CAT Parts Inv Ctl Seminar IC Manual 0708

Par ts IInventor y C Contr ol S Seminar

Cater pillar I Inc.

Rev. July 2008

Chapter

TABLE O OF C CONTENTS

T AB ABLE O OF C CONTENTS ...................................................................................................................... 3 INTRODUCTION......................................................................................... ........................................ 5 Parts Inventory Inventory Control Control Seminar ...................................................................................................... ...................................................................................................... 5 CH AP APTER 1 1 ......................................... ................................................... ............................................ 7 1.0 Inventory Inventory Control Basics Basics ............................................................................................................ ............................................................................................................ 7 1.1 What Is Inventory Control ...................................................................................................... ...................................................................................................... 7 1.1 What Is Inventory Control ...................................................................................................... ...................................................................................................... 8 1.2 The Objective Of Inventory Control....................................................................................... Control....................................................................................... 8 1.3 The Concept Of Balance......................................................................................................... Balance......................................................................................................... 9 Why is “balance” “balance” so important? important? .......................................................................................... .......................................................................................... 10 1.4 The Challenges Of Inventory Management.......................................................................... Management.......................................................................... 11 1.5 The Importance Importance Of Inventory Inventory ............................................................................................... ............................................................................................... 14 1.6 What Is An Inventory Manager To Do? ............................................................................... ............................................................................... 15 CH APTER 2 2 ......................................... ................................................... .......................................... 17 2.0 Life Cycle of a Part................................................................................................................... Part...................................................................................................................17 17 2.1 Phases Of A Life Cycle......................................................................................................... Cycle......................................................................................................... 17 2.1 Phases Of A Life Cycle......................................................................................................... Cycle......................................................................................................... 18 2.2 The Role Of Record Type..................................................................................................... Type..................................................................................................... 18 2.2 The Role Of Record Type..................................................................................................... Type..................................................................................................... 19 2.3 The Life Cycle Process Process ......................................................................................................... ......................................................................................................... 21 Life Cycle Considerations.................................................................................................... Considerations.................................................................................................... 22 Life Cycle Considerations.................................................................................................... Considerations.................................................................................................... 23 2.4 The Life Cycle Is Changing.................................................................................................. Changing.................................................................................................. 24 2.5 Pressures Pressures On The Life Cycle ................................................................................................ ................................................................................................ 25 2.6 Life Cycle Parameters........................................................................................................... Parameters........................................................................................................... 30 2.7 Developing A Life Cycle Strategy........................................................................................ Strategy........................................................................................ 43 CH AP APTER 3 3 ......................................... ................................................... .......................................... 45 3.0 Add-to-Stock............................................................................................................................. Add-to-Stock............................................................................................................................. 45 3.1 The Add-To-Stock Process................................................................................................... Process................................................................................................... 45 3.1 The Add-To-Stock Process................................................................................................... Process................................................................................................... 46 3.2 How Parts Parts Get Into Stock Stock ..................................................................................................... ..................................................................................................... 49 3.3 Decision Support Information............................................................................................... Information............................................................................................... 52 3.4 Add-To-Stock Parameters..................................................................................................... Parameters..................................................................................................... 54 CH AP APTER 4 4 ......................................... ................................................... .......................................... 73 4.0 Control-Of-S Control-Of-Stock tock ...................................................................................................................... ...................................................................................................................... 73 4.1 The Control-Of-Stock Process.............................................................................................. Process.............................................................................................. 74 4.2 The Role Of Lead-Time........................................................................................................ Lead-Time........................................................................................................ 76 4.3 Demand Base Months And Annual Demand........................................................................ Demand........................................................................ 81 4.4 Dependent Dependent Store Processing Processing ................................................................................................. ................................................................................................. 90 4.5 Order Point Matrix and Min-Types ...................................................................................... ...................................................................................... 93 4.6 Order Point Calculations....................................................................................................... Calculations....................................................................................................... 96 4.7 Economic Order Quantity and Maximum Calculations...................................................... Calculations...................................................... 107

Parts Inventory Control Seminar

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Table of Contents 4.8 Miscellaneous Control of Stock Concepts and Parameters ................................................ ................................................ 113 CH AP APTER 5 5 ......................................... ................................................... ........................................ 125 5.0 Remove-from-Stock................................................................................................................ Remove-from-Stock................................................................................................................ 125 5.1 The Remove-from-Stock Process Process ....................................................................................... ....................................................................................... 125 5.1 The Remove-from-Stock Process Process ....................................................................................... ....................................................................................... 126 5.2 Exhaust Stock Parameters................................................................................................... Parameters................................................................................................... 128 5.3 Decision Support Information............................................................................................. Information............................................................................................. 129 5.4 Replaced Parts..................................................................................................................... Parts..................................................................................................................... 131 CH APTER 6 6 ......................................... ................................................... ........................................ 133 6.0 Surplus Surplus Management Management .............................................................................................................. .............................................................................................................. 133 6.1 The Surplus Management Process...................................................................................... Process...................................................................................... 133 6.1 The Surplus Management Process...................................................................................... Process...................................................................................... 134 6.2 Surplus Accumulation......................................................................................................... Accumulation......................................................................................................... 135 6.3 Surplus Min-Types.............................................................................................................. Min-Types.............................................................................................................. 136 6.4 Improvement Potential and Opportunity ............................................................................ ............................................................................ 137 6.4 Surplus Disposition............................................................................................................. Disposition............................................................................................................. 139 CH AP APTER 7 7 ......................................... ................................................... ........................................ 153 7.0 Inventory Reporting................................................................................................................ Reporting................................................................................................................ 153 7.1 Dealer Business Business System System Reports ........................................................................................ ........................................................................................ 153 7.1 Dealer Business Business System System Reports ........................................................................................ ........................................................................................ 154 7.2 Key Performance Indicators (KPIs).................................................................................... (KPIs).................................................................................... 174 GLOSS ARY .................................................................................................................................... 181 APPENDIX ...................................................................................................................................... 201 FORMUL AS AS .................................................................................................................................... 215


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Chapter

INTRODUCTION

Par ts IInventor y C Contr ol S Seminar Welcome to the Caterpillar Dealer Parts Inventory Control Seminar. This seminar is designed to give those involved with inventory a better understanding of the inventory control process. Emphasis will be placed on the various stages that make up the Life Cycle of a part, and how this Life Cycle can be managed to improve profitability and benefit a dealership’s inventory control process.

About This Seminar The Parts Inventory Control Seminar is designed to teach you how to effectively manage the Life Cycle of parts maintained within a Caterpillar dealership. Each chapter will provide you with the necessary knowledge and skills required to successfully manage inventory.


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CHAPTER 1 1

Chapter

1.0 IInventor y C Contr ol B Basics This chapter introduces the basic components of the Inventory Control process. You will learn the definition and objectives of Inventory Control, why the concept of balance is so important, and how to overcome the challenges involved in the process. Upon completion of this chapter, you will be familiar with: What is Inventory Control The Objective of Inventory Control The Concept of Balance The Challenges of Inventory Management The Importance of Inventory What is an Inventory Manager to Do? • • • • • •


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Chapter 1 – Inventory Control Basics

1.1 W What IIs IInventor y C Contr ol Inventory Control can be defined as a science-based art of controlling the amount of inventory a business needs to economically meet the demands placed upon that business. It is also the application of best practices and common sense procedures used to control the inventory management process.

1.2 T The O Ob jective O Of I Contr ol Inventor y C The objective of inventory control is to 1) provide the right part, in the right quantity, to the right place, at the right time, for the least practical cost and 2) maintain equitable balance between inventory investment, customer service, and operational efficiencies. 1) Provide the right part, in the right quantity, to the right place, at the right time.

