The E3TRIM software will provide you with the tools you will need as part of your company’s scientific inventory management implementation. There are Seven basic steps in the E3TRIM buying process that must be considered regardless of the buying method used:
1. Demand Forecasting
History predicts the future. Forecasting is the engine that drives E3TRIM. It enables the system to predict how an item will perform in the future based on the item’s history. Your E3TRIM system reforecasts (calculates a new demand average) at the end of every period. E3TRIM is setup wtih 4-weekly, weekly, or monthly forecasting. This is the “forecasting periodicity.” An item may be a seasonal item, which requires a seasonal profile to indicate this pattern of demand. An example is Ice Salt, used for the winter season on slippery patches. A seasonal profile ensures:
• The correct quantities are ordered based on the time of year
• Accurate track calculations
• The correct amount of safety stock
• A correct forecast update at the end of each period
2. Lead Time Forecasting
Lead Time is the length of time between placing an order and receiving it. When shipments are incomplete or not received on time, service can be jeopardized. Lead Time Forecasting can be activated in E3TRIM to automatically update lead time information at the item level based on receipt history. Inventory is constantly depleting between the time an order is placed and received. Lead time variance (LTV) describes the reliability of the vendors’s shipping an is a component of safety stock.
3. Order Policy
How often should an order be placed? When buying manually or with many automated buying systems, products are typically ordered on a fixed cycle; every week, every two weeks, monthly, etc. You may be required to purchase on a fixed cycle by the vendor due to shipping schedules.
When these restraints are not an issue, the economics in E3TRIM calculate the most profitable order cycle in which to buy balancing the costs of ordering and carrying inventory-the “aquisition costs” and “carrying costs.” This is called Order Policy Analysis, or OPA.
The system balances aquistion costs (the cost of cutting a purchase order, the cost associated with each line on the PO, cost of receiving the goods) against the carrying costs (the costs of carrying the goods for a certain length of time) to determine the most profitable way to buy.
4. Service Analysis
Unless money and space are unlimited, it isn’t possible to maintain inventory on every item 100% of the time. E3TRIM can help buyers prioritize items using information such as dollar and unit sales and profit contribution to establish service level on the product mix (by item and location) to achieve an overall goal.
The higher the service level goal, the more safety stock is requried. The same service level is not appropriate for each item. Buyers can prioritize items based on unit or dollar, sales, or profit contribution ranking to set by item.
Below is a diagram of a Service Level Analysis-Safety Stock Requriements.
A 95% service level goal on an item means that is’s preferable to be out of stock of that item 5% of the time.
5. Replenishment
Replenishment is where the order quantity is calculated-based on the first four steps (the four main components). If the four components are accurate, the order quantities will be too. The Suggested Order Quantity (or SOQ) is a mathematical calcualtion based on the first four steps. That’s why The SOQ is never wrong!
If you don’t agree with an SOQ, then a component adjustment is required. The Replenishment step should consist of accepting your daily orders with little or no review or modification. At the end of each forecasting period, the system displays items requiring review by the buyer as “History Exceptions.”
Using the Depletion Graph:
Some of the calculations that E3TRIM uses to build an order include the following:
SAFETY STOCK (SS) + LEAD TIME (LT) = ITEM ORDER POINT (IOP)
ITEM ORDER POINT (IOP) + ORDER CYCLE (OC) = ORDER UP TO LEVEL (OUTL)
Here are some things you should know about replenishment using the E3TRIM system:
• Every item is analyzed every night
• “Due” orders must be bought daily to maintain service goals
• An order is built for each vendor each night (even non-due orders)
• SOQs should not be changed; adjustments should be made to buying components only.
Due Orders
An order becomes due in E3TRIM in one of two ways:
• Enough items have depleted to our below their order points so that the vendor’s average service goal (typically 97-99%)is in jeopardy if an order is not placed today.
• The vendor is set up with a fixed order cycle (having orders due on certain days to buy, ie: (Monday buy day)
When an order is due in E3TRIM:
• all items that are at or below their order point (lead time plus safety stock) are ordered to the Order Up To Level
• all items that are below the Vendor Order Point are ordered to the Order Up To Level
• items exceeding their Order Up To Level are allowed to deplete down to below the Vendor Order Point before an order quantity is suggested
The Suggested Order Quantity is a mathematical calucation based on the first four of the Seven Steps of Buying. Again, that’s why we say: The SOQ is never wrong!
6. Special Order Analysis
E3TRIM provides several methods to prompt buyers to purchase additional goods for special needs, such as ads, promotions, customer special orders, events, events, etc. while continuing to replenish everyday requirements.
Buyers can provide the system with the quantity and time frame, and E3TRIM builds the order at the appropriate time. The promotional activity can be “filtered” in order to maintain the integrity of normal replenishment demand.
7. Order Validity Analysis
During Order Validity Analysis, E3TRIM validates the order. Minimum order requirements, full truckloads, buying multiples, etc. are all considered and built into the SOQs and the order total. At the same time, the system balances the vendor line in even days of supply.
70% of your success using E3TRIM comes from properly setting up the first four steps, which are also the majority components of vendor setup.
In Step 1, Demand Forecasting, the customer determines the demand.
In Step 2, Lead Time Forecasting, the vendor dictates the lead time.
In Step 3, Order Policy Analysis, E3TRIM analyzes the most profitable order cycle to buy on .
In Step 4, Service Level Analysis, E3TRIM allows the company to react appropriately and profitably to the service and inventory priorities
