Perfecting your Inventory Management Techniques Automated Purchasing with Min Max

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1 Learning Objectives Understand advanced capabilities of using minimum and maximum level quantities and SouthWare Understand advanced capabilities of using auto generation of purchase orders based on min/max stock levels Implement time saving functions using tools and combinations of functionality Purpose & Function To facilitate the setup and automation of purchasing controls in order to standardize and simplify the purchasing of inventory to meet changing customer demands over time. Purchasing Setup Your Inventory Sales Control Record (IS field 19) must be set up for the purchasing methods you want to use for all stock items. The choices are: Economic Order Quantity Formula Movement Class Quantity Breaks Prior Usage Min/Max Stock File Setup IS field 32. Here you establish your purchasing criteria for the actual item. Terms to understand: Order Point This field triggers when the item should be purchased. For min/max this must be entered. For other purchasing methods, order point is calculated during Update Stock Order Controls (IS ) Order Quantity This is the order up to point for min/max. For other methods, this is calculated during IS Line Point This field is helpful when you have a vendor who requires you spend a minimum amount and there are not enough items at Order Point to meet the minimum. Safety Stock An allotment of quantity that serves as a cushion against an out of stock situation. Safety Stock is not used for Min/Max purchasing. Page 1 of 9 Enabling Business Success through Innovation

2 Safety stock can be: P for percent of order point D for number of days usage Q for quantity of safety stock Add Quantity Below Order Point Do you want to increase the recommended quantity to purchase for the amount below the Order Point. (Not used for Min/Max purchasing) Average Usage/Period Contains the average quantity used per period, calculated from Update Stock Order Controls. Number of period to use in average is also stored per item. Usage is calculated differently based on the seasonality of an item as indicated in the stock record field 26. Seasonality is also defined in the control record if Update Stock Order Controls can update IS field 19. Seasonal Item: Average usage/prd=(usage during next # prds to avg based on last years time frame adjusted by seasonal % change in prod cat) / # Periods to Average Non-seasonal: Average usage/prd = (Usage during previous # prds to Avg) / # Periods to Average Freeze Controls Used to lock in your order controls so the system won t update the values. Purchasing Methods EOQ Economic Order Quantity The objective is to calculate order quantity to yield the lowest outgoing unit cost for an item after considering the cost of ordering and inventory carrying costs. EOQ maybe used if: There are no quantity breaks Usage is at least one unit per month No minimum required for purchasing Update Stock Order Controls (IS ) calculates a new Order Quantity: Square root of [(24 X R X Usage rate) / (K X Last Cost)] Quantity is then adjusted to fit within min and max periods of supply and not be less than usage during the review cycle. Movement Class The class of an item indicated its relative importance to your business as measured by the annual dollar amount moving through inventory. Classes are assigned from 1 to 13 with 1 s having the most dollars moving though inventory. Classes are defined in the control record. Stock Sales Rand & Movement Report (IS ) will calculate and update class. Update Stock Order Controls (IS ) calculates order quantity by: movement class X Average usage per period. Class are defined in the IS control record (IS-08-02). Quantity Breaks Order Quantity is calculated based on vendor quantity discounts from the Vendor Catalog (IS- Page 2 of 9 Enabling Business Success through Innovation

3 07-19). Order quantity is the level with the lowest outgoing unit cost after inventory carrying cost. Method can only be used if primary vendor in stock file offers quantity discounts. Prior Usage Order Quantity is calculated based on usage during a specified number or periods. You tell the system to order a specific number of months supply when the item reaches the order point. Update stock order controls calculates the order quantity by (# Periods to Order) X (Avg. Usage per period) Average Usage comes from stock excel history so you must have enough history for the number of periods specified. Update Stock Order Controls IS Should be run once a month, can be run more than once because it uses Excel History. What to check if results are not what you expect: Is the item seasonal? (IS field 26) Is a period flagged as abnormal? (IS and IS Excel History) Lead time in vendor purchasing record? (If lead time is zero, order point will be zero) Freeze Controls in stock record? Page 3 of 9 Enabling Business Success through Innovation

4 Min /Max Purchasing This method calculates order quantity based on min/max quantities that are manually entered into each stock record. Quantities are not updated by the system Order Quantity = Maximum (Qty Available + Qty on Order Qty on Backorder) We ll start from the Buyer Portal: Choose Other Menus PO Generation Purchase orders can be generated for stock, sales order, service orders and work orders. The system generates its recommendations to a work file. The work file records may be maintained in IS if needed. The work file records may then be posted creating a purchase order record that can be accessed in IS Page 4 of 9 Enabling Business Success through Innovation