Each of the elements above is equally important in satisfying Inventory Control’s objective. However, if one of these elements is missing, that element may influence or compromise the objective more than others. For instance, if the right part is not available from the start, the remaining elements really do not matter. Or if the right part is available, but not in the right quantity, the opportunity for customer satisfaction becomes compromised. In the case of a part not being deployed to the right place, any gain from providing the right part in the right quantity is jeopardized. To maintain a superior level of customer satisfaction, all elements of the objective have to be met consistently and simultaneously for the least practical cost. The last statement in the objective says to to do all of it for the least practical cost. Few need to be reminded that every decision in a parts department has an associated cost. So, from an inventory control standpoint, every process related to stocking, replenishment or re-deployment has to be achieved at the least practical cost. 2) Maintain equitable balance between inventory investment, customer service, and operational efficiencies.

The financial side of a dealership also takes a valuable perspective on what inventory control is supposed to do. The objective of inventory control control is to maintain an equitable and profitable balance between inventory investment, customer service and parts department efficiency. efficiency. This objective follows follows what is a common understanding in the world of parts. No one number ever, ever tells the whole story. This objective doesn’t bring a new challenge to parts nor is it a challenge that has changed much over time. What has changed, however, is that meeting that challenge has gotten more difficult and the resulting impact on performance and profitability when the challenge isn’t met is significantly more costly.


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1.3 T The C Concept O Of B Balance The financial objective of inventory control leads directly to the need to further discuss “balance.” Balance is the most obvious and, at the same time, the most often ignored concept in inventory management today. It easy for for an organization to, for one reason or or another, lose perspective on how important it is to maintain a balance of inventory investment, customer customer service and parts department efficiency. Achieving a balance requires a solid understanding of what each key performance indicator is, where it comes from, and how it can be impacted. Consider the lesson learned by a dealer who, for a time, ignored “balance” entirely and elected to favor inventory turnover to the total exclusion of all other performance indicators. Turnover became “the only number that mattered.” Sales were were steady steady to slightly down so to improve turnover little choice remained but to drastically cut inventory and that they did. Short term (30-45 days): The impact on customer service and parts availability was apparent but not entirely intolerable. Inventory was decreasing and, as one would expect, turnover was increasing. Mid-term (45-60 days): Inventory was definitely in a downward spiral. Turnover had increased sharply but, predictably, so had backorder activity. Emergency procurement costs (service fees and emergency transportation) escalated as backorder activity increased. More customers seemed to want to talk about parts availability and the added cost of emergency orders. Long-term (60-90 days): Customer service hit “rock bottom.” Inventory was at a record low. Turnover was at a record high as were emergency procurement costs. Early morning emergency receiving activities had become a bottleneck for early hour order processing. Service technicians and customers complained of having to wait for backorder receiving. As inventory levels of moving items decreased, decreased, “stock outs” increased and the number of stock replenishment bin trips increased. Returns, particularly shop returns, increased dramatically. Overtime hours increased. Warehouse productivity declined. In a short 90 days or so, the dealer engineered an opportunity to learn first hand about how trying to drive total performance from a single indicator (inventory turnover) was a shortsighted shortsighted approach to inventory management. Any opportunity to profit from their record turnover was severely if not totally compromised by the inefficiencies and additional costs of a heavy dependence on emergency procurement and the costs of the related increase in the level of stock replenishment activities. It is more important today than ever before that the need to maintain an equitable balance of inventory investment, customer service and parts department efficiency be understood at the highest level of a dealer’s product support organization.


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Why iis “ “balance” s so iimpor tant? What ha happens ppens when there there is far far too too much inventory? Parts Service Improves: Probably but that’s not a guarantee. It depends on where the overstock is. If the overstock came in moving inventory, service should, of course, improve. However, if the overstock came in non-moving inventory, it may have no impact whatsoever on parts service. More Inventory Carrying Costs: Inventory carrying cost is calculated as a percentage of the cost of a part. For example, a 25% carrying cost would indicate that it costs about $.25 to own each $1.00 of inventory for a year. That cost includes the cost of money, the risk of obsolescence, taxes, insurance, space, manpower, systems and more. The bigger the inventory, inventory, the more the carrying costs. costs. When there there is a significant overstock, the additional carrying costs will erode the savings associated with an increased level of off-the-shelf service. More Storage Costs: When inventory arrives, it has to be stored. When a warehouse “overflows,” the risk of loss, damage and general deterioration increases. In the most severe cases, additional storage equipment or perhaps even additional storage facilities might be needed to handle the overflow properly to minimize the associated risk of deterioration. More Surplus: Despite the best of intentions, there will always be surplus. When a dealer has more inventory than demand and performance requires, typically, there will also be more surplus. More Non-Returnable Surplus: Not all surplus is returnable to Caterpillar or o r any other vendor. When there is a significant overstock, there will be more surplus and probably a higher level of non-returnable surplus as well.

What hap happens pens when there there is n’t n’t enoug enoug h inventory? More Backorder Activity: Activity: When a dealer’s inventory falls below what it takes to satisfy demand and maintain performance, a greater portion of the business will be handled on an emergency basis as opposed to off-the-shelf. Backorder activity escalates and emergency procurement costs increase accordingly. More Emergency Service Fees: To a Cat dealer, Emergency Service Fees are an added cost of doing business. More often than not, the least cost way for a dealer to fill an order is “off-the-shelf.” As inventory decreases, what would have been filled with off-the-shelf service becomes “emergency procurement activity.” With an increase in emergency procurement activity comes an increase in emergency service fees and the cost of doing business goes up. More Stock Order Activity: Reducing inventory can actually increase stock replenishment activities, particularly bin trips. Inventory reductions typically involve applying less aggressive ordering parameters. Less aggressive ordering parameters yield lower order points and reduced order quantities. What previously might have taken three/four stock replenishment bin trips to handle a year’s demand might


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Chapter 1 – Inventory Control Basics require several additional trips due to having ordered smaller replenishment quantities. The lower order points come with an increased risk of stock outs and every stock out carries with it the additional activities of emergency procurement. Thus, given the same or a similar level of demand, there is a point in the “life cycle of an inventory reduction” where it will take more stock replenishment bin trips to handle the same level of business. More Documents: As the inventory decreases and the risk of additional backorder activity increases, the percent of orders filled complete at point-of-sale decreases. Any backorder will require one/more additional documents (packing lists and maybe invoices) to complete the transaction. More Credibility Concerns: When suddenly there is obviously not enough inventory, a dealer’s reputation for customer service is going to suffer.

1.4 T The C Challenges O Of I Management Inventor y M The challenges of inventory management have grown and are constantly changing. Finding the right balance of inventory investment, customer service and operational efficiencies is difficult and is made more challenging by a number of things. Make no mistake about it; a Caterpillar dealer faces inventory management challenges not necessarily experienced by those in other industries. Caterpillar parts are not impulse items. When a service technician or a customer needs replacement parts typically, it means that a machine or an engine is down. It isn’t running. It isn’t working. When it isn’t working it isn’t earning a profit. A part of a business, or a business in total, is suspended. Just as it is important for a product support organization to understand the customer’s sense of urgency when he needs parts, it is also important that the organization understand the challenges of inventory management. Inventory management isn’t an easy assignment. The concepts and processes are not always intuitive but they are logical. Not everyone always appreciates how what they do triggers decisions in inventory management. But, once acclimated to the pressures and with some experience, you will find it to be an intriguing assignment. If it were easy, more people would want to do it. Let’s think about why it isn’t easy. Cat Product Line Expansion: It has proved difficult to get an exact number, but it is estimated that Caterpillar’s current product line spans nearly 500 current models of machines, engines and related products. Gone are the days of Cat just being a manufacturer of track-type tractors, loaders, scrapers, scrapers, trucks and engines. Today it’s that and much, much more. Just as an example, there are nearly 50 models of excavators. Then come the Telehandlers, Skid Steers, Integrated Tool Carriers, Compactors, Pavers, Feller Bunchers and more. more. Engines go up into the 8,000 HP range. With each plateau of growth came significant challenges for a dealer’s parts department.


