Fixed Reorder Points vs. Lot-for-Lot

I am a project manager for my company, and I am trying to determine what is the best reordering policy we should be using. We are trying to reduce company-wide inventory by 25M. In my experience - using lot-for-lot has kept a higher inventory level on hand. For those that used safety stock I have found that the system is constantly trying to fulfill you back to this level and ignores the fact your current supply covers demand and there are future receipts. In these cases where my supply is never going negative I find it to be a waste of time reviewing these message on the planning worksheet. I have found end-users using higher order multiples or minimum order quanitities just to avoid messages coming up each day (I understand this is poor practice). Recently, I’m trying to familiarize myself with the fixed re-order. I like the fact that the re-order point is still used as a ‘bench-mark’ to re-order material. I also like how it uses existing supply and will NOT create a planning message unless your existing supply either 1) falls below the reorder point 2) goes negative. However, for those that have used fixed-reorder - how have you set up your planning parameters. Is this a better philosophy than using a lot-for-lot ordering method? Will fixed-reorder quantity help turn inventory compared to a lot-for-lot with safety stock? Currently, end-users within my company calculate safety stock by (vendor lead times x average daily usage). Any one have a preference or experience within using these two policies?

Hi, kristen, I printed this the other day but did not get back to it until today.

Is forward scheduling not a problem with fixed order points? According to Managing Supply Chain using Microsoft Nav…" …the system suggest order quantities subject to order modifiers and forward schedules from the date". This seems like it would be giving priority to inventory levels over customer’s control over delivery date. It would seem that with either of the time phased order point you would have to limit order volume by the your customer over a set lead time–( assuming supplier lead time and minimum order quantities are typical OR there will be huge inventory fluctuations if safety stock or minimums are high enough to fill a percent of occasional High volume orders. If on the other Hand your supplier minimum orders and lead times are unusually low then a fixed reordering policy may help to reduce inventory over time. It looks like the MRP logic of to lot provides the most flexibility while maintaining as low an inventory as possible. Users would need to be encouraged not to manipulate parameters to ovoid daily order activity. That activity being of course the trade off for lower inventory levels.

Now, I am only a student of Nav and not a current user. So I could be way off base. Thanks J Rick

hi Kristen,

In my experience you can’t reduce inventory without modifying NAV.

I love the lot for lot concept, I am also a big fan of reorder and safety stock triggers, but the bit I like to modify is the calculation of these.

You can do this using a variety of mechanism and text book formulae, but ultimately most companies will have to decide which products they want to stock, versus which products they dont. for most organisations this results in some form of classification of their inventory into the “never run out of these”, “can run out of these”, “never stock these” categories (and all shades of grey in between).

However, if you follow text book theory, then you can calculate optimum reorder and safety stock levels using a combination of lead time, usage history, standard deviation and a company (Finance Director) agreed service level. So, if you want the top items to be in stock all of the time (as opposed to 99.5% of the time), your stock holding will be higher than it needs to be.

The modification I would look to do, would be to have NAV calculate usage history, and then have NAV calculate the safety stock and reorder points. This usually takes a leap of faith from the end user and therefore starts with a two step process (NAV will calculate it, show it to you for review, and then you can amend or accept, before updating the appropriate fields in NAV).

MRP then runs in it’s normal way, but just has new parameters (ROP and SS) to deal with.

Of course, if you are working for a firm with seasonal stock usage then this can be a little harder, but I dont know many ice cream retailers using NAV :slight_smile:

hope that makes sense, but happy to answer anything else you need