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What are the biggest inventory optimization factors in ERP?

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Replenishment strategies, lot sizes, safety stock, reorder point planning and replenishment lead time are five factors in ERP that can ensure inventory remains at an optimal level.
Inventory Optimization

Inventory Optimization

Inventory Optimization- Inventory planners are acutely aware that stock availability depends on demand, supply and lead time, but these factors are always subject to uncertainty. To mitigate that uncertainty and find the optimal level of safety stock, they can review and update their ERP system with the following five compensating factors that affect inventory optimization.

Replenishment strategy

replenishment strategy defines the materials planning approach that an ERP system needs to adopt to plan the procurement or production of a material. Some of the commonly used replenishment strategies are material requirements planning, master production scheduling, demand-driven planning, forecast-based planning and reorder-based planning. Inventory optimization is also possible with strategies that automatically calculate safety stock and reorder a quantity based on historical consumption of the material. When choosing a relevant replenishment strategy of a material in ERP, consider the following six inventory key performance indicators: past usage value (ABC analysis), usage variation (XYZ analysis), replenishment lead time (EFG analysis), material price (UVW analysis), storage constraints (LMN analysis) and product lifecycle (LRODI analysis).

The most practical approach to assigning a replenishment strategy to a group of materials in ERP is to classify and categorize them based on similar attributes.

Lot-sizing procedure

When an ERP system determines that there’s a material shortage, it looks for the lot-sizing information. A lot size is the quantity of material that is either procured (for external materials) or produced (for in-house materials). Some of the lot sizes available in ERP are the exact lot size of a required quantity, the fixed lot size regardless of the required quantity, the weekly or monthly lot size that combines all requirements of the period and the lot size that replenishes up to the maximum stock level.

When choosing a lot size, take the periodicity of the requirements into account. For example, if there’s a monthly requirement of material, planning with a weekly lot size won’t help. However, if the requirements are weekly and involve an expensive material, it is better to consider weekly lot sizes that will bring material into stock on this basis rather than having a monthly lot size that would result in high short-term stock value and additional storage costs. Other lot-sizing factors to consider in materials planning are storage constraints and vendor-dictated minimum lot sizes.

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Article Credit: TechTarget

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