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Chapter 1 – Inventory Control Basics New Product Introduction (NPI): For the past several years, Caterpillar’s product line expansion has been unequalled in the industry. NPI efforts have gone from being an isolated event ten years ago to almost being a common occurrence today. But, every good aspect of growth has brought with it a significant challenge. New product is also low population product. It’s new and for a time there will be a limited population. In the meantime, Parts has to be ready to support the machine or engine from the beginning. Often that means a significant inventory investment with no tangible guarantee of a return. More Part Numbers: Right now there are more than 650,000 different part numbers in Caterpillar’s parts system. Ten years ago, it was half that. We will discuss that more about that shortly. More Slower Moving Parts: As parts product lines grew, the heaviest growth came in the slower moving parts categories. Market Segmentation: A few years ago, Caterpillar defined 13 categories or market segments to group customers more by the work they do than the products they use. The intent was to have a way for financial and marketing information to flow from dealers to Caterpillar. It provides the background information and opportunity to focus resources and efforts to a specific market or groups of markets. In Parts, market segmentation brought with it a dramatic increase in the number of dealer stores, particularly smaller stores and, often, even smaller specialty stores. From an inventory control perspective, more stores means more duplicate inventory and even greater logistics and manpower requirements for what is typically a limited return. Shorter Lead-times: As dealers migrate from a weekly to a daily stock replenishment cycle, there is typically some inventory reduction related to the reduced lead-time. The challenging side of a shorter lead-time is that it impacts the fastest moving items that are most sensitive to lead-time. Any hesitation or interruption in supply increases the likelihood of stock outs or backorders dramatically. Increased Complexity: The systems that drive inventory management are becoming increasingly complex. That growing complexity is clearly reflected in day-to-day processes and procedures. Do More With Less: As has always been the case, a dealer’s parts department is continually under pressure to do more with less people, less inventory, less transportation. That in itself is a significant challenge. Finance Wants To Improve The Return On Assets Ratio: A dealer’s finance department is charged with maintaining and, if possible, increasing the organization’s Return On Assets (ROA). Simply stated, ROA is a ratio that indicates profitability for an organization relative to its total assets. In parts, it is typically net sales divided by the value of the assets required to generate those sales, i.e., the facilities, the inventory, systems and more. The higher the ratio, the more profitable the organization. Reducing inventory in the face of steady to increasing sales can yield a positive impact on ROA. But, from an inventory control standpoint, it isn’t a sure thing


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Chapter 1 – Inventory Control Basics nor is it easy to do considering the impact increasing demand has on inventory in a demand based system, i.e., when demand increases, typically, inventory increases. Beyond pressures to reduce inventory comes the ongoing struggle to reduce costs by doing as much or more for the same or a reduced cost. Cost reductions come into the ROA equation as an increase in net earnings. Marketing Wants More Services: Marketing efforts can involve “services” that range from special packaging to parts delivery to special commercial terms to special return privileges. Not all may seem to impact inventory directly but each carries a cost and that cost ultimately impacts ROA. Expanded transportation networks: Dealer transportation networks are extensive and costly. At the same time, they are “mission critical” to marketing product support. Obviously, transportation costs do impact net earnings and ultimately ROA. More product support or consignment inventories: Parts consigned to service trucks or to work stations in a service department are examples of product support or consignment inventories. Consignments are also those inventories consigned to customer locations or job sites. If consignments have a common attribute, it is that they are typically low volume, high maintenance and costly. Any additional costs impact net earnings and ultimately ROA.

The challenge is to manage consignments carefully to best insure that their cost doesn’t outweigh the positive impact they might have on sales.


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1.5 T The IImpor tance O Of I Inventor y Off-the-shelf parts availability has always been a Caterpillar dealership’s chief hold on the business. A dealer's reputation for parts availability ensures the ongoing sale of equipment and helps sell new equipment to current and new customers. In addition, any dealership’s service department should have a consistent and readily available supply of replacement parts. Being able to meet the ongoing needs of Caterpillar’s customers maintains trust and helps create new business. Keeping inventory protects against higher than average demand and provides dealerships with protection against short-term supplier shortages. The following is a quote by Louis B. Neumiller, taken from a Caterpillar guidebook entitled “Merchandising Caterpillar Parts” Parts” published in 1930. The quote came from a chapter entitled “What is meant by Parts Service?” “Good parts service is truly a great adjunct to sales. The character of service soon becomes known throughout a dealer’s territory. If good, it keeps machinery sold – it sells new machinery. It is the dealer’s chief hold on the trade. Poor parts service is the open door to competition. It may cause more sales resistance than all other reasons combined. Our service differs from that of manufacturers whose products are utilized for pleasure purposes or which simply contribute to the convenience of people. Caterpillar machinery is utilized for hard, productive work. It is normally operating under severe conditions – accomplishing results – earning a profit for the user. Therefore, when a Caterpillar dealer receives a parts order he must give it the kind of attention that may not be necessary in the service of other business. Caterpillar Tractor Co. realizes that when it sells a machine it sells what might be termed a business. A machine not operating for lack of of repairs is a business suspended – unproductive – unprofitable. To render service to such a machine should command the principal attention of all concerned with service. Good parts service comes as a result of good merchandising. Good merchandising requires an earnest and understanding Parts man, an orderly, well equipped storeroom, a reliable stock record, a complete selection of parts, fair prices, and simple, definite rules by which to conduct business.”

Those words written many years ago are just as appropriate today and stress the importance of inventory in the support of Caterpillar products and the future sales of engines and machines.


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1.6 W What IIs A An IInventor y M Manager T Do? To D At times, the complexity and extent of the inventory control process can seem overwhelming to even the most experienced managers. There are so many parameters, so many reports, so many numbers, and sometimes seemingly conflicting objectives. The process can seem even more discouraging when any sense of progress gets lost in the pressures and pace of day-to-day activities. So, what is an inventory manager to do?

At the highest level, an inventory manager is expected to: Balance inventory investment and customer service. Maintain desired turnover. Minimize related operating costs. Provide appropriate management reporting. • • • •

To meet the above expectations, it is important to understand the Life Cycle of a part, the pressures on the Life Cycle, and the functionality of its related parameters. The following chapters will provide you with the necessary background and skills to meet these expectations and successfully manage inventory


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CHAPTER 2 2

Chapter

2.0 L Lif e C Cycle o of a Par t a P Every part will eventually move through the phases of the Life Cycle. How effectively a manager uses the opportunity to control the timing of the transition, events and processes p rocesses directly impacts overall inventory performance, productivity and profitability. The following chapter introduces the phases of the Life Cycle, Life Cycle Parameters and the process of developing a Life Cycle strategy. Upon completion of this chapter, you will be familiar with: Phases of a Life Cycle The Role of Record Type The Life Cycle Process The Life Cycle is Changing Pressures on the Life Cycle Life Cycle Parameters Developing a Life Cycle Strategy • • • • • • •


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Chapter 2 – Life Cycle of a Part

2.1 P Phases O Of A Lif e C Cycle A L The Life Cycle Of A Part is a reference made in Inventory Control to the “cycle” every part eventually experiences. It refers to the the defined phases in a life cycle that have the Add-To-Stock, Control-Of-Stock and Remove-From-Stock processes. In DBS-DBSi, discounting manual intervention, the transition in and out of each phase is triggered by demand, i.e., the occurrence or the non-occurrence of “calls.” Typically, a part begins a life cycle with its first non-stock call in the Add-To-Stock phase. As demand occurs over time, there comes a point where the part qualifies to be “stocked.” When that happens, the part moves from the Add-To-Stock into the Control-Of-Stock phase. In the Control-Of-Stock phase, the part will be stocked and the parameters, processes and procedures used in stock replenishment routinely apply. Eventually, demand will decline. When the demand history (number of calls) falls below what it takes to remain “stocked,” the part transitions from the Control-OfStock into the Remove-From-Stock phase. Assuming no further activity, the part will stay in the Remove-From-Stock phase pending disposition of any inventory. When the inventory of that part has been entirely depleted, it becomes a non-stock non- stock part again and that life cycle is complete.

