Firm and the supply chain
Nick Z. Malham, FIC Inc.
Mark
J. Spieglan, FIC Inc.
FIC Inc. (Forecasting and Inventory
Consultants) is a software company that specializes in building supply chain
routines that concern forecasting and inventory. The name of the software is called FIRM
(Forecasting for Inventory Replenishment Management). There are twelve routines under the Firm
system. Below is a short description on
the Firm routines. Forecast-Replenish is
the vital routine because the output results are used in all of the other
routines.
- Compare (CO) monitors
(month-to-date demands) with (current month forecasts) and identifies the
parts where the forecasts are not consistent with demands. The parts that are out-of-line are rerun
in Forecast-Replenish.
- Buy (BUY) compares the
on-hand plus on-order inventory with the order-point and order-level and
determines if a replenishment quantity is needed and -- when so -- the
quantity to buy. When promotions
are included, the optimal buy with promotion is found. When full bin and/or job quantity
constraints are noted, the buy quantities are adjusted to be compliant
with the constraints.
- Returns (RT) identifies all parts
and locations with excess inventory and measures the excess for candidate
return to the supplier.
- Cluster Buy (CB) is run when parts are stocked in location
clusters with two or more locations.
One location is chosen as the master location. Each location is
assigned a distribution level (non-stock, stock and 2-level-service). The cluster is assigned a distribution
type (master location buys for all, each location buys separately). The role of the routine is to coordinate
the buy decisions across the locations in the cluster, and this depends on
the relationship of the part with the location cluster and the part with
each location in the cluster.
Cluster Buy ensures the locations are adequately stocked to conform
to all the relations for the part between the location cluster and locations.
- Allocate (
- Transfer (TR) processes each part in a location cluster searching for
mal-distribution situations. The
system scans all of the locations in the cluster to determine how much
stock to transfer and which locations are short of stock and which
locations have excess stock to send. Should a match be found, the
locations to receive and send are chosen to minimize the number of lines
of transfer to a receiver. Whenever
possible the senders are selected from a sequenced list of preferred
sender locations for each receiver location.
- Share (SH) pertains to a
particular location cluster and supplier cluster and a specific location
called a share location. The
routine scans each part in the supplier cluster to determine if any excess
stock is in the share location – and if excess stock is found – the
routine determines how to spread this stock to the other locations in a
fair share manner.
- Multi Part Buy (MPB) determines buy quantities for a location cluster
and supplier cluster. The supplier
has a collection of parts and offers discounts should the customer buy
enough stock on all parts to meet various total target quantities. The
target quantities could be in units of pieces, dollars or weight. The target quantities are for minimum
buys, for free freight and for various levels of discount. The customer could be one location, or
a group of locations in a location cluster. Sometimes two or more location clusters
join together to accomplish the buy and gain the discount benefits.
- Limit Buy (LB) is associated with a location or a location
cluster and concerns the total buy on a collection of parts grouped into a
supplier cluster. A limit is placed
on the total buy -- covering all parts -- and the best buy quantities by
location and part that conform with the limit are generated.
10.
OpOl (OPOL) is developed
for applications – where a second tier
of sku’s are called – and control of this level of sku inventory is
needed. Here the items stocked are
variations of the basic part (e.g., size, color, model, accessory, components)
and these are the sku’s of concern.
There are two or more sku’s of this type for each part-location
combination.
11. Weekly (Wk) takes the 12 monthly forecasts from
Forecast-Replenish and converts them to 52 weekly forecasts. The method applies for calendar months and
for fiscal (445) months. The weekly forecasts
can recognize shifts in demands for weekly cycles in a month, holiday demand
buildup, shutdowns and even leap year. A
file with other-requirements is also
input to this routine; and the other-requirement quantity of any part on the
file is added to the forecast for the week associated with the due date.
Note that the
computations in Forecast-Replenish, Weekly, Buy, Compare and Returns are
performed for each part and location independent of concerns for other parts
and locations. Cluster Buy, Transfer,
Share and Allocate routines are for businesses with multi storage sites that do
not make independent replenishment decisions.
The computations in Multi-Part Buy and Limit Buy are used in either
single location or multi location configurations where buy quantities are based
on an analysis of the requirement for a group of parts. Opol
is run to control the sku inventory.
Two related
routines, Updateohoo (update on hand and on order) and Updated25 (d25 = the
month to date demand) may be used regularly to refresh the part-location data
of on-hand, on-order and month-to-date demand.
Another
routine (Graph) is called to plot the monthly demand history and forecasts for
any part and location.
To run any of the routines above, a run
command is activated and the command identifies the location or location
cluster(s) to run and the supplier cluster(s) to process.
