: Time duration for packing and deliver the goods.

Oracle Inventory calculates reorder point planning lead time by adding all three components of processing lead time.

EOQ/Reorder Quantity: Reorder quantity = Economic Order Quantity (EOQ).

The economic order quantity is the quantity that minimizes the total cost of ordering and storing inventory.

EOQ = SQRT {[2 * (annual demand) * (order cost)]/ (carrying cost percent *unit cost)}

Annual carrying cost = carrying cost percent*unit cost

Oracle Inventory calculates annual demand information from the forecast that you provide when you perform reorder point planning.

The EOQ increases as demand increases, since the cost of carrying a larger order is smaller because the inventory is not carried as long. EOQ also increases when the cost of preparing an order increases. This is to avoid making too many orders and thus incurring this cost more often than necessary. On the other hand, the more it costs to carry inventory, the smaller the EOQ since it costs more to carry the excess inventory.

You can constrain the reorder quantity by specifying the following information for each item: • Fixed-lot multiplier • Minimum order quantity • Maximum order quantity

Order Cost: the cost associated in ordering the item.

Carrying Cost: the cost associated in carrying the item in inventory.

Note: No impact even if we give Min-Max Quantity and Order Quantity details while doing Re-Order Point Planning Method. 
Define Item in the item master and enable Re-Order Point Planning Method: Enter the values as per the below screen shots and save.  

Navigation: MCR INV > Items > Master Items

 
Define Forecast Sets:

Navigation: MCR INV > Planning > Forecast > Sets, if we try we will get below error

To avoid this error, we need to add a responsibility called Material Planner to user and enable this responsibility to our inventory organizations by doing some changes. 
Switch to System Administrator Security > User > Define and query for user name and add responsibility Material Planner to user. 

Now Switch to Material Planner responsibility Setup > Parameters > MIH and enable and disable any check box changes and save. Once we save we will get submit request id, that means the MIH is now enable for Material Planner.

Now Switch to our own inventory responsibility (MCR INV) and define Forecast sets
Navigation: Planning > Forecast > Sets > MIH and enter the values as per the below and save the form and click on Forecast Set Item button.


Enter the item MI-ROP01 and click on Detail button. The below details are assumption forecast, the original demand come from Order Management.

Define Safety Stocks:

Navigation: MCR INV > Planning > Safety Stocks (We can give our own safety stock values)

Or Tools > Re-Load

Now Planning the report

Navigation: Planning > Reorder Point Planning.

Safety Stock = Maximum quantity Total Lead Time Demand * Safety Stock %

             12.5 = (25*50/100) (System automatically calculate)

Reorder Point = Total Lead Time Demand + Safety Stock Quantity   

              112.5 = 100+12.5

Reorder Quantity = Reorder Point – On-Hand Quantity

                   112.5 = 112.5+0

Once request has been successfully completed, the program will transfer the data into Requisition Interface tables.

Now Run Requisition Import Program to import the reorder quantity.

Navigation: PO > View > Request > Submit New Request > Single Request.