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2.2 T The R Role O Of R Type Recor d T In DBS-DBSi, Record-Type is an integral part of each and every store record. Because it changes automatically when a part goes from one phase in a life cycle to another, it clearly defines a part’s progression within a life cycle. The inclusion of record-types in the DBS parts system brought significant functionality to the life cycle processes beyond what can be achieved with just a stock and a non-stock record. As the illustration points out, the life cycle processes depend heavily on record-type to qualify records for the different life cycle processes. For example, non-stock, made-stock, temporary and exhaust-stock records are the only record-types that qualify for inclusion in the Add-To-Stock processes. The stocked record is the only one that qualifies for stock replenishment. The temporary and exhaust-stock records records qualify for the Remove-From-Stock processes. It’s important to develop an instinctive understanding of what each record-type is, what it means and how it applies in each process.

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R ecord-Types ecord-Types Defined: Defined: Non-Stock (N):

A non-stock store record identifies ide ntifies a part that is “not-stocked” at a specific store. It may or may not have demand history but it cannot have an on-hand inventory quantity. Made-Stock (M):

A made-stock store record identifies a part that has qualified to become a stocked part in that store and is in the Made-Stock Made-Stock Aging process. process. Discounting manual intervention, it will have demand history but it may or may not have an on-hand inventory quantity. Stock (S):

A Stock store record identifies a part that is “stocked” “stocked” in that store. It may or may not have demand history to support remaining a stocked record (could be protective stock or manually controlled) and it may or may not have an on-hand inventory quantity. Exhaust-Stock (E):

An exhaust-stock store record identifies a part that no longer qualifies to be stocked in that store or one that that has been replaced or discontinued. It may or may not have demand history but it “will” have have an on-hand inventory quantity. When its inventory level (total available inventory ) has been depleted in that store, it becomes a nonstock record. Temporary-Stock (T):

A temporary-stock store record identifies a part that came into inventory as the result of a non-stock return. It may or may not have demand demand history but it “will” have an onhand inventory quantity. When its inventory level ( total available inventory ) has been depleted in that store, it becomes b ecomes a non-stock record. Dead-Stock (D):

A dead-stock store record identifies a replaced or discontinued part with no demand history and no an on-hand inventory quantity (total available inventory ). ).


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2.3 T The L Lif e C Cycle P Pr ocess Parts can move through the various life cycles depending upon call activity. As call activity changes, the record-type may change based upon parameters. This section explains the relationship of record-types to the various stages within the life cycle. Add-To-Stock: In the life cycle of a part, demand (calls) on a part will accumulate to a point where the number of calls and the call interval meets or exceeds that store’s Add-To-Stock Parameters. When that happens, the the Non-stock, Temporary Temporary or Exhaust-stock store record qualifies to become a “stocked” record. When a part qualifies to be stocked, it has to go through the Made-Stock Aging Process to validate the the qualifying call. As a record qualifies for Made-Stock Aging, its record-type will automatically change from non-stock, temporary or exhaust-stock to made-stock. The record will remain as a made-stock record for a number of days equal to that called for in the Made-Stock Aging Parameters in the event there should be a return or some change in demand history that would otherwise disqualify the part for stocking. At the end of the Made-Stock Aging period, the part must re-qualify by meeting or exceeding the current Add-To-Stock parameters as a final validation before becoming a stocked part. If it qualifies the second second time, its record-type automatically changes to “stock” and the routine stock replenishment processes take over. When there is a return against a made-stock part, it will, at least temporarily, reverse the stocking process. To disqualify the part for stocking, the returns process changes the record-type from made-stock to temporary or exhaust-stock depending on the made-stock record’s Previous Record-Type. Record-Type. If its previous previous record-type had been Non-stock or Temporary-stock, Temporary-stock, it goes back to temporary-stock. temporary-stock. If it had been exhaust, it goes back to exhaust-stock. But that doesn’t end the the story. The return activity sets the Record Active Active indicator in the store record to “active.” “active.” As an “active record,” record,” it will attempt to re-qualify to be a stocked part in the very next stock replenishment update. If it can qualify, its recordtype changes back to made-stock and it gets another chance to survive Made-Stock Aging. If not, it remains in the Remove-From-Stock Remove-From-Stock phase and retains its record-type of temporary or exhaust-stock and the on- hand inventory is quantity surplus to that store. Control-Of-Stock: Just as records in the Add-To-Stock phase are being tested with every activity to see if they qualify to be stocked records, the records in the Control-Of-Stock phase are being tested with every activity and at every month-end (after the history roll) to insure that they still qualify to be remain as stocked records. Only stocked records qualify for routine stock replenishment. As long as they are qualified, all of the stock replenishment processes apply just as they do for any stocked record. But, eventually, demand will drop off and there comes a point when a stocked part can no longer qualify to be a “stocked record.”


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Chapter 2 – Life Cycle of a Part Remove From Stock: The Remove-From-Stock process purges Control-Of-Stock of parts that no longer qualify to be stocked. When a stocked part meets or exceeds its store’s Exhaust-Stock Parameters, its record-type, if it has on-hand inventory quantity, automatically changes to ExhaustStock and it will transition from Control-Of-Stock into the Remove-From-Stock phase of its life cycle. Exhaust-stock parts parts that have on hand inventory quantity (total available inventory) are considered surplus to that store and are identified by the exhaust-stock record-type. It can remain as exhaust-stock in that store store until the inventory quantity has been fully depleted, be re-deployed to another store or otherwise disposed of. When an exhaust-stock record has “no inventory quantity” (no total available inventory) it goes directly to non-stock to complete that life cycle. Said differently, an exhaust-stock record has to have total available inventory, otherwise it will change immediately to non-stock. When a subsequent call occurs on an exhaust or temporary-stock part in the Remove-From-Stock phase of a life cycle, it can re-qualify a part to be stocked and as such, send it back into the Control-Of-Stock phase. When that happens, the record-type changes to Made-stock and the part pa rt goes into Made-stock Aging. When accumulated surplus cannot be re-deployed, transferred, returned, scrapped or otherwise disposed of, a part’s progression in its life cycle stops in the RemoveFrom-Stock phase. It cannot complete the life cycle cycle (move on to non-stock) until the inventory has been entirely depleted.

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R em ove- F r om- S tock

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Lif e C Cycle C Consider ations The Life Cycle can also be viewed as a circle. Often, it is a repetitive process

particularly in the slower moving categories of inventory. Calls can be so infrequent that the interval between calls can cause a part to phase in and phase out of a dealer’s inventory, repetitively.


23


2.4 T The L Lif e C Cycle IIs C Changing There is compelling evidence that the life cycle of a part has experienced a recent and discernable change. As the Caterpillar product line expanded, it came with a tremendous growth in the number of line items required for product support. The problem emerged when a disproportionate percentage of that growth came in the categories of slower moving parts. Today, the Cat parts product line is even more dominated by the slower moving parts. As the growth came, it was obviously going to be b e a challenge for dealers to maintain customer service on the existing and on the new product. As dealers responded to the challenge, many adopted a strategy that included using parameters that would stock more parts, increase depth of inventory and, in general, lengthen the life cycle despite expectations of minimal activity. In the following months, inventory increased, customer service increased and, turnover, as expected, declined a bit. The reduced turnover in what was a tentative business climate attracted the attention of the financial side of many dealerships. To maintain or improve profitability, finance pushed for improved inventory turnover performance. Without a windfall increase in sales, sales, improving turnover would require implementing parameters that would stock fewer parts, decrease depth of inventory and, in general, shorten the life cycle. A shortened life cycle reduces the length of time for a part to qualify to remain in inventory as a stocked part. The flattened life cycle curve is the result of dealer’s implementation of a shortened life cycle. More parts come into into stock based on a qualifying call but their life cycle ends before that long awaited “next call” occurs. occurs. When it can no longer qualify to be a stocked part, it becomes surplus and is returned or otherwise disposed of.

