Design Details - Balancing Supply with Demand

The core of the planning system involves balancing demand and supply by means of suggesting user actions to revise the supply orders in case of imbalance. This takes place per combination of variant and location.

Imagine that each inventory profile contains a string of demand events (sorted by date and priority) and a corresponding string of supply events. Each event refers back to its source type and identification. The rules for counterbalancing the item are straightforward. Four instances of matching demand and supply can occur at any point of time in the process:

  1. No demand or supply exists for the item => the planning has finished (or should not start).
  2. Demand exists but there is no supply => supply should be suggested.
  3. Supply exists but there is no demand for it => supply should be canceled.
  4. Both demand and supply exist => questions should be asked and answered before the system can ensure that demand will be met and supply is sufficient.

    If the timing of the supply is not suitable, perhaps the supply can be rescheduled as follows:

    1. If the supply is placed earlier than the demand, perhaps the supply can be rescheduled out so that inventory is as low as possible.
    2. If the supply is placed later than the demand, perhaps the supply can be rescheduled in. Otherwise, the system will suggest new supply.
    3. If the supply meets the demand on the date, the planning system can proceed to investigate whether the quantity of the supply can cover the demand.

      Once the timing is in place, the adequate quantity to be supplied can be calculated as follows:

    4. If the supply quantity is less than the demand, it is possible that the supply quantity could be increased (or not, if limited by a maximum quantity policy).

    5. If the supply quantity is greater than the demand, it is possible that the supply quantity can be decreased (or not, if limited by a minimum quantity policy).

      At this point, either of these two situations exists:

    6. The current demand can be covered, in which case it can be closed and planning for the next demand can start.

    7. The supply has reached its maximum, leaving some of the demand quantity uncovered. In this case, the planning system can close the current supply and proceed to the next one.

    The procedure starts all over with the next demand and the current supply or vice versa. The current supply might be able to cover this next demand as well, or the current demand has not yet been fully covered.

Rules Concerning Actions for Supply Events

When the planning system performs a top-down calculation in which supply must fulfill demand, the demand is taken as a given, that is, it lies outside the control of the planning system. However, the supply side can be managed. Therefore, the planning system will suggest creating new supply orders, rescheduling existing ones, and/or changing the order quantity. If an existing supply order becoming superfluous, the planning system will suggest that the user cancels it.

If the user wants to exclude an existing supply order from the planning suggestions, he can state that it has no planning flexibility (Planning Flexibility = None). Then, excess supply from that order will be used to cover demand, but no action will be suggested.

In general, all supply has a planning flexibility that is limited by the conditions of each of the suggested actions.

NOTE

When planning an item using a reorder point, the supply order can always be scheduled in if necessary. This is common in forward-scheduled supply orders triggered by a reorder point.

NOTE

Even though it is possible to increase the supply order, it may be limited due to a defined maximum order quantity.

NOTE

Even though the quantity could be decreased, there may still be some surplus compared to the demand due to a defined minimum order quantity or order multiple.

Determining the Supply Quantity

Planning parameters defined by the user control the suggested quantity of each supply order.

When the planning system calculates the quantity of a new supply order or the quantity change on an existing one, the suggested quantity may be different from what is actually demanded.

If a maximum inventory or fixed order quantity are selected, the suggested quantity may be increased to meet that fixed quantity or the maximum inventory. If a reordering policy uses a reorder point, the quantity may be increased at least to meet the reorder point.

The suggested quantity may be modified in this sequence:

  1. Down to the maximum order quantity (if any).
  2. Up to the minimum order quantity.
  3. Up to meet the nearest order multiple. (In case of erroneous settings, this may violate the maximum order quantity.)

Concerning order tracking during planning, it is important to mention that the planning system rearranges the dynamically created order tracking links for the item/variant/location combinations.

There are two reasons for this:

Over time, dynamic order tracking links become out of balance since the entire order tracking network is not rearranged until a demand or supply event is actually closed.

Before balancing supply by demand, the program deletes all existing order tracking links. Then during the balancing procedure, when a demand or supply event is closed, it establishes new order tracking links between the demand and supply.

NOTE

Even if the item is not set up for dynamic order tracking, the planned system will create balanced order tracking links as explained above.

See Also

Design Details: Balancing Demand and Supply
Design Details: Central Concepts of the Planning System
Design Details: Supply Planning



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