EIS Reorder Point Planning

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

Reorder Point Logic Static Example Pipeline Stock 1 2 3 Forecast Requirements within Lead Time Batch Size ROP 1 1 Order Received Order Placed Safety Stock 1 2 3 Time Replenishment Lead Time 2014 SAP AG or an SAP affiliate company. All rights reserved. 3

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

Reorder Point Example Demand: 100 +/- 25 Lead Time: 1; PBR: 1 Service Level = 95% Initial On-Hand = 58 units Initial Planned Receipts = 100 units 1 2 3 4 Period 1 2 3 4 5 Forecast 100 100 100 100 100 Forecast Err Sigma 25 25 25 25 25 Target Inv Position 258 258 258 258 Target Safety Stock 58 58 58 58 Reorder Point 158 158 158 158 258 158 ROP 58 On-Hand Stock - End of Prev Per 58 58 58 58 - Beg of Per After Rcpt 158 158 158 158 - End of Per 58 58 58 58 - Avg 108 108 108 108 Orders 100 100 100 100 Planned Receipts 100 100 100 100 Pipeline Stock 100 100 100 100 Cycle Stock - Beg of Per After Rcpt 100 100 100 100 - End of Per 0 0 0 0 - Avg 50 50 50 50 2014 SAP AG or an SAP affiliate company. All rights reserved. 5

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

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