Order Proposals

Introduction

The Order Proposal routine scans all the parts that fulfill the selection criteria, in order to find the parts for which additional supply must be created.

A report is generated, and optionally, purchase requisitions, purchase orders, distribution orders, or shop order requisitions are created. You can also delete existing purchase requisitions and un-released distribution orders, provided they are created by order proposal.

This document describes the scanning logic in detail. It includes the following sections:
Selection Criteria Affecting the Order Proposal - This section describes all the part selections that are used.
Manufactured/Acquired Split and Order Proposal - This section describes how the order proposal is affected by the Manufactured/Acquired Split functionality.
Supplier Split and Order Proposal - This section describes how the order proposal is affected by the Supplier Split functionality.
Terms Used in the Calculations - This section defines all the terms used in the charts section.

Selection Criteria Affecting the Order Proposal

The parts have to fulfill the selection criteria specified in the Create Order Proposal dialog box as well as the following criteria:

• Planning Method - For a part to be processed by the order proposal, this must be either B or C.
• Part Status Code - The supply flag for the part status code used must be Supplies Allowed.
• Vendor Managed Inventory (VMI) - The part must not be vendor managed.
• Part Availability Control - Parts at the locations where the part availability control is set to Not Nettable will not be included in the calculation.
• Expiration Date - Expired parts will not be included in the calculation.
• To have a distribution order created, the supply type must be Order, and multi-site planned part must be selected for the primary supplier of the part.

Manufactured/Acquired Split and Order Proposal

When the order proposal has suggested the required quantity, it is either manufactured or purchased depending on the part type. Before the quantity is sent to either manufacturing or purchasing, it could be split in accordance to the Manufactured/Acquired Split percentage as defined on the inventory part. If this split is used, one split quantity will be sent to manufacturing and the other split quantity will be sent to purchasing. Both split quantities should have been rounded using Scrap Rounding. When the order proposal is used, the manufactured quantity is always put on a shop order requisition, regardless of the default supply type or the manufactured supply type. The purchased quantity is put on a purchase requisition, purchase order, or distribution order as explained above, regardless of whether the purchase quantity is derived from a split.

Supplier Split and Order Proposal

Supplier split comes into use when the default supply type is Requisition. Then the order proposal passes along a quantity to the purchase requisition. The purchase requisition functionality considers the split for non-multi-site planned parts. This means that the only way to get the order proposal to consider supplier split is to use the supply type Requisition. Using this supply type implies that a distribution order will not be created, i.e., if the supplier split includes lines for multi-site planned parts, those lines will not be considered.

Terms Used in the Calculations

The following terms are used in the order proposal flowcharts:

• Projected Qty on-hand: The usable quantity projected for the date, as calculated based on the available quantity.
• Order point (OP): The lowest level that the quantity on-hand can reach before the system automatically creates an order proposal.
• Safety stock (SS): A quantity of available stock that is planned to remain in inventory to protect against fluctuations of demand or supply
• Lot Size (LS): The desired lot size, i.e., the total quantity to be manufactured or purchased. If the planning method is B, the part will be re-ordered in multiples of this quantity, until the order point is reached or exceeded. If the planning method is C, the part will be re-ordered up to this level (the replenishment level).
• Lead Time (LT): The time needed for manufacturing or purchasing the part.

Consider the following figures as an example when using Planning Method B;

Order point (OP): 25

Safety stock (SS): 10

Lot Size (LS): 8

Lead Time (LT): 21

The starting point for the order point calculation is to look at the current quantity on-hand and any old supplies and demands that should have occurred up until today.

