Managing ERP Inventory Planning with IBP Inventory
Over the holiday slowdown I had the chance to do some deep-dive testing in the new IBP for inventory capabilities in the 1608 and beyond releases, particularly the ability to calculate additional inventory components ( ie, cycle stock, pipeline stock) based on forecast demand and knows safety stock.
This process creates valuable inputs for both planning and operations, but raised a few questions in my mind that I had the chance to discuss with knowledgeable colleagues (Thanks Alexis, Atul and Narjinder).
Here’s what I learned…
Prior to 1608, IBP Inventory calculated only safety stock directly, and this was the value we passed to Supply or S&OP to plan production and distribution to ensure that future projected inventory matched the target.
This is fine as far as it goes, but could result in planning for too little inventory if replenishment and order cycles are greater than one period.
Best Practice now is to use the total projected inventory calculated by the IBP I process, including operational components as well as safety stock) as the target value for planning. This ensures that the supply process, whether the heuristic or optimizer, will appropriately plan for the full quantity on hand needed in each period. It also ensures that the inventory value calculations driving working capital KPI’s respect the full quantity of inventory planned. All good.
But when sending the results of inventory planning back to ERP to be executed, in general safety stock remains the only component necessary. Assuming that the S&OP forecast or planned production / distribution requirements from IBP are shared with ERP, procurement, manufacturing, and distribution in ERP will drive pipeline and cycle stock appropriately.
If the environment includes a large number of long lead items, it might be useful to bring the created operational documents (ie, purchase orders and production orders) back to IBP to validate against the plan.
Though I have not yet gotten into the details of an implementation conversation on this topic, I suspect that my comments above only represent guidelines, and there will be variation in how integration is performed on a case by case basis.