Saturday, May 12, 2012

What you plan for tomorrow you can't give away today...

Everybody knows how a VSF generated by strategy 40 works, right? After all its the most commonly used planning strategy around.

You enter a forecast (there are many automated or manual ways to do it) and the MRP planning run ensures that there are supply elements to provide enough product so that if the customer wants what you forecasted, everything will be fine. Of course, the forecast is never the same as sales are, but that is what safety stock is for.

So if your planners are somewhat right, your MRP controllers make sure that product is made and available just before the forecast requested it and your sales people check availability on available stock, You will be able to have a very high fill rate.

But there is another component you have to worry about; the way you consume your forecast!

The consumption strategy you find on the MRP3 screen. There is the possibility of consuming forward, backward or both. And not too long ago I thought going backward first and then forward is the best thing to do. I don't think that way anymore...

Just recently a production scheduler complained to me that he can't handle all the requirements thrown at him... Ever!

We looked at many things. Availability checking rules, forecast accuracy, demand leveling, available capacity... But the problem, as it turned out, was the consumption of the forecast.

What happened was that there was strategy 40 (a make to stock strategy where a forecast is consumed until its gone and then additional demand is placed on the line) and a consumption strategy that looked 20 days backwards first and then 22 (working) days forward to see if there is any forecast that can be used up.

Now the product we were looking at was an A item and a big seller which was chronically under-forecasted. My friend (he is now a good one ;) ) was complaining that no one ever requested anything in advance, but the orders rolled in last minute in quantities impossible to handle.

Well... Think about it... Too low of a forecast and then a consumption logic where sales orders quickly run the current forecast down and then consume down the forecast of the next month and then the one thereafter. And if there is no more forecast left for the next month, the planning run thinks you don't need anything the next month.

So the more you sell the less is planned for. Not a good planning strategy!

Here is a simple remedy: consume ONLY backwards. If you do the right thing, there will be inventory on the first day the forecast stands at and throughout the period you consume THAT forecast. After you used it up you have safety stock. And after that is gone, you can tell my production planner friend to make more - but only then - and that will be the exception and most likely at the end of the period. But don't ever take down the forecast of the next period; it does not make sense to tell the system that if I sell a lot today, I need less tomorrow.