d n a m e D

k c o t s n o N


S to c k

k c o t S t s u a h x E

k c o t S y r a r o p m e T

k c o t s n o N

T im e

A d d - T o - S to c k


C o n tr tr o l - O f - S to c k

R e m o v e - F r o m - S to c k

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2.5 P Pr essur es O On T The L Lif e C Cycle Make no mistake about it, despite all the new product, Caterpillar and dealers are as much in the slow moving parts business business today as ever. Therefore, as we begin to explore what it takes to first survive and then excel in this business, it’s important to consider what the challenges are and a nd where the pressures come from. Balancing The Demands Of Product Support And Finance: There is a financial need for inventory performance that can be an opposing pressure to product support’s need for parts availability and related logistical services. Those pressures are typically in conflict and there may never be a clear answer to “how much is enough” that satisfies satisfies everyone. But, there needs to be a realistic workable balance of “what can be done” with with “what there is to work with.” Striking or finding that balance isn’t a new challenge but it is getting increasingly more difficult and it is certainly more complex than it used to be. A Changing Business Environment: A changing business environment will definitely definitely increase or decrease the pressures on life cycles. In down times, for example, example, the life cycle pressures increase. Typically, the focus on inventory performance shifts from maintaining parts service to increasing inventory turnover and life cycles cycles begin to shorten accordingly. Parts will be less aggressively stocked, less aggressively replenished and a part’s tenure as a stocked part will shorten as more aggressive Remove-From-Stock parameters take hold. Conversely, in the best of times, the pressures on the life cycles typically decrease. The demand for inventory performance shifts from turnover back to parts service and life cycles begin to lengthen. As that happens, parts will will be more aggressively stocked, more aggressively replenished and a part’s tenure as a stocked record will lengthen as less aggressive Remove From Stock parameters pa rameters apply. A Changing Machine Population: The impact a major shift in a dealer’s machine population has on life cycles is closely related to that of a changing business environment. When a population is building, business is good and the focus will will be on parts service. When a population is declining, business is down and the the focus will shift to turnover. The impact of either mode will be clearly seen as a pressure that lengthens or shortens life cycles. cycles. A significant change in the mix of machines in a population often presents a real challenge. It might be necessary to gear up for what’s anticipated to be the the new population while simultaneously gearing down for what is expected to be the declining population. The pressures on inventory performance, i.e., turnover and parts service, can be formidable. More Stores: The expanded product line brought with it the marketing initiative to increase the number of dealer stores and to bring the concept of specialty stores for hydraulics, rental operations and more to market. The net result is that the the number of dealer stores has at least doubled. The impact on a life cycle is that there is typically inventory at any one store, more duplicate inventory in all stores and, in some cases, the demand in the specialty stores isn’t new demand, it’s demand displaced from a larger store. Technically, the more stores a dealer has, the less demand there will be at any one place and on any one part. In many ways, a number of smaller inventories present a far more complex inventory management challenge than might


25

Chapter 2 – Life Cycle of a Part a larger, single store inventory. Hence, the need for innovative life cycle cycle parameters, territorial stocking, dependent store processing, demand base months and more.

Cat’s 645,074 Part Numbers >350 100 - 349 15 - 99

<15

A B C D

3.21% 3.21% - 20 20 704 5.78% - 37,311 17.85% - 115,131

73.1 73.16% 6% - 471 471 928 928

More Slow Moving Parts: By the very nature of the business, the Caterpillar parts product line has always had more than its share of slow moving moving parts. The expanded product line brought with it a disproportionate growth and an even greater dominance, of the slow moving parts. The impact on Caterpillar is that the moving inventory has to move even e ven faster to compensate for the lack of movement in the non-moving inventory. The following illustration defines the extent of that challenge at Caterpillar. One of the drivers in Caterpillar’s stock replenishment systems is the A, B, C, and D Warehouse Activity Indicators. It’s based on the number of entries (stock and emergency) dealers make on Caterpillar worldwide. Starting on the left side and at the base of the triangle, a “D” moving part has less than 15 annual entries in the world. The “C” category spans the 15-99 annual call call range. The “B” category spans the 100-349 annual call range and the “A” parts parts are the fastest moving with 350 or more annual entries. The right side of the triangle shows how many and what percentage of the 645,074 different line items or part numbers fall into each classification.


26


Caterpillar Activity Indicators

A B

Fast

Medium

C D

Slow

Starting from the base of the triangle, 73.16% of the 645,074 parts (471,928) are the “D” or the slowest moving parts. Although roughly half of the “D” parts are serviced as Made-As-Ordered, what’s left left is still a huge category of low to non-performing inventory. The next 115,131 line items (17.85% of the total) have 15-99 entries per year and are classified as “C” parts. The next 37,311 line items (5.78%) have 100-349 entries per year and are classified as “B” parts. The last 20,704 (3.21%) of the parts have 350 or more entries and are Cat’s fastest moving parts. Just as Caterpillar’s inventory system is driven in part by the A, B, C and D Warehouse Activity Indicators, dealer’s inventory control systems depend heavily on the Fast, Medium and Slow Activity Indicators. Starting at the top of the triangle, Cat’s “A” classification of parts correlates directly to what a dealer sees as a “Fast” Moving Part. Cat combines “B” and “C” to make up what a dealer sees as a “Medium” Moving Part. All “D” parts correlate directly to what a dealer sees as “Slow” Moving Moving Parts. The inherent difference in Caterpillar’s and a dealer’s role in the supply chain forces a sharp contrast in how inventory will be distributed according to an A, B, C or D classification and/or the Fast, Medium or Slow Activity Indicators. Caterpillar’s role in the supply chain is to be the dealer’s supplier for any and all of the 645,074 serviceable parts that make up the Caterpillar parts product line. Regardless of demand, Caterpillar has little choice but to stock or otherwise provide every serviceable part from the fastest to the slowest moving parts across all product lines from the part’s inception (drawing board) to its final disposition (dumpster). By contrast, a dealer serves as the point-of-sale provider (the retailer) to the markets in his territory. As such, it is imperative that his inventory inventory be driven by the product support requirements of the machine, engine and related product population in that territory.


27

Chapter 2 – Life Cycle of a Part A further contrast is that Caterpillar Caterpillar provides dealers a number of disposition options options for accumulated surplus. The Surplus Return program does purge the majority majority of the accumulated surplus from a dealer’s inventory. The following illustration contrasts the Caterpillar inventory with what can be viewed as a typical dealer’s inventory.

Cat’s 645,074 Part Numbers >350 100 - 349 15 - 99

<15

A B C D

3.21% 3.21% - 20 20 704 5.78% - 37,311 17.85% 17.85% - 115 115 131

73.16% 73.16% - 471,928 471,928

The inventory distribution shown for the Caterpillar inventories is the same as shown earlier. Although it is just shown in line items, the inference to the dominance dominance of slow

moving parts is obvious. The contrast in the line item distribution between Caterpillar’s and dealer’s inventories is clearly in who has h as to stock the slow moving parts.


28

Chapter 2 – Life Cycle of a Part Fast Moving Parts: Dealers aggressively stock and replenish fast moving parts. Most dealers will have invested some 60% or more of their inventory dollars in Fast Moving Moving Parts. In line items, fast moving parts will account for about 45% or more of their stocked lines. More important is the fact that 45% of their stocked line item inventory will account for some 70% of their “stocked” line item activity. Medium Moving Parts: Cat’s medium moving category of parts is some eight times larger than fast and it is significantly less active. For example, demand has driven this “typical dealer” to invest 35% of his inventory dollars in medium moving parts. In line items, that investment covered 53% of his stocked line item inventory but it only supported 29% of his stock line item activity. activity. Although obviously slower moving, Medium Medium moving parts are still important to a dealer’s product support effort. Unfortunately, in terms of inventory performance, they do come at a greater cost. Slow Moving Parts: The slow moving category of parts is the largest and the least active category in the Caterpillar-dealer distribution network. network. Obviously, the management of slow moving parts is a monumental inventory management management challenge for Caterpillar. It is not the same or even a similar challenge for dealers. Few dealers will have as much much as 5% of their inventory investment in Slow Moving Parts to support barely 1% of their stocked line item activity. Should Dealers Stock Slow Moving Parts? In the late 1970’s, Caterpillar assumed the sizeable burden of being the distribution network’s primary source for the the “D” or “Slow Moving” parts. The intent was to use the emergency service fee structure to encourage dealers “not” to stock the slowest moving inventory in favor of more aggressively stocking and replenishing fast and medium moving inventory. As the previous illustration clearly clearly shows, that is exactly exactly what has happened. In the past 10-15 years, the the slow moving indicator has become a reference synonymous with a non-stock, non-stock, service fee exempt part. As a result, few dealers intentionally stock Slow Moving Parts. What dealers have could be stocked for new product or some other product support commitment but is more likely to have accumulated from non-stock returns.


