In reorder point planning, procurement is triggered when the sum of stock and firm receipts falls below the reorder point.
The reorder point should cover the demand for the material during the replenishment lead time.
The safety stock is intended to cover extra material consumption during the replenishment lead time as well as delayed deliveries. The safety stock is part of the reorder level.
In manual reorder point planning, you enter the reorder point and safety stock manually in the material master record. In automatic reorder point planning, the system calculates the reorder point and safety stock during the forecast run.
During the forecast run, the system determines the forecast values for future requirements based on historical material consumption values. These values are used to calculate the reorder point and safety stock, which depend on the service level defined in the material master record and the replenishment lead time of the material.
During the forecast run, the system first calculates the safety stock. To calculate the safety stock, the following data is required:
Replenishment lead time, which, in the case of externally procured materials, is made up of the planned delivery time, the goods receipt processing time, and the purchasing processing time.
Service level, defined in the material master record
Mean absolute deviation calculated during the forecast run, which indicates the accuracy of the forecast.
The reorder point is made up of the safety stock and the average demand in the replenishment lead time.
The system calculates the reorder point using the following formula:
Reorder point = safety stock + average daily requirements * replenishment lead time.
In the following interactive demo, you'll learn how to maintain a material to be planned using the automatic reorder point, run a forecast, and review the results.
Let's review the lessons learned in this unit.
In this unit, you learned how to run a forecast.
Another use of the forecast in planning has also been introduced:
In addition to forecast-based planning, where the forecast values form the basis for the requirements values, you have learned that the forecast can be used to calculate the reorder point and the safety stock, provided that the material has an appropriate MRP type.