The Supply chain
Below is a depiction of a typical supply chain. The chain begins with the raw good suppler (rgs) and ends with the customer (cu). In between are the basic good supplier (bgs), part and component supplier (pcs), plant (pl), service part distribution center (spdc), packager (pkg), finish good distribution center (fgdc) and dealer (dlr).
pl fgdc
rgs bgs pcs spdc dlr cu
pkg
Note:
rgs = raw goods supplier
bgs = basic goods supplier
pcs = parts & component supplier (often includes: plant & distribution center)
pl = plant
dc = distribution center (warehouse)
pkg = packager
spdc = service part distribution center
fgdc = finish good distribution center
dlr = dealer (store, branch, retailer)
cu = customer
Links in the supply chain
A description on the links from the above supply chain is provided below.
raw goods supplier (rgs) The suppliers of the raw goods are
farms, ranches, mines, the land and oceans.
The mines are the suppliers that take from the ground our key raw goods
such as coal, ores and salt. Other raw
goods are items like: cotton, lumber, cattle, fish, oil and marble.
basic goods supplier (bgs) These are the firms that take the raw goods
and process them to a higher level of product -- generally in a standard form
of size, weight and/or grade. They are
sold to producers at the next level of production. Lumber becomes cut wood (e.g., 2x4) of various standard
lengths, parts of the cattle becomes food and leather, cotton becomes yarn and
cloth, and so forth. The ores from the
mines are processed to obtain iron and steel and all other metals.
parts & component supplier (pcs) These are the producers of stand-alone
parts and of modules that are made up from a bill-of-material of parts. They buy the basic goods and produce the
parts and modules for sale to the next higher level of manufacture.
plants (pl) These are the producers of the finished
goods. They buy the modules and parts
and produce the final product by processing, assembly or manufacture.
service parts distribution center (spdc) The original equipment manufacturer
(OEM) that sells the finished goods to customers are obliged to carry stock on
parts and modules for service parts
needs. In this way, the OEM maintains a
service part distribution center to hold the parts and inventory for this
purpose. Their customers are primarily
the dealers that have direct contact with the customer.
packager (pkg)
The
service parts distribution center orders replenish quantities from the parts
supplier and the quantity is shipped to the packager in bulk. The packager places the parts in containers
with labels that are easy to ship and bin at the downstream locations. The packager carries the packing parts and
materials that are needed in this process.
finish goods distribution center (fgdc) Some distribution centers serve as
the source for the finish goods to dealers and customers. These are the locations that receive the
finish goods from the plants and ship to the dealers and customers as the
demands arrive. For example, they hold
stock on TV’s, computers, carpets, food products and so forth.
dealers, stores, branches (dlr) The dealers carry stock of the finish
good for sale to the customer. Some
carry a supply of parts and modules for use in the maintenance and repair of
their customer finish goods.
customers (cu) This is the final link in the supply
chain. The customer are the buyers of
the finish good items. They typically
buy from the dealer. When they need
repair or maintenance on the finish good, they go to the dealer for service.
Some special applications on Weekly, MPB
and the OPOL routines are below:
Weekly
Production Weekly pertains especially for plants that schedule their production on a weekly basis and use production planning tools like the master production schedule. The history demands of the part are gathered in monthly buckets and these are the input to Forecast-Replenish where 12 monthly forecasts are generated. The monthly forecasts are converted to 52 weekly forecasts in Weekly. Finally the weekly forecasts are applied in subsequent production planning routines.
Retail Weekly also pertains to retail situations that reorder stock each week. The history of each part is housed in monthly (calendar or fiscal) buckets. This monthly history is input to Forecast-Replenish where the monthly forecasts are generated from one of the forecast models: (horizontal, trend, seasonal or promotion). The monthly forecasts are then processed through the Weekly routine to generate the forecasts for the 52 future weeks as needed. For the parts with strong holiday ties (e.g., Christmas, Easter), the routine allows the forecasts to ramp up to the week of the holiday. For parts with weekly demand cycles inside each month, the routine allots the forecasts to react accordingly within a month.
Other-Requirements In packaging and kit assembly, sometimes an additional file is input to the Weekly routine and each record houses a part, location, due date and quantity for each other-requirement entry. The quantity here is not a part of the forecast that comes from the Forecast-Replenish routine, but is an addition to it and is placed in the week associated with the due date. Sometimes the part has no forecast but only the other-requirements. Often the other-requirement quantities are spaced irregularly and in lumpy quantities.