29


2.6 L Lif e C Cycle P Par ameter s Life Cycle Parameters are an integral part of the the DBSi Ordering Parameters. They control the timing of events, such as record-type changes, that occur when a part qualifies to move from phase-to-phase in a life cycle. They control the events events related to add-to-stock, stock replenishment, and surplus identification and disposition. Therefore, before one can develop an effective Life Cycle Strategy, it’s important to consider the relationship each parameter has to the overall process. The life cycle parameters can make the life cycle process as automatic or as manual as a dealership, source-of-supply or store strategy requires.

The DBS-DBSi Life Cycle Parameters Apply By: Source-Of-Supply (SOS): Life Cycle Parameters apply by Source-Of-Supply to allow a dealer to segment an inventory by supplier or manufacturer within the broader category of “total inventory.” It’s an important distinction. It means that each source-of-supply can be managed and controlled differently according to its potential to contribute to a dealer’s product support capability and overall inventory performance. Store: Beyond source-of-supply, store store is the next most important distinction. distinction. Applying source-of-supply by store means that any defined source-of-supply can be controlled differently in any store. Territorial Hierarchy: Provides the capability to establish a territorial hierarchy unique to any source-ofsupply. This provides the capability to roll non-stock demand history from a lower level store in the territorial hierarchy to a store that may have a stocked record higher in the hierarchy. Activity Indicator (Fast- Medium- Slow): The Life Cycle Parameters provide the capability to control the inventory related to each Source-Of-Supply by the designated Activity Indicator. For Caterpillar SOS parts, this relates to the Fast, Medium, and Slow moving indicators. Returnable/Non-Returnable Returnable/Non-Retu rnable Status: The Life Cycle Parameters provide the capability to manage and control the inventory related to each Source-Of-Supply by the designated Return Indicator . This indicator determines whether the part is returnable/non-returnable to the vendor for surplus returns. Unit D/N Dollar Limits: The Life Cycle Parameters provide the capability to control the inventory related to each Source-Of-Supply by Unit D/N Dollar Limits differently. This allows inventory inventory control to manage life cycle parameters differently low dollar and high dollar parts based on activity indicator and returnable/non-returnable status. Demand Base Months: The Life Cycle Parameters provide the capability to control the inventory related to each Source-Of-Supply by Demand Base Months differently. differently. Demand base months determines the number of months used to accumulate call history for use in the life cycle parameters.


30

Chapter 2 – Life Cycle of a Part Call History: The Life Cycle Parameters provide the capability to control the inventory related to each Source-Of-Supply by Call Call History. The number of calls is used to determine determine what phase a part is in within the life cycle.

Life Cycle Parameters Drive The Following Processes: Nonstock/Madestock Review: The Non-Stock/Made-Stock Review parameters apply in the Add-To-Stock Life Cycle Phase. They control the display of a part with its associated decision support information on the Non-Stock/Made-Stock Review report. The process applies to calls “equal to/greater than” qualification logic to qualify/disqualify a part for display on the report. If, for example, qualified calls are equal to/greater than the parameter parameter setting, the part will appear on the report. If calls are less than the parameter setting, it will not display, at least least on its own merits. It may display as a reference should another store have qualified in the same stock replenishment update. Add-To-Stock: The Add-To-Stock parameters apply in the Add-To-Stock phase. They control the timing of a store record’s transition from the Add-To-Stock phase in a life cycle to “Control-Of-Stock.” The record-type associated with this change is made-stock. When it qualifies, a nonstock, exhaust-stock or a temporary-stock record record will change to “made-stock.” “made-stock.” If the part is still qualified at the end of the Made-Stock Aging period, the record-type will change from made-stock to stock. If it doesn’t qualify, the record-type will revert to its previous record-type. Add-To-Stock, like the Nonstock/Madestock Review process, applies to calls “equal to/greater than” qualification logic at each decision point (non-stock to made-stock and made-stock to stock) in the process. Add-To-Stock “calls” is the pivotal parameters setting in the life cycle parameter synchronization process that will be shown shortly. Force Part To Suggest Order: The Force Part To Suggest Order parameters establish a point in the Control-OfStock phase where, based on the “non-occurrence” of calls, a stocked part no longer qualifies for routine or automatic stock replenishment. This process applies a “less than” qualification logic for calls. For example, a 2 call in 12 months Force Part To Suggest Order parameter would block automatic order when demand fell to” less than” 2 calls in 12 months which means one call or no calls in 12 months. Forcing a part to “Suggest Order” does provide the opportunity to re-deploy available surplus, to manually non-stock a part, or to order the part for some product support reason beyond accumulated calls. Exhaust-Stock: In the Remove-From-Stock phase of the life cycle curve, the Exhaust-Stock parameters establish the point where a stock record no longer qualifies to be stocked. Calls have fallen below what it takes for a stocked stocked part to remain a stocked record.


31

Chapter 2 – Life Cycle of a Part The associated record-type change is from “Stock” in the Control-Of-Stock phase of a life cycle to “Exhaust-Stock” in the Remove-From-Stock phase. Exhaust-Stock, like the Force The Exhaust-Stock Parameters, apply a “less than” qualification logic for calls. For example, a 1 call in 12 month month Exhaust Stock Stock parameter would “exhaust” a part that had fallen to zero calls in 12 months. Understand that an exhaust-stock part, although it is considered surplus to its store, it may or may not be surplus to its territorial hierarchy or to the dealership.

Setting Life Cycle Parameters: Life Cycle Parameters use: Base D/N Limits Demand Base Months Add-To-Stock Calls • • •

Life Cycle Parameters apply by: Source-Of-Supply Territorial Hierarchy Store Activity Indicator (Fast-Medium-Slow) Returnable/Non-Returnable Status Unit D/N Dollar Limits Demand Base Months Call History • • • • • • • •

Should all parameters be set the same? Probably not!

Consider •

•

•

•

The role each each store plays plays in the dealership’s overall product support strategy… Each store store is expected to contribute to the dealership’s overall inventory performance… Important each source-of-supply source-of-supply is to the achievement of the dealership’s overall product support strategy… Each source-of-supply is expected to contribute contribute to overall inventory performance…

Each/every “consideration” impacts how the Life Cycle Parameters should be set for each source-of-supply within each store.


32


Source-Of-Supply

Enter Source-Of-Supply Key CF 7

In this this exa examp mple le,, s ource AA A is C ate terpilla rpillar r


33


Store

Select (“S”) the store st ore to be displayed or maintained. Press Enter

The S ou ource rce (S OS ) Ordering P ara rame metters A pp pplly B y S tore wit within hin S our ourcc e.


34


Source-Store

Select “S” Life Cycle Parameters Press Enter


35


Base D/N Dollar Limits

uni t dea dealers lers net val value for R eturn eturna able ble and and NonNon K ey a unit R eturnabl eturnable e Fa F as t, Medium and and S low moving moving parts parts . prov ovide ide a way to s et a di diss tin tincc tion •The BASE D/N LIMITS pr between betwe en the “expens expensive” ive” and the “les esss expens ex pensive” ive” R et eturnab urnablle and Non-R et eturnabl urnable e Fas t, Medium and and S lo low w moving pa parts rts . Parame metter S ync hronizat hronization ion proces s , B as e D/N D/N •In the L ife Cy cle Para Limits sets the D/N values to be used in all life cycle parameters .


36


Demand Base Months

K ey a number number of months to be used as as Demand Demand B as e Months Months

•In

the Life Cycle Parameter Synchronization process, Demand Demand B as e Months Mon ths s ets the number of months mon ths for call his tory to be us ed in i n all life cyc le param paramet eters ers .

