Wednesday, November 20, 2013

the importance of the 'Stock Transport Order fix"

as I am spending an awesome time in Australia, I am coming across a very old issue. An issue which is making the production scheduler's job so difficult in so many companies: the lack of a process that fixes Stock Transport Order Requisitions and leaves them unavailable for the MRP run to change any day.

Here is what I'm talking about: very often SAP is setup to support a distribution network where DCs carry a forecast and the resulting demand is transferred to the manufacturing plant via a stock transport order requisition. The STO req becomes a demand in the supplying (manufacturing) plant and the MRP run generates supply in form of planned orders.

so far so good because everybody thinks that when the manufacturing plant just sends out the requested quantities at the time it was requested, we are all good. and then the DC never gets the right quantity at the right time! And everybody questions the production scheduler: "you knew way ahead of time... why didn't you deliver?"

Here is what I think is not working: ... but first a picture of the beautiful outback


It should be clear that inventory responsibility must remain with the place where the forecast resides. That usually is the DC, because that is the place where the sales orders come in as well. And those sales orders are looking for forecasts that they can consume. What happens when sales orders consume forecasts is a netting of inventory. That means that when the sales orders exceed the forecast, the system thinks to brin more in from the manufacturing plant. In revers, when the forecast exceeds what customers actually pick up, MRP will say "stop bringing in more - we have enough".

The latter is a big problem for anyone who received an order to produce weeks or months ago. Because they were told to make 5,000 lbs a long time ago. They bought raw materials, packaging goods and filled the lines accordingly. Now the DC says stop? I don't want it anymore? because the customers changed their mind?

Who's responsibility is it? I believe whoever puts the forecast together must take the inventory. And if the forecast was wrong - as it always is - someone has to take the hit. If you think that it is the production line that has to adjust, then we have a very big difference of opinion. In my mind the production line (the scheduler) has the task to produce to demand as efficient as possible. The DC's (material planner) responsibility is to anticipate MTS demand as close as possible and to deal with deviations using stock policies and replenishment strategies to gain good service levels.

So to make a long story short: if we agree that inventory responsibility remains in the DC, then we will have to convert stock transport order requisitions for at least the replenishment lead time out. Because if you don't, the MRP run will change quantities and dates according to the way customers pick up. And that is definitely a shift of inventory responsibility from the DC to the manufacturing plant.

I'd love to hear your opinion on this as it seems to be a widespread misunderstanding and point of contention.