Management of Inventory with UOM Classes other than “COUNT” or with Uncontrolled Usage

Certain stock materials can present a challenge from an inventory management and planning perspective as a result of having inventory units that are difficult to verify (typically a UOM Class other than COUNT) or where uncontrolled usage exists (i.e. consumed but not always transacted accurately).

For these materials, particularly those with a low unit cost and/or steady usage, the best solution for avoiding shortages, maintaining accurate inventory valuation without the overhead of perpetual inventory management, is with a Min/Max Reorder Point process.

Also called Kanban or two-bin method, the process uses a physical signaling system for alerting when additional materials are needed while providing up-to-date inventory levels based on automatic issuing of job materials. Inventory levels are “trued-up” when the Reorder Point is reached. After that, on hand quantity is not exact; but, by definition, are somewhere between the minimum and maximum quantities (subject to the accuracy of job BOMs).

PHYSICAL REORDER POINT PROCESS

1. Definitions

   1. Reorder Point: A predetermined level of inventory which triggers an action to replenish that stock. A replenishment trigger may be based on a physical signal (when warehouse personnel open final container, identified as Reorder Point Stock or Safety Stock) or electronically based on inventory levels reaching reorder qty (where a reliable perpetual inventory system exists).

2. Epicor Configurations

   1. Part Configurations: In Epicor, flag part as STOCK and BACKFLUSH.

   2. Reorder Point: Update Min-On-Hand to a quantity greater than or equal to the maximum expected usage quantity over a period equal to the Purchasing Lead Time. (If there is a high confidence in ongoing usage over time, it probably makes sense to establish a Supply Agreement* with the supplier. With this approach, supplier agrees to keep inventory available for immediate release in exchange for locking in long-term business. This approach allows for reducing the Min-On-Hand quantity or eliminating it entirely).

   3. Identification of Parts with Min/Max Reorder Point: Part Class or other field should be used to identify parts that are to be managed this way so that users are able to easily identify and manage. (Action: Identify field and value to be used for this purpose.)

3. Physical Identification

   1. Parts that are managed this way should be physically identified with a recognizable label or other indicator and, preferably, in a different physical location separate from “standard” inventory.

   2. Reorder Point Materials should be physically separate from additional materials and identified with a Reorder Point Card or other physical indicator that displays the following information:

      1. Part Number

      2. Description

      3. Reorder Point Quantity

      4. Default Supplier

      5. Standard Lead Time

      6. Space for recording when Purchasing was notified and by whom(Action: Create BAQ Report for creating this label using Epicor data.)

4. Process

   1. Warehouse personnel to issue from available stock until only items identified as Reorder Point Materials remain.

   2. As soon as Reorder Point Materials’ container is opened:

      1. Warehouse personnel to update Epicor inventory to reflect current physical quantity (equal to Reorder Point Quantity).

      2. Notify Purchasing that Reorder Point has been reached.

      3. On Reorder Point Card, record date Purchasing was notified and by whom.

      4. Keep Reorder Point Card with remaining materials

   3. Upon receipt of additional materials, generate new Reorder Point Card and place on shelf with new batch of Reorder Point Materials.

*Supply Agreements

To ensure stable, predictable pricing, uninterrupted supply of long lead time materials, and/or “Just-in-Time” scheduling, Supply Agreements may be used.

Typical elements of a Supply Agreement include the following:

• Type of Agreement

  • Firm Total Quantity with Expiration: Purchase Order issued for firm quantity with partial release quantities to be shipped within predetermined lead time; total contract quantity to be taken by expiration date. In this scenario, vendor will typically produce entire order quantity and make available for shipment as releases are received from customer. Vendor may ship any unreleased balance by Agreement Expiration Date.

  • Standard Release Quantity with Expiration: Purchase Order specifies Standard Release Quantity and Agreement Expiration Date. In this scenario

• Blanket Purchase Order with Contract Expiration Date Only

Define any other conditions that apply:

• Minimum and/or maximum release quantities for each scheduled delivery

• Minimum replenishment time between releases

• Standard lead time for delivery

• Whether Forecast is to be provided, how often, and Cal Closet’s liability horizon associated with forecast

Buyers should copy and paste the applicable text shown above and add specific applicable details.

As an example, for a Blanket Purchase Order Contract for a total quantity of 800 which must be taken within 3 months in minimum releases of 23, the following text should be added to the Purchase Order Line Comments:

Blanket Purchase Order with Firm Quantity of 800 units to be taken in full by 12/26/2018. Minimum release quantity of 23 units each.

Open

Select (or create) a UOM Code that has been flagged as Part Specific   Open

Assign Part Specific UOM to the Purchasing Unit and uncheck Non-Stock Item if previously checked

Update Conversion Factor based on the Default UOM for the assigned UOM Class (doesn’t matter if Inv UOM is different)

If a Supplier Price Record references a different UOM, delete and re-add with part specific UOM, appropriate pricing, and select Default UOM for Purchasing

Determine required qty in Inv UOM by viewing Timephase or from a Purchasing Demand dashboard

After adding part to a PO Line, select Supplier Qty radio button. Input Supplier Qty that equates to Our Qty that is greater than or equal to our demand qty in inventory units. Do not update Our Qty with the demand qty first. Doing so will result in an accurate Supplier Qty, but the qty received to inventory will not equal the physical qty received (based on the conversion).

Verify that the PO Qty in inventory units is enough to satisfy the current demand in inventory units.

Update the Purchasing Min Order Qty to reflect supplier’s minimum order qty in our inventory units.