Wednesday, December 18, 2013

Safety Stock Simulation and Reorder Point Determination with SAP's Add-On Tool

Are you using automatic safety stock calculation with SAP's forecasting screen in the Material Master Record? As you might know there is a way to have the system calculate the static safety stock value (in the MRP2 screen) based on three influencing factors

1. replenishment lead time - the longer it takes to replenish, the higher the safety stock should be
2. service level - the higher the expected service level, the higher the safety stock should be (it actally grows exponentially with higher service levels)
3. consumption regularity from period to period, expressed by the mean absolute deviation or MAD

the lead time to replenish and the service level setting come from the MRP2 screen in the material master, whereas the MAD is calculated by the material forecast. The material forecast then calculates the safety stock (and a reorder level in case you are using a VM or V2 MRP type) and updates the field "safety stock" in MRP2 every time you run the forecast.

Now... if you are using this type of functionality, you can run the forecast periodically and have the system come up with safety stocks based on one specific service level setting. If yu want some automation and better visibility and results, I suggest you have a look at SAP's safety stock and reorder point simulator.

The tool is integrated with the MRP Monitor and therefore lets you select a group of materials for simulation based on criteria like consumption value, consumption consistency, length of replenishment lead time, slow / fast mover and much more. You then load these materials into the simulator in order to see the simulation results. Besides the ERP method described above, the tool calculates safety stock levels based on an advanced method that takes into consideration variability in lead time and variability in demand additionally to the three factors discussed before. You can then compare the two. But the tool also lets you simulate these two results for various service levels. If you do so you can display a regression graph that shows how the safety stock levels increase gradually with every step up in service levels. As the exponential growths kicks in the curve will become steepe and the jump in safety stock increases becomes more severe. That way you are able to pick the last good service level which produces an optimal safety stock level.

Once that is derived, you can select the optimal service level for every material and update all the material masters with safety stock, service level and reorder points. You acn also pick whether the ERP method or advanced method should be used.



A nice added value is, that you also get KPIs like "safety stock value" and "safety stock coverage in working days", which are not available in the standard.