MPB
Direct ship buys from
the part supplier The part supplier may ship direct to the
dealer with contract terms of the following type: should the dealer buy a total
quantity Q (target quantity) from the N
parts of the supplier, the part supplier will give the dealer a discount on the
total buy. Often the contract terms have two or more target quantities. The first target often spells the minimum
total buy quantity, the second is free freight and the target quantities beyond
are discount rates – the more you buy the better the discounts.
Buying from the
distribution center The dealer can also buy each
individual part from the distribution center.
A typical lead-time from the distribution center is 1-3 days and from
the part supplier it is 1-12 weeks. The
cost from the distribution center could be 120% to 200% over the cost from the
part supplier. It is an advantage to buy
from the part supplier for the sake of price, but a disadvantage with respect
to the inventory on-hand.
MPB determines whether
to buy from the distribution center or from the part supplier. When buy from the part supplier, MPB finds
the best buy quantities for each of the parts such that the total buy – over
all parts -- meets the target constraints.
OPOL
Style goods
with various size and colors When
a distribution center or a store carries a style good item – shoes, shirts,
sweaters -- in various sizes and colors (called sku’s), decisions are needed on
when and how much to buy for each sku.
Forecast-Replenish generates the forecast for the basic style and the opol routine determines the forecasts,
order-point and order-level for each sku.
Each day, the on-hand and
on-order of the sku’s are monitored to determine when to buy and how much.
Accessories Consider when a distribution center
holds stock for finish good items and also for the associated accessories to
the finish goods. An example is a bicycle as the finished good and the horn and
lights as accessories. The Forecast-Replenish
routine generates the forecast and replenish needs for each finished good item;
OPOL determines the order point and order level for each accessory associated with the finished good. Since the accessory can be used on more than
one finished good item, OPOL recognizes and determines the order point and
order level for each accessory over all of the finish goods. This way, the
on-hand and on-order on each accessory is compared to the order-point and
order-level to determine when and how much to buy for each accessory.
Packager A packager is a go-between for stock coming from a supplier and going to an OEM. The OEM orders the stock from the supplier and the supplier ships the stock in bulk to the packager. The packager places the stock in containers with labels and in containers that are easy to ship and store on shelves. An important function for the packager is to stock the components to meet the oncoming needs of parts to package. The packager receives this stock form the component suppliers as needed. The associated component data from the supplier are the lead times, cost per unit and the multiple quantity. It is the responsibility of the packager to have a systematic way to keep tract of the component inventory and to replenish the stock in an efficient way. The goal is to hold the minimum inventory on this component stock and yet to achieve a high service level. This is a challenging task since to complete a package for a part, all of the components in the part-package bill-of-material must be available when the parts are ready for packaging. Further, the packaging schedule for parts comes periodically with due dates and in lumpy sizes. Also many components are used on two or more parts. The routine Weekly loads the part other-requirement data by week and SkuOpol finds the order-point and order-level by part-component combination. UnitBuy finds the order-point and order-level for each component and determines the component replenish buy quantities and any return quantities when excess stock.
Kit assembly A kit is a part with a simple assembly of lower level parts here called components; the part is the item that is ordered and sold to the customers. The kit may be assembled in a distribution center. A bill-of-material for each kit specifies the components needed in the assembly and the number of units of component to each kit. The requirements for the kits are given by a combination of forecasts and/or other-requirements with specific quantities and dues dates. To meet these requirements, the associated components are needed for the assembly. Some of the components are used on two or more parts. An important task to the management is to control the inventory for the kits and for the components. The kit forecasts and other-requirements are run in Forecast-Replenish when monthly processing. They are run in Weekly when weekly processing. The next step is to process the components in SkuOpol to generate the order-point and order-level for each part-component combination. Finally, the routine UnitBuy is run to find the buy quantity for each of the components.
Firm and the supply chain
Below is a table on the Firm routines and how they typically apply to the entities (links) along the supply chain. Note some routines apply when an entity has one or more locations and some routines apply only when there are two or more locations. Some of the routines are optional and not always needed.
---------------------------The supply
chain-------------------------------------
FIRM routines cu dlr spdc fgdc pl pkg pcs bgs rgs
forecast-replenish x x x x x x x
compare x x x x x x
buy x x x x x x
mpb x o
cluster buy 2 2 2
transfer 2 2 2
alllocate 2 2 2
share 2 2 2
limit buy o o o
return o o o
opol o o o x x x
weekly o o x o o
x = routine applies
2 = routine applies when entity has 2 or more locations
o = routine is optional
cu = customer
dlr = dealer
spdc = service part distribution center
fgdc = finish good distribution center
pl = plant
pkg = packager
pcs = part & component supplier
bgs = basic good supplier
rgs = raw good supplier