• In

the stock replenishment process, Demand Base Months sets the number of months to be us ed in the calculat calculatio ion n of “annual” “annual” dem demand. and.


37


Add-To-Stock Calls

Key a number of calls to serve as Add-To-Stock Calls

•In the Life Cycle Parameter Synchronization process, A dd-T dd-Too S tock C al alls ls s ets the number nu mber of c alls to be us ed i n al alll life li fe c yc ycle le parameters parame ters .


38


Parameter Synchronization

Parameter Synchronization is an optional process. When applied, it brings consistency to the Life Cycle Parameter settings.

Synchronization will apply the same D/N Dollar Limits to all Life Cycle Parameters. Synchronization will apply the same Demand Base Months to all Life Cycle Parameters. Synchronization uses Add-To-Stock calls as the Add-To-Stock parameter and is the pivotal setting for the Non-Stock/Made-Stock Review, Force Part To Suggest Order and Exhaust-Stock parameters. Synchronization sets Non-Stock/Made-Stock Review calls at one call less than AddTo-Stock calls. Synchronization sets the Force Part To Suggest Order calls equal to Add-To-Stock calls (because it applies less than logic). Synchronization sets Exhaust-Stock calls at one call less than Force Part To Suggest Order calls (because it applies less than logic).


39


Synchronize Or Not To Synchronize

ynchronizes C F 10 S ynchronizes ynchroniza izattion C F 11 S ki ps S ynchron

• S yn yncc hr hroni onizat zatii on is optio optional nal..


40


Synchronized!

D/N D/N Doll D olla ar L imits s et consis cons is tent tently. ly.



Demand Demand B as e Months Months s et cons is tentl tently. y.



A dd-To-S tock s et equal to A dd-To-S tock C alls alls • A Applies pplies equal to or g r ea eate terr than qualif qualifii cation log ic .



Non-stock/ Non-s tock/Ma Madede-S S tock tock R eview s et at at one call call less less than than A dd-To-S dd-To-S tock tock C alls lls . • A Applies pplies equal to or g r ea eate terr than qualif qualifii cation log ic .



Force For ce Part To S ug g est es t Order set equa equall to to Add-To-Stock c alls lls . • A Applies pplies les s tha than n qualification qualifi cation log i c.



E xhaust S tock tock s et at one one call call les les s than than Force P art To Sug g est Order. • A Applies pplies les s tha than n qualification qualifi cation log i c.




41


How to Interpret the Life Cycle Parameter Screen

Whether one chooses to synchronize or not, it is important to understand the life cycle parameter screen and how to interpret it. First, determine the returnable/non-returnable status of the part. Second, determine the the activity activity indicator indicator (F-Fast, (F-Fast, M-Medium, S-Slow) of the part. Finally, determine the dealer net value (unit cost) cost) of the part. Once you have determined these three factors, you can now identify what parameters this part will have applied to it. For example, if you have a part that is returnable with a dealer net value of $75 and is a fast moving part, the add-to-stock parameter for that part is 2 calls in 12 months. This is determined by identifying that the RTN D/N LIM is Less than or = D/N Limit of $150, so you will look at the calls/month on the left hand side of the screen for a fast moving part. If the part was returnable with a dealer net value of $750 and is a fast moving part, the add-to-stock parameter for that part is 3 calls in 12 months. This is determined by identifying that the RTN D/N LIM is Greater than D/N Limit of $150, so you will look at the calls/month on the right hand side of the screen for a fast moving part. If D/N LIM of a part is Less than or = D/N Limit, call/months parameters on the left hand side apply. If D/N LIM of a part is Greater than D/N D/N Limit, call/months parameters on the right hand side apply. • •

•


42


2.7 D Developing A A L Lif e C Cycle S Str ategy From an overall inventory management perspective, it important for any organization to have a clearly defined, generally understood and agreed upon strategy for maintaining or improving inventory performance. A “strategy” is simply a plan that begins with a definition of the organization’s expectations (goals and objectives) objectives) for inventory performance. performance. It defines what needs to be done, why it needs to be done, how it is going to be done and the measurements that will tell if it has been done. A strategy can be as simplistic or as inclusive as the planner or the organization requires. It is important for an inventory manager to clearly understand his organization's expectations for inventory performance. Consider drafting a description of the dealership's product support strategy from an inventory manager's perspective. 1. Transform the the organization's product support strategy into into realistic, attainable and supportive inventory performance goals. 2. Benchmark the the current level of inventory performance. 3. Appraise the organization's satisfaction satisfaction with the the current level of inventory performance. 4. Once goals are accepted and approved, develop a strategy strategy around DBS Life Cycle Parameters to improve inventory performance. 5. Define appropriate performance measurements (Key Performance Indicators). 6. Develop a structure structure for management reporting. 7. Implement the strategy strategy through DBS Life Life Cycle Parameters. 8. Report performance and progress to management.


43

CHAPTER 3 3

Chapter

3.0 A Add-to-Stock The Add-To-Stock process occurs in the initial phase of a part's Life Cycle. From an inventory investment standpoint, the add-to-stock decision is the most critical to performance and profitability. Upon completion of this chapter, you will be familiar with: The Add-to-Stock Process How Parts Get into Stock Decision Support Information Add-To-Stock Parameters Territorial Stocking Performance Measurement • • • • • •


45

Chapter 3 – Add-to-Stock

3.1 T The A Add-To-Stock P Pr ocess The Add-To-Stock process occurs in the initial phase of a part's life cycle. From an inventory investment standpoint, decisions related to adding a part to stock are the most critical to the dealer's performance and profitability. In DBS, a part's record type will change as it moves through the defined stages of its Life Cycle. Typically, non-stock, madestock, exhaust stock and temporary stock records qualify for consideration in the Add-To-Stock process. Non-stock (N): A part that is not stocked. It may or may not have demand history, but it cannot have an on-hand, in process, in return or an on-order quantity. process. Made-stock (M): A part in the madestock aging process. Exhaust Stock (E): A part that, due primarily to declining demand, no longer qualifies for stock replenishment or one that has been replaced or discontinued. result of a non-stock return. Temporary Stock (T): A part in stock as the result

d n a m e D

N o n S t o c k

M a d e S t o c k

Stock

T e m p or ar y S t o c k

E x h a u s t S t o c k

N o n S t o c k

Time Add-To-Stock

Control-Of-Stock


Remove-From-Stock

46

Chapter 3 – Add-to-Stock In the DBS system, record-type plays a critical role in the Add-To-Stock process. Record-Type reflects a part’s progression in a life cycle. It defines the role each store record has in the process even to the point of defining how extensively a territorial hierarchy utilizes demand history. Yet, when it comes right down to the issue at hand, the Add-To-Stock process is all about making decisions in an environment where there isn’t an indicator that makes any decision a sure thing and where even not making a decision is making a decision. Most will admit that there are times when an Add-To-Stock decision can be personally bother some. Making a decision to stock a part is a direct and, at times, a sizeable investment of dealership’s resources with no real guarantee of a return on that investment. In a seminar a while ago, an inventory manager offered the following observation of what he learned in his struggle to find his own comfort level within the Add-To-Stock process. “Eventually, you understand that Add-To-Stock is, in large part, a process of making the best decision you can make based on what you have to work with at a specific point in time. You learn to use the system and the system parameters to your advantage. You learn the value of being consistent. You learn to make timely decisions and, you learn to move on.” That message covers a lot of territory. It infers that we are yet to see a crystal ball for add-to-stock. Thus, the drive for performance falls to an essential need to understand the system you have to work with and how to use it to your advantage to make the best point-in-time judgment call you can make day in and day out. It is important to understand that in the DBS systems, the Add-To-Stock process is controlled by a set of parameters that apply at the Source-Of-Supply and Store level. Depending entirely on those settings, the process can easily be as automatic or as manual as a dealer wants it to be. The DBS systems (DBS and DBSi) are demand-based. The fact that calls do or do not occur is driving virtually every process and particularly those related to Add-ToStock.


