Dynamic safety stock

“Deck the halls with boughs of holly”.

The Holly Export Co-operative of New Zealand (motto “What the HEC”) have a common supply chain issue: a predictable seasonal up-surge in demand. The supply chain planners are given a monthly forecast, and sales normally fluctuate around a base forecast of 1,000 units per month, except for December when they expect to sell 10,000 units. They’re prepared to hold a safety stock buffer in their UK warehouse (to cater for the sales slightly above forecast), so the forecast, and safety stock profile for this item is:

Month

September

October

November

December

January

February

Forecast

1,000

1,000

1,000

10,000

1,000

1,000

Safety stock

100

100

1,000

1,000

100

100

The transport lead time from New Zealand is 7 weeks (air-freight is not an option) and the shipping contract is a shipment every two weeks.

So let’s set this up in master planning. Entering the sales forecast is simple enough. Released product > Plan > Demand forecast:


We can also setup the safety stock as a Minimum on the item coverage record, and we can setup a minimum key on the item coverage, so our safety stock flexes up and down, Released product > Plan > Item coverage:


Let’s assume it’s the middle of September. We have some stock and some open purchase order lines. Net requirements shows:


So we have a nice fat planned purchase order for delivery at the beginning of December, but unfortunately it’s not fat enough. The system’s still planning based on the current safety stock and simply isn’t taking our planned increase in safety stock into account. Also there’s no attempt to build stock in November – again because the system’s planning for the current safety stock level and not the stock level that we’re going to need in the future.

So let’s try something completely different. I’m adding an additional sales forecast to represent my safety stock buffer stock:


Additionally I’m taking advantage of the ‘Include customer forecast in the demand forecast’ check box setting on the Coverage group. Master planning > Setup > Coverage groups:


With this setting de-selected, my customer specific ‘dummy’ forecast is added to the normal (all customers) forecast. (If this parameter is selected the system effectively ignores the customer specific forecast, and only plans to the normal ‘all customers’ forecast). Naturally now I don’t have a minimum stock in my item coverage. Net requirements shows me:


That’s better – I’m being prompted to build stock a little in November and my December planned order is covering my worst case scenario, but haven’t I gone a little bit too far? I’m now assuming that I’m going to consume all of my safety stock buffer every month – obviously that’s un-realistic, so what I need to do is insert into my demand forecast the incremental increase in my safety stock. So my demand forecast is:


I can’t enter the negative forecast that represents the planned reduction in the safety stock, but just for a minute I’m going to ignore that problem. Now, with my minimum stock re-instated my planning looks like this:


That’s pretty close.

But there’s an alternative method of representing demand (and supply) in master planning. We can take advantage of an un-posted inventory movement journal. We can even create a movement journal without an off-set account so that it can’t be posted (or use security user group settings to prevent normal users accessing the journal). What we need to do now is get a clever developer to write us a journal line representing demand when the safety stock’s going to increase, and a journal line representing supply when the safety stock’s decreasing. It’s not the world’s simplest customisation – but it’s easy to test.

So my conclusion is that Item coverage safety stock and Minimum keys are not sufficient to plan in a relative long lead time planning environment. A more detailed analysis of the sales forecast and inventory plan is required. The sales forecast is represented in Dynamics AX as a demand forecast, and an inventory journal is used to represent the additional demand (and supply) created by dynamic safety stock buffers.

You also probably noticed that I haven’t attempted to reconcile the difference between the 2-week supply cycle and a monthly forecast. That’s the subject for another day (or you could simple lookup ‘Period keys’).

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