Some practical figures of inventory part availability planning would be as follows;

Inventory Part Availability Planning:

Due Date	Type	Status	Supply	Demand	Reserved	Pegged	Shortage	Projected	Plannable
16.12.20XX	Cust Order	Partially Delivered	0	1	0	0	1	-1
22.12.20XX	Purch Order	Confirmed	14	0	0	0	0	13
25.12.20XX	Cust Order	Released	0	1	0	0	0	12
25.12.20XX	Cust Order	Released	0	1	0	0	0	11
25.12.20XX	Cust Order	Released	0	2	0	0	0	9
25.12.20XX	Cust Order	Released	0	2	0	0	2	7
29.12.20XX	Cust Order	Released	0	1	0	0	1	6
01.01.20XY	Cust Order	Released	0	2	0	0	2	4
05.01.20XY	Cust Order	Released	0	3	0	0	3	1
05.01.20XY	Cust Order	Released	0	2	0	0	2	-1
07.01.20XY	Cust Order	Released	0	1	0	0	1	-2
07.01.20XY	Cust Order	Released	0	1	0	0	1	-3
07.01.20XY	Cust Order	Released	0	1	0	0	1	-4
25.01.20XY	Purch Order	Released	24	0	0	0	0	20	20
10.03.20XY	Cust Order	Released	0	10	0	0	0	10	9999999,99

Purchasing Lead Time: 21

Unlimited Supply Date: 30.01.20XY

The projected quantity on-hand by 08-01-20XY then defines the starting point for the order proposal calculations for this part to be (-4). From this starting point, the order proposal will (as it is below OP at the starting point) look ahead one lead time (till the 29th of January) to see if there are any supplies planned for delivery during that time that takes the projected quantity on-hand above the OP.

Note that it will only consider planned supplies when looking ahead (i.e., it will not look at future demands). If there where planned supplies that makes the projected quantity on-hand go over OP, there would not be any new requisitions added for this part.

For the above example the projected quantity on-hand (only considering future supplies) one lead time into the future is 20 (29.1. 20XY). This is due to the planned supply of 24 pcs that is due on 25.1.20XY.

This means that we are still below order point when looking one lead time into the future (20<25) and a new requisition should be added if the order proposal is executed. So if we execute order proposal for this part we will have the following situation:

Due Date	Type	Status	Supply	Demand	Reserved	Pegged	Shortage	Projected	Plannable
16.12.20XX	Cust Order	Partially Delivered	n	1	n	n	1	-1
22.12.20XX	Purch Order	Confirmed	14	0	0	0	0	13
25.12.20XX	Cust Order	Released	0	1	0	0	0	12
25.12.20XX	Cust Order	Released	0	1	0	0	0	11
25.12.20XX	Cust Order	Released	0	2	0	0	0	9
25.12.20XX	Cust Order	Released	0	2	0	0	2	7
29.12.20XX	Cust Order	Released	0	1	0	0	1	6
01.01.20XY	Cust Order	Released	0	2	0	0	2	4
05.01.20XY	Cust Order	Released	0	3	0	0	3	1
05.01.20XY	Cust Order	Released	0	2	0	0	2	-1
07.01.20XY	Cust Order	Released	0	1	0	0	1	-2
07.01.20XY	Cust Order	Released	0	1	0	0	1	-3
07.01.20XY	Cust Order	Released	0	1	0	0	1	-4
25.01.20XY	Purch Order	Released	24	0	0	0	0	20	20
29.01.20XY	Purch req	Planned	8	0	0	0	0	28	28
10.03.20XY	Cust Order	Released	0	10	0	0	0	18	9999999,99

Note that in the above picture a new purchase order (PO) requisition is added with a quantity of 8 (the lot size), due on 29th of January (one lead time away if order is placed today). This means that the projected quantity on-hand is above order point when looking one lead time into the future from today (i.e., the system date which is 08-01-20XY as per the the example given).

If we are to present this scenario in a more schematic way, then it would be as follows;

Before running order proposal:

x-axis    -    Time in days
y-axis    -    Quantity

A        -    Safety Stock
B        -    Order Point
a         -    Today
ab       -    Lead Time
a+ab    -    Today+ Lead Time

As you can see, when looking one lead time ahead into the future (the timeframe after it is possible for us to add new supplies) we are below the order point. This means that we should add a new supply and it will be added as one lot size (or a multiple of lot sizes if required to take the level above OP). Once again note that we do not consider any planned demands in the future, but just the planned supplies. The reason being that the order point is dimensioned to cover the demands during lead time (this is the definition of the order point). If we were to reduce the projected quantity with future planned demands as well, then we would end up with ordering too soon and having a higher quantity on-stock than required.
Therefore, in simple terms, the order proposal could be said to be looking for;

(quantity on-hand + any planned supplies during the timeframe of one lead time into the future).

