Automatic Reorder Point (MRP Type: V2 or VM) Planning – Part 2
Note: Automatic Reorder Point (MRP Type: V2 or VM) Planning – Part 1: Automatic Reorder Point – Part 1
Carry out Automatic reorder point and calculation of it:
Below is how automatic reorder point planning is carried out for single material using material master change (t-code: MM02)
Note: Validate that Reorder Point is blank.
Note: Forecasting model, I am keeping J – Automatic model selection and Initialization: X – Initialization by system
Below is a detailed explanation of how Error Total & MAD is being calculated (I have shown the formula as per excel). Remember we wanted to know MAD calculation because it’s in calculating safety stock and eventually automatic reorder point calculation.
Error Total: A forecast error is a difference between the forecast value and the actual consumption value of the same period. The error total describes the sum of the deviations over the periods, taking the plus or minus sign into an account. The error total helps check the validity of the forecast model in operation. If a model is still valid, you can assume that the error total is distributed normally and has an average of zero.
As shown above, based on Original forecast, system carries out Ex-Post forecast. Difference between Corrective Historical Forecast – Ex post forecast is giving Deviation in that period. Sum of each deviation converted to absolute value gives Error Total. Below is the formula.
MAD: Below shows how MAD is calculated:
Tracking signal (TS): The tracking signal (TS) helps identify structural interruptions by putting the error total in relation to MAD. If the error total rises or falls sharply in relation to MAD, this means that the consumption and forecast are moving further apart.
- TS = Error Total / MAD
- The TS is compared to the tracking limit specified in the material master. If the TS exceeds the tracking limit, the MRP controller receives an exception message in the form of a note advising that the forecast model should be checked.
- The tracking limit is automatically set by the system. The default value is 4. However, you can change it while maintaining the material master record.
Since now we know how system is calculating automatic reorder point, here are the other alternatives to run the program and calculate automatic reorder point.
- Individual forecast: T-code: MP30 (or T-code: MM02 which I shown above)
- Total forecast: T-code: MB38 or MPBT.
You can print the list online or in the background mode. T-code: MP39 or MPDR.
- Automatic reorder point calculation is another great way to manage inventory for class B and C items based on historic consumption.
- Automatic reorder point planning helps to bring on-hand inventory down
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Reference: Forecast Formulas
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