EIS Reorder Point Planning

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1 EIS Reorder Point Planning

2 Reorder Point Planning Reorder point (ROP) planning is a consumption-based MRP procedure Order / Production is triggered when the total amount of on-hand and on-order stock falls below the reorder point Order / Production quantity is determined based on batch size or Target Inventory Position (TIP); EOQ for simple models Periodic Planning is fixed period, variable order quantity Reorder Point is fixed order quantity, variable period 2014 SAP AG or an SAP affiliate company. All rights reserved. 2

3 Reorder Point Logic Static Example Pipeline Stock Forecast Requirements within Lead Time Batch Size ROP 1 1 Order Received Order Placed Safety Stock Time Replenishment Lead Time 2014 SAP AG or an SAP affiliate company. All rights reserved. 3

4 Reorder Point Calculations Reorder point is the minimum inventory level that covers expected material requirements during the replenishment lead time, and; protects against shortages due to fluctuations in demand during the replenishment lead time Reorder point = forecast demand within the replenishment lead time + safety stock Reorder point targets are time-varying since demand is timevarying SAP EIS tool calculates ROP targets at the item-location-period granularity 2014 SAP AG or an SAP affiliate company. All rights reserved. 4

5 Reorder Point Example Demand: 100 +/- 25 Lead Time: 1; PBR: 1 Service Level = 95% Initial On-Hand = 58 units Initial Planned Receipts = 100 units Period Forecast Forecast Err Sigma Target Inv Position Target Safety Stock Reorder Point ROP 58 On-Hand Stock - End of Prev Per Beg of Per After Rcpt End of Per Avg Orders Planned Receipts Pipeline Stock Cycle Stock - Beg of Per After Rcpt End of Per Avg SAP AG or an SAP affiliate company. All rights reserved. 5

6 Reorder Point Insights If future forecasts are increased, ROP increases If replenishment lead time increases (or is reduced), ROP increases (decreases) Forecast error, service level metric, and service level target significantly impact ROP 2014 SAP AG or an SAP affiliate company. All rights reserved. 6

7 Thank you 2014 SAP AG or an SAP affiliate company. All rights reserved.

8 2014 SAP AG or an SAP affiliate company. All rights reserved. No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG or an SAP affiliate company. SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG (or an SAP affiliate company) in Germany and other countries. Please see for additional trademark information and notices. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. National product specifications may vary. These materials are provided by SAP AG or an SAP affiliate company for informational purposes only, without representation or warranty of any kind, and SAP AG or its affiliated companies shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP AG or SAP affiliate company products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. In particular, SAP AG or its affiliated companies have no obligation to pursue any course of business outlined in this document or any related presentation, or to develop or release any functionality mentioned therein. This document, or any related presentation, and SAP AG s or its affiliated companies strategy and possible future developments, products, and/or platform directions and functionality are all subject to change and may be changed by SAP AG or its affiliated companies at any time for any reason without notice. The information in this document is not a commitment, promise, or legal obligation to deliver any material, code, or functionality. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions SAP AG or an SAP affiliate company. All rights reserved. 8

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