Business logic of the Inventory Management Planning Parameter Optimization app
The Inventory Management Planning Parameter Optimization app takes its data on past consumption from the OutgoingMaterialDocumentItem object type. Note that the app is consuming the object not through its “include” relation to the PurchaseOrderItem object but through its “embed” relation to the MaterialMasterPlant object. The database table with the data for the embedded copy is o_celonis_MaterialMasterPlant__OutgoingMaterialDocumentItems.
The app’s predictions for future consumption are taken from these custom object types:
ReservationItem
SalesOrderScheduleLine
IndependentRequirement
The app uses the data for past consumption and the predictions for future consumption to compute its recommendations for safety stock and reorder points.
Important
The predicted values for future consumption should be similar to what you see in your MD04 in SAP, but it is not our goal to achieve a complete match. A mismatch can be caused by multiple reasons such as a change in situation since the latest data load, or customizations of your SAP system.
Safety Stock
The Inventory Management Planning Parameter Optimization app computes the recommended safety stock level using King’s method, with the following formula:
For materials with past replenishment Safety Stock Level = Zcrit * sqrt(LT*(𝛔C)²+ (C*𝛔LT)²) For materials without past replenishment Safety Stock Level = Zcrit * sqrt(LTp *(𝛔C)²+ (C)²)
Where:
Zcrit is the service factor based on the desired service level. The desired service level is the probability of a stockout being avoided.
LT is the average replenishment lead time, which is the average amount of days for a replenishment order to arrive.
𝛔LT is the standard deviation of replenishment lead time.
LTp is the planned replenishment lead time, which is the planned amount of days for a replenishment order to arrive.
C is the average daily consumption, which is the average daily quantity of units consumed during the recommendation timeframe.
𝛔C is the standard deviation of daily consumption, which is squared to establish the variance.
We provide customizable KPIs for the inputs to this formula, so you can modify the business logic to suit your requirements. Customizing the Safety Stock Logic tells you how.
Reorder Point
The Inventory Management Planning Parameter Optimization app computes a new reorder point using the following formula:
Reorder Point = Safety Stock Level + (Average Replenishment Lead Time * Average Daily Consumption)
Where:
Safety Stock Level is the app’s calculated recommendation for the safety stock level.
Average Replenishment Lead Time is the app’s calculated recommendation for the lead time. You can choose in the Lead Time Settings view whether this is the average lead time, the median lead time, or a Machine Learning-based recommendation.
Average Daily Consumption is computed using confirmed and planned orders from your source system.
If the reorder point formula gives a result less than one, or less than the median consumption quantity for the material, the median consumption quantity is used as the recommended reorder point. If both the formula result and the median consumption quantity are less than one, or cannot be computed (for example in the case of a new material with no consumption history), a reorder point of 1 is recommended.