Inventory Control & Purchasing Definitions

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Task/Problem Overview

In this KB article, we will look at the values used in inventory control & purchasing. The “Inventory Control” section is used to show both suggested and user defined values used in purchasing modules (Critical Purchasing, Warehouse Ranking, Purchasing Rules, Overstock optimizer), and also to determine whether to use the suggested or the user value in these parts in the system. You may also mark the item Active or Inactive from the same grid. To access this screen, open the item manager, search for an item, go to the Warehouse Tab and you will find the inventory control dashboard in the bottom left of the screen.

The green background of a cell indicates that the cell value is the one being used in the system. This is driven by the checkbox “S”. You can check and uncheck the “S” box to toggle the green shading between “Sys” and “user” cells.

**The system calculated warehouse values are calculated in a nightly job, or on demand by using the “Recalculate Suggested“ button at the bottom of inventory control dashboard.

Below we will layout definitions for each of the inventory control values used in Savance Enterprise:

Lead Time (LT)

The lead time represents how quickly the user receives the POs from the vendors of the items ordered. Lead time is calculated as the average of the days between placing an order to a vendor and actually receiving the item.

• User or System Defined

• The average is calculated from all uncancelled POs over the past 365 days.

Target Fill Rate

Target fill rate is defined as a percentage of orders that should be filled based on current stock levels. If the percentage is 95%, meaning 95 out of 100 orders will be filled without back-order. 95-98% is considered a high level of service. Setting this value too low means that a higher percentage of orders will go unfilled and lost sales may result. Setting this value too high (e.g., 100%) will increase the safety stock recommendations to the point where too much inventory is being stocked.

• User-defined only

• Setting can be defined at the warehouse, item, and warehouse-item level

Warehouse Level

Item Level

Warehouse-Item Level

Reorder Quantity (ROQ)

The quantity the system suggests to be ordered when stock must be replenished is rounded to the nearest package quantity. ROQ = (Mean Daily Demand * Lead Time) + Safety Stock

• Can be System OR User defined

Reorder Point (ROP)

The quantity at which the system suggests you order more of a specific item. ROP=(Mean Daily Demand * Lead Time) + Safety Stock

• Can be System OR User defined

• The only difference between ROQ & ROP is that ROQ is rounded to the nearest package quantity.

Minimum Order Quantity

The minimum quantity that must be purchased during the PO process. This is not a calculated field and only used when purchasing.

Stocked

Whether this item can be stocked in the warehouse or not. That will be used by the critical purchasing to determine if this item can be included in the stock replenishment process or not.

Mean Daily Demand (MDD)

Mean Daily Demand (MDD) is defined as the average of how many items have been sold in a set period of time. This period by default is 365 but can be defined in a site-level setting.

MDD=Quantity Sold in defined period/days in defined period.

Standard Deviation of Demand (σ Demand)

This is defined as the standard deviation of the quantities ordered daily within the same period used to calculate the Mean Daily Demand.

Safety Stock (S)

Safety stock is defined as the additional stock kept to mitigate the risk of stock-outs

• User or System defined value

• S = $z\ \times \sigma \times \ \ $

Where Z is

A statistical standard-deviation multiplier representing a target service level.

• We use the output of this formula to search this table for the nearest EZ value and return the corresponding Z value:

• EZ =$\frac{(1 - TargetFillRate) \times MDD \times LT)}{\sigma\ \times \ }$

This Year Average Daily Usage

This is defined as the average amount of a given item that has been ordered in the fiscal year to date.

This Fiscal Year Average Cost

This is the average weighted cost of a given item over the current fiscal year.

Overstock Value

The amount of inventory above the reorder point.

Overstock Value = Available - (Reorder Point + Reorder Quantity). If your current available amount is negative, then it is assumed to be zero for the sake of this calculation.

Hits

The number of orders that contain this item. It is calculated from a year until now. It can be used in the purchasing rules module.

Warehouse Rank

The warehouse rank can be calculated nightly based on rules in the Warehouse Ranking module. Also, the warehouse rank can be used in purchasing rules to help to determine other purchasing values. The warehouse rank could be A - fast-moving, B -slower-moving and C - hardly moving.

Active & Inactive Inventory

The goal of marking an inventory as inactive is to limit where it is displayed in the application. This is useful in the scenario where you bought an item once, and don’t plan on buying it again. This is also useful for items that are only shipped to the customer directly from the vendor, which are never present at your location. Generally, you wouldn’t want these items to appear on cycle counts or in location management.

Item Manager

• On the Warehouse tab of the Inventory Manager, you will find the Inventory Control section in the lower-left corner of the screen. You will find the Active option at the very bottom. The Sys column cannot be checked by the end-user. This option is determined to be checked (for active) and unchecked (for inactive) based on parameters set in Purchasing Rules. If you would like item activity/inactivity to be controlled by the software, then you will make sure the S (system) option is checked, and the Value will be populated with whatever the system determines. In the following example, the system has determined that this item should not be marked as active, thus making it inactive. Since S is checked to allow system control, the Value will be unchecked, therefore making the item inactive.

  

• If instead, you would like to set if this item is active or inactive manually, then you would uncheck the S (system) option. The Value will become whatever is specified in the User column. As demonstrated in the example below, if the User column is checked, then the Value column will become checked, marking the item as active.

  

• You will also notice that the number of Days of Inactivity is listed here. This is displayed for informational purposes, but you can use this number when setting up purchasing rules.

  

Purchasing Rules

• You can find the Purchasing Rules section of the Purchasing Manager. It is here where you can add rules that will control the System flag and automatically set if an item should be marked as active and inactive based on the number of Days of Inactivity. In doing so, the system flag will automatically change based on what is configured here. Two rules can be set up, and work in tandem to switch the active and inactive flag back and forth.

  

• One rule would set items as inactive if days of inactivity are more than 180 days. It would be set up like this.

  

• A second rule would set items as active if days of inactivity is less than or equal to 180 days.

  

Location Management

• On the Location Management screen, found in the Warehouse Manager, you will find a checkbox in the lower right corner of the screen titled Only Active Items. When checked, any inactive items will not be displayed as you navigate through the different locations and holding bins on this screen. Likewise, when unchecked, inactive items will be included.