Creating the Order
You now have a prioritized list of part/location shortages and the source part/location for each. It’s a simple matter of creating, hopefully automatically, all the shipment or transfer orders and distributing them to the appropriate locations. But wait. As usual, there’s more. Fulfilling every shortage isn’t always the optimal solution. Consider, for example, if the shipping cost outweighs the benefit of filling the shortage. In that case, it may be more cost effective to hold that part at the shipping location. In some small percentage of circumstances, you may wind up expediting a part to the shortage location to fulfill a customer SLA. If you’re doing this complete replenishment analysis daily, it could be that tomorrow there are two parts that can ship from point A to point B, and that becomes a cost-effective shipment to execute.
Rinse and Repeat
The replenishment process as outlined above typically occurs on some sort of schedule—maybe daily, weekly, or bi-weekly. In any case, when calculating your optimal TSLs, it’s important to consider the review time between cycles plus the standard transportation time.
Keep in mind that longer total replenishment leadtimes demand higher TSLs to account for demand variations. One key step in reducing the total replenishment leadtime is being able to execute the process—from analyzing the shortages to executing the physical shipment—in a timely manner. It’s optimal to ship replenishment material the same day the shortage is created. If you use yesterday’s ending inventory balances to do your analysis, consider that those few hours between close of business and start of business equate to one full day of additional replenishment leadtime.
The complexity and the detail required to optimize the replenishment process shouldn’t be underestimated, and anything short of full automation can quickly become too burdensome and error prone.
In summary, a process as seemingly simple as replenishing field shortages can still be optimized to balance your inventory costs, transportation costs, and customer satisfaction.