Continuing with our example, after running order proposal, we would end up as below;

x-axis    -    Time in days
y-axis    -    Quantity

A        -    Safety Stock
B        -    Order Point
a         -   Today
ab       -    Lead Time
a+ab    -   Today+ Lead Time

The situation now being that when looking one lead time into the future we are above the OP and there is currently no need to add new requisitions. Therefore, running order proposal once more would not make any difference. Now the added requisition should be transferred to a PO and sent to supplier. If there is a delay in doing this, then there is a possibility of re-planning requisitions which have not yet been transferred to PO the next time the order proposal is executed. (Old requisitions which are not yet transferred to PO and created by order proposals can be removed when running the order proposal the next time. Then, new requisitions with new dates will then be added).

Consider what would happen If we continue the above example for one day.

Let us assume that the PO planned for 22.12.20XX is actually received into inventory and then some of the old CO can be delivered. Also assume that there has been one new CO order added today (08.01.20XY) with a qty = 1 which has not been delivered.

We would then have the following situation when running the order proposal tomorrow (09.01) (or it could be Monday (12.1)...):

x-axis    -    Time in days
y-axis    -    Quantity

A        -    Safety Stock
B        -    Order Point
a         -   Today
ab       -    Lead Time
a+ab    -   Tomorrow+ Lead Time

The resulting changes are not so big, but you can see that the projected curve has moved one day to the left and also moved a step equivalent to 1 pc (as the customer order was added ”yesterday”). Note that the starting point will still be (-4), minus the new demand added ”yesterday” as the receipt of 14 has already been accounted for.

So as time passes the projected curve will move to the left and downwards as new demands are executed (or seen as rest orders). As mentioned above, this will happen till 25.1.20XY. Supply is received such that the existing rest orders can be handled.

Over time there will be new requisitions added and if assuming a relatively smooth demand curve the order size of these requisitions will be one lot size. The planning parameters for the part will mean that there will be new requisitions added approximately two times during a lead time (as the lot size corresponds to just a little bit more than half of the demand during lead time). This will give the following curve of actual quantity on-hand for this part (when the period of rest orders has been passed):

x-axis    -    Time in days
y-axis    -    Quantity

A        -    Safety Stock
B        -    Order Point
a         -   Lead Time

Note that this represents a historical curve of the quantity on-hand for the part, as opposed to the previous charts that show current situation today and a projection of incoming supplies in the future.

So the actual quantity on-hand for this part should vary between safety stock and up till one lot size above that.

Note: The special logic below is used when extremely high demands are entered long in advance.

Instead of using demands and supplies, it is suggested that we increase the order point in order proposal if real demand is higher than order point-safety stock.

x-axis    -    Time in days
y-axis    -    Quantity

A        -    Safety Stock
B        -    Order Point
a         -   Today
ab       -    Lead Time
a+ab    -   Today+ Lead Time
p         -    Demand from planned orders exceed expected demand a seen from (order point - safety stock).

For example, if the OP is 25 and SS 10, the expected demand during the lead time is 15. If a demand is entered that exceeds 15, e.g. 20, the system will increase the OP with the difference 20-15 = 5 and consider it as 30. Then the (quantity on-hand + any planned supplies during the timeframe of one lead time into the future) is compared with the OP 30 to determine if any new supply should be created.
The changes of order point will not have any impact on the order point of the inventory part; it will only be used in the order proposal.

Planning Method C

When instead using Planning Method C, the only difference is how the system calculates the quantity that is needed to order when the project quantity on-hand is still below the order point one lead time ahead, where it replenishes up to the defined lot size. Also here the system will check the total demand quantity for one lead time to see if it is greater than the difference between the order point and safety stock. If so, and the OP is temporarily increased so that it may become greater than the defined lot size, then the system will take the greatest value of the OP and lot size to replenish against.