FIRM and continuous replenishment (CR) along the supply chain

Nick T. Thomopoulos

Consider a supplier that carries a line of N items. The supplier produces the items (parts) in the supplier plant and stocks the finished items in the supplier warehouse. The supplier warehouse is the source to the retailers distribution center (DC). The distribution center is the supplier to a large number of retailers and the retailers sell the items to the customers. This chain is depicted below with the arrows representing the flow of stock.

supplier supplier distribution retailer customer

plant warehouse center

The inventory can flow through the chain from plant to retailer in full pallet sizes per part. Each part is produced at the plant in multiples of pallet sizes. The parts are stocked in the supplier warehouse in pallet sizes. As orders come to the warehouse from the DC, the parts -- in pallet sizes -- are shipped as needed. The DC is equipped to send a truckload of (typically 20) pallets each day to each retailer. The retailer opens the pallets as needed for binning and sells the parts to customers one-unit-at-a-time.

This paper shows how the FIRM routines can be used to control the inventory flow in this way from plant to customer. The routines are the following:

Forecast-Replenish (FR) generates forecasts, order point, order level and replenish schedules.

UpdateDemand refreshes the part-location demand-to-date as needed.

UpdateOHOO refreshes the part-location on-hand and on-order as needed.

Buy determines when to buy a part and the amount to buy.

LimitBuy determines the buy quantities for a location cluster (list of locations)

and for a supplier cluster (list of parts) with an upper constraint on the total buy

amount.

MPS schedules the parts for production in the plant with level loads.

FIRM can be used to control the inventory for each of the locations and the parts in the supply chain described above. The goals are the following: achieve a high service level at each location, ship each part in pallet sizes only, maintain a steady flow of inventory by location, accomplish minimum inventory levels, minimize the transportation costs and achieve plant efficiency. To accomplish the above, consider the following where FIRM is installed in two locations -- the DC and the supplier.

A brief review is provided below.

FIRM is housed at the DC and determines the replenish flow of inventory at each retail location and at the DC. FIRM is used at the DC to establish the truckload mix of parts to replenish at each retailer location every day. FIRM is also used to find the DC part replenish needs from the supplier.

FIRM is installed at the supplier as well. Here it is used to find the part replenish needs at the supplier warehouse. FIRM also is used to determine the master production schedule for the parts in the plant. FIRM generates production schedules by parts at the plant that have week-to-week total production loads that are level and are compliant with the desired plant target loads.

FIRM at the DC Suppose a VMI (vendor managed inventory) arrangement exists between the DC and the retailers. This way the DC has access to the retailers daily demands and inventory. The DC determines daily when and how much replenishment to send to each retailer for each part in the line. Using FIRM, the DC maintains data on the skuMaster table for each part and location. The part field represents an item and the location field identifies the retailer. The minimum data carried on the skuMaster by retailer are the following:

part = item in the supplier’s line

location = retailer code

d(t) = demand for history month t

oh, oo = on-hand and on-order

mu = multiple quantity (pallet quantity size)

cu = cost per unit

wu = weight per unit (1/mu).

To control the retailer’s inventory, the FIRM routines are run as follows:

FR is run monthly to generate the forecasts, safety stock, order point and order level for each part and location.

The Update utilities are run daily and refreshes the demand-to-date and the

on-hand, on-order data for each part and location.

FR is run daily as needed for individual parts.

BUY is run each day to establish the buy quantities by part and location (retailer).

LimitBuy (LB) is run daily one location at a time to determine the parts to replenish at each retailer. The truck carries up to Np pallets and each pallet is dedicated to a part with M units. LB determines how many parts (pallets) are needed for the day at each location and LB ensures Np or less. If -- on a day -- the number of pallets needed for the location is small compared to Np, the truck to the location is cancelled for the day.

To control the DC inventory, the FIRM routines are run as follows:

FR runs monthly and generates the forecasts, safety stock, order point and order level per part.

The Update utilities daily refresh the demand-to-date and on-hand, on-order data.

Buy runs daily to determine the replenish quantities needed at the DC. The part replenish quantities are sent to the supplier.

FIRM at the supplier The FIRM system is also installed at the supplier to control the warehouse and plant inventory. The supplier plant and supplier warehouse are often in adjacent locations. The plant produces each part in the line as needed and the warehouse stocks the parts for subsequent shipment to the DC’s. Again an skuMaster table carries the essential data needed for each of the N items in the line. The minimum data carried on the skuMaster are the following:

part

d(t) = demand for history month t

oh, oo = on-hand and on-order

mu = multiple quantity (pallet size)

cu = cost per unit

To control the warehouse inventory, FIRM is run as follows:

FR is run weekly to find the forecast and replenishments by part.

Update runs daily to refresh the demand-to-date and on-hand, on-order data.

To control of the plant schedule, FIRM is run as follows:

MPS is run weekly to determine the level-load build schedule for the line of N

items (parts) at the plant. Each item is produced in multiples of M units and placed on pallets accordingly. The pallets are sent to the warehouse and await their need to fill the DC orders as they come in.