5 The system bases its recommendations to purchase based on the other purchasing information established per stock item in IS field 32. Page 5 of 9 Enabling Business Success through Innovation

6 Check created list of PO that will be created From your buyer portal choose PO Generation Processing. You will have three tabs. - List: This will show you a list of all the PO s that the system will create - Work File: This tab will allow you to make any changes to the PO s before the system creates them - Tentative PO s: This will show you an expandable list of the PO s and items on the PO s to be orders. Under the Tentative PO s tab you can click the Post button to have the system create the PO s. Page 6 of 9 Enabling Business Success through Innovation

7 Print Purchase Orders Portal Path: Buyer Portal Print Batch Pos NOTE: The batch process gives you the ability to print for a range of PO numbers or vendor numbers. After the PO s are sent to the printer you will be asked if the PO s printed are O.K. When this question is answered yes, the PO is flagged as printed and will not be eligible to print in another batch run. To flag a PO to reprint you must access a line on the PO and re-key a field. The system will ask you if you want to flag this PO to be reprinted. Page 7 of 9 Enabling Business Success through Innovation

8 Our Recommendation Automated Min/Max Use ReportMate to output current values and calculate new values for the min/max Use ImportMate to bring in the new min/max per stock item Start with the sample provided and add what is needed for your type of business. This procedure will allow you to utilize min/max method of purchasing while updating the min s and max s with current values based upon a pre-defined number of days of inventory. This procedure is recommended to be run monthly during your month end closing procedures. This procedure utilizes ReportMate to create the new purchasing quantities with many different calculation options. After a review of the projected changes we use ImportMate to update these new min / max quantities in the Stock file. In addition, you have the ability to eliminate specific stock records from the update process, as well as changing the sequence or group to be updated. With these updates in place you can then resume your normal purchasing methods. Setup Steps In the ReportMate format example (MMUPDATE) we select the records that we want to update by Vendor and stock number and print a report as well as create a comma delimited output file to be used by ImportMate to change the fields in the Stock File. In the detail of the report we pull last months quantity sales from the Stock Excel History and divide by 4.3 to get the average week sales. We then multiply by 2 to get our 14 day maximum. In this example we also project a 15% increase and then divide by 2 to get our 7 day minimum. In the following columns we show the current max and mins followed by unit of measure, and the freeze controls from the Stock Purchasing Controls. Using the freeze Order Point and Order Quantity fields we can eliminate specific stock records from being updated if necessary. We then show the Primary Vendor and the date the freeze controls expire. In the ImportMate section of this example we update the Order Point (Minimum) and the Order Quantity (Maximum) with the data from the ReportMate example above. By numbering the fields in the ReportMate format from left to right on the detail print line we find the field numbers to use in creating the ImportMate update. Our new maximum is field 7 and our new minimum is field 8. In the format we Import the Stock number (1) and location (2) which are the keys to the Stock file, then import the min (8) and max (7). In addition, we store the old min (10) and max (9) in the User Fields 1 & 2 for reference. We also put the literal MMUPD in the User Field 4. This provides a handy reference in case we want to see the prior months values at a later date. Typical Areas for Customization Most of the controls on what to buy and how much will be changed in the ReportMate format MMUPDATE. Here you can control: 1. How much inventory to keep? (30 days, 60 days, etc.) Change the calculation of the min / max s in columns 7 & 8 to calculate a different stocking level. 2, How long is the look back period? (1 month, 3 months, last year + %) Change the information in column 4 to Page 8 of 9 Enabling Business Success through Innovation

9 add together the prior periods from the Stock Revolving History file. 3. What if I want different stocking levels for different categories? Change the Range selections and the Sort sequence to use category and have different ReportMate runs (MMUPD30, MMUPD60, etc.) to calculate different stocking levels. Then run the export / import (ReportMate ImportMate) update process multiple times. Further Automation - MAKE IT EASIER Once you are comfortable with this process and it s results you can record a Keystroke Macro and create a menu selection to make this a simple choice on the month end menu in Inventory Sales. Recording the keystroke macro is easy to do. You record the macro by selecting F4 at any menu (Menu Utilities), then picking #8 to define and record the macro. Name it MMUPDATE for consistency and get ready to record. This recording process is very literal and specific, so practice running the RM / IM process a couple of times first. Once you turn on the recorder, it will remember every time you press a key. Once the macro is created, you can add it to your month end menu (IS for example) by going into SwiftMate and creating the menu reference (XX040201). Type in the menu reference you want to use (IS060905) and a description, then select 5 as the record type and enter MMUPDATE for the Program Name, and default the remainder of the fields. Now running this process is as simple as selecting IS each month and your min / max s will be updated with current sales trends. Page 9 of 9 Enabling Business Success through Innovation