Many times over the last several years, I have worked with companies that were moving to MAS 500 from systems where they either had no existing replenishment parameters or their legacy systems did not even track inventory for them. As a result, they really did not have a good feel for how they should configure replenishment parameters like:

  • Minimum Stock levels,
  • Maximum Stock levels,
  • Safety Stock levels, or
  • Lead Times.

In this article, I will try to give you some examples about how one might go about figuring out what figures to use as starting points when configuring MAS 500.

Use Min/Max Until...

MAS 500's Inventory Management (IM) sophistication allows users to do an interesting thing: That is, to tell the MAS 500 to use Minimum Stock level and Maximum Stock level as the parameter by which to manage inventory stock levels until a specified date in the future. The purpose for this capability is to allow MAS 500 to accumulate a sufficient number of data points over time in order to have a valid statistical sample upon which to base its more dynamic inventory replenishment calculations in the future.

The question that often arises, however, is: "We really don't know how to go about calculating what values we should place for Minimum and Maximum Stock levels on our Items at startup. What numbers should we use?"

Allow me to propose a method (there are many ways to do this, so this is not the method) for calculating a proposed Minimum Stock level and Maximum Stock level.

When a MAS 500 Item's Replenishment Method is "Min/Max", MAS 500 will replenish that ItemID back to the Max Stock level (plus actual demand in the current planning period) whenever it is below its Min Stock level at the time Inventory Replenishment or MRP (material requirements planning) is run.

Warning: If you also have a value in Safety Stock, MAS 500 will calculate for replenishment at Safety Stock (SS) plus Min Stock quantity and will replenish up to Safety Stock plus the Max Stock quantity (plus actual demand in the current planning period). If you are using Min/Max and your Minimum Stock quantity is effectively your Safety Stock level, then leave Safety Stock set to zero.

Given this scenario and assuming that you want your Minimum Stock level to function as your Safety Stock value (i.e., Safety Stock level is set to zero), then you may wish to set your Minimun Stock level to cover some percentage of your average Lead Time for each ItemID. To find this value you could look at your known consumption of the ItemID using data from your legacy system over a known period of time.

For example: If your legacy system reports that for ItemID '1001' you sold or consumed 292,100 units over the last year (using calendar days, not working days), then Average Daily Demand for ItemID '1001' would be 800.274 units.

If Average Lead Time for ItemID '1001' is 10 days and you want Minimum Stock levels to cover 100% of Average Lead Time, then you would set your Minimum Stock quantity to 8,003 (Average Lead Time Days * Average Daily Demand).

If you order from the vendor that supplies ItemID '1001' every three weeks (21 calendar days) and you want your Maximum Stock quantity to cover this "order cycle" period, then you might set your Max Stock quantity to 21 Days * 800.274 Units/Day or 16,806.

This is just one example. In future posts we will discuss other Inventory Management and Replenishment parameters.

-- Richard D. Cushing