What would you say if you found out that your
company software systematically encouraged you to overstock your spare parts
inventory? Crazy idea right? After all
isn’t the software supposed to help you to get it right?
Well, this is the exact situation that I
believe occurs with some installations of SAP.
Recently I posted a short video explaining
this situation which you can watch here. However, as I know that many people cannot
watch video via their work computers I have decided to make this issue the
topic of this article.
Here’s how it works.
One of the key values that you need to
understand in order to manage your spare parts inventory is the re-order point.
This is the point at which you decide to order more spares to replenish the
stock of inventory. In effect, this is the point at which you decide to spend
more money, so this is a pretty important figure.
Of course there are different ways to
decide what the reorder point is; there is the ROP system and the Max-Min
system, where the Min acts as the re-order point. In some circumstance these
two approaches produce the same value.
Importantly, in some installations of SAP
they use the term safety stock in a way that is different to the way that the
rest of the world uses the term, for all types of inventory management. This is
a use of the term safety stock that is unique to these SAP installations.
It’s a little convoluted to explain in words so please refer to the
Figure 1 (it's on the web page).
In these installations of SAP the safety
stock is actually greater than the equivalent Re-order point or Min value. In these SAP systems the effective reorder
point is the safety stock value minus one.
As you would know, in the usual approach for
spare parts management the reorder point is the safety stock PLUS the cycle
stock.
So why does this matter? Surely, it will be
OK if everyone understands what the value represents and how it is derived?
and see the associated diagram on the website.