47

Chapter 3 – Add-to-Stock As a process, Add-To-Stock begins when, in the initial phase of a part’s Life Cycle, a part has its first call. If a master record has not been previously established, the first call starts an automatic process that sets up a parts master and a store record using information from the Cat Price/NPR File, the transaction itself and the store involved. With that non-stock call and with every subsequent non-stock call thereafter, the system compares that store’s demand history and other related information to the Add-To-Stock Parameters to see if the part can qualify to be stocked. stocked. When a part qualifies for a non-stock review (see the Non-Stock Review Parameters), it displays with its current record-type and associated decision support information on the Non-stock/Made-Stock Review Report. When a part qualifies to be stocked, the record-type automatically changes to madestock. It begins the Made-Stock Made-Stock Aging process and it displays with its associated decision support information on the Non-Stock/Made-Stock Review report. The choice at that point is to validate the system’s parameter driven response to a qualifying call by (1) leaving it alone to stock by default at the end of Made-Stock Aging, or (2) to stock it immediately by changing the record-type or (3) to maintain (change) the demand history to possibly reverse the process should the qualifying call or calls appear invalid. Discounting manual intervention, a part will remain in the Made-Stock Aging process for a parameter-controlled number of days as part of the process of validating the qualifying call. A return against a made-stock part, part, for example, will reverse the the addto-stock process. At the end of Made-Stock Aging, the part has to re-qualify against current Add-ToStock parameters before it can become a stocked part. If the part qualifies a second time, the record-type automatically changes to stock and it moves into the Control-Of-Stock phase of the life cycle. The current date overlays Date-To-Stock and the routine stock replenishment processes take over.

If, at the end of Made-Stock Aging, a part no longer qualifies to be stocked, recordtype reverts to its previous record-type and the part remains in the Add-To-Stock phase of its life cycle.


48


3.2 H How P Par ts G Get IInto S Stock Part basically get into stock in one of two ways: Historical Demand Anticipated Demand There are several variations to historical and anticipated demand and what follows will give the reader a better understanding of what is meant by each. • •

Historical Demand Historical demand can can be separated into valid demand and invalid demand. That is, some demand is accurate and a dealer should stock for this demand activity, while other demand is not valid due to a number of circumstances and a dealer is stocking parts unnecessarily. Valid Demand In concept, the best add-to-stock decisions are those that use the occurrence of valid and independent calls as the primary driver. Thus, recording and maintaining valid demand history is very important. It is especially especially important in the DBS systems systems because they are entirely demand based. Nearly everything in the inventory control system is driven by the occurrence or the the non-occurrence of demand (calls). The more valid the demand history, the better the resulting Add-To-Stock decision. The majority of a dealer’s stocking decisions result from their validation or agreement with the system’s system’s parameter driven response to demand history. history. Said differently, the system indicated a part has qualified to be stocked and the dealer agrees and allows the system to stock the part. When a part qualifies for a review or qualifies to be stocked, it displays on the Non report with all of its demand history and whatever decision Stock/Made-Stock Review report support information is available at that point in time. Decision support information information relates to whom, what, when, where and possibly even why a service technician or a customer ordered that part. The task at hand is to validate validate the qualifying call or calls. Just the fact that a call occurred isn’t always a valid qualification for a part to be stocked. It’s important to be curious curious and to use resources such as the NonStock/Madestock Review report, the audit trail and other inquiries to validate the qualifying call or calls. Typically, the information that appears on the Non-Stock/Made-Stock Review report is viewed as a valuable insight into the non-stock activity occurring occurring in a territory. The repetition of seeing customer names and machine model and serial numbers will develop into an instinct for a machine machine population and a customer base. Develop and learn to trust a common sense approach to the decision making process but above all, be curious about the detail and make consistent decisions. Invalid Demand When invalid demand drives the Add-To-Stock process to stock parts that shouldn’t have been, it contributes directly to the cost of surplus accumulation and, more often than not, the additional cost of surplus disposition. When invalid demand is recognized as such, it should be changed so it won’t later appear valid and cause a part to be stocked that shouldn’t have been. Returns: Despite the preventive measures built into the DBS returns process, a return can still be a source of invalid demand. The DBS returns process process does automatically


49

Chapter 3 – Add-to-Stock compensate (reduce demand history) for most most returns. However, the opportunity for an automatic adjustment is restricted to what can be handled in the current plus the two previous months of demand history. When an automatic adjustment adjustment cannot be made, the exceptions will be reported on the Unadjusted Demand Demand report. If the Unadjusted Demand report isn’t being worked, parts will certainly be stocked based on invalid demand thus contributing to the cost of surplus accumulation and, more often than not, the additional cost of surplus disposition. Ordered In Error: Any return is evidence of a part “ordered in error.” Obviously, it wasn’t needed or it wouldn’t have been returned. returned. There will always be a certain level of returns but when they appear excessive it can point to a need for order reference training. Duplicate Calls Can Be “Invalid Demand:” Duplicate calls occur when a part is entered multiple times on the same document. Each line item entry registers a call. A recent improvement in DBS DBS consolidates the multiple line item entries within a document to minimize the occurrence of duplicate calls. It has significantly reduced “duplicates” but it will not eliminate all possible possible occurrences. The important thing is that anytime such a situation is recognized, take the time to fix the record. Wrong Transaction Code: No system can detect the true difference between normal and abnormal demand because it is more of a judgment call than anything else. Therefore, it is critical to have the appropriate transaction transaction code applied at order entry. entry. When the abnormal demand transaction code is applied as a sale type or as a line item override, the system bypasses the step of recording demand history. If that intervention intervention doesn’t happen and it should have, then parts can certainly be stocked when they shouldn’t have been.


50


Anticipated Demand In addition to stocking for historical demand, dealers also stock for anticipated demand. Anticipated demand typically is a result of a new product entering a dealer’s territory for which historical historical demand does not exist. exist. Stocking for anticipated demand is a pre-requisite of inventory control. Protective Stock Stocking in anticipation of demand includes those items added to support a dealer’s New Product Introduction (NPI) processes. Typically, those parts will be set up as Protective Stock, given a Protected Reason and a Months Protected. Product Support Requirements Special product support requirements such as availability guarantees, Customer Support Agreements, extended or special warranty situations, or product Improvement Programs will cause dealers to aggressively stock in anticipation of that demand. As mentioned earlier, inventory may also be set up as Protective Stock or as Temporary Frozen in order to distinguish it from all other inventory.

Unless that inventory is clearly identified and distinguished from all other inventory, it will be extremely difficult to manage or difficult to quantify should you be asked to show the product support impact of those parts. Special Customer or Market Requirements Stocking for customer or market requirements includes those items stocked for the demand of a specific customer or a group of customers or even a specific market. Stocking mining parts for the Mining market in general might be a good example. The important thing is to identify those parts as protective stock or temporary frozen to distinguish them from all others should the need arise to define how the inventory is supporting the strategy.


51


3.3 D Decision S Suppor t IInf or mation Decision Support Information is just a term that refers to all of the information associated with a part and the transactions that impact inventory and demand history. Despite the lengthy list, there isn’t a single indicator that is the answer as to why a part should or should not be stocked. But each bit of information, each indicator is worth something in the overall process. All together, it qualifies as decision support information. The following table provides a brief description of what kind of information is available on the Non-Stock/Made-Stock Review Report and where it comes from. Parts Identification: From the Cat Price/NPR Record Part Number Description Status (UDPRAT):

Activity Indicator Commodity Codes (CC/BEC) From the Dealer Part Master Record Source-Of-Supply (SOS) Number Of Stores From the Dealer Store Record Record-Type Territory History Used Demand History Non-Stock/BAS History Detail

From the Dealer Ordering Parameters Territorial Hierarchy Life Cycle Parameter Settings


Part Number Description Blank = Returnable U = Unidentified D = Discontinued P = Perishable R = Replaced A = Attachment T = Engine F = Fast, M = Medium, S = Slow See Commodity Code in Glossary Source-Of-Supply Number Of Store Records Record-Type for Each Store Yes/No Current Month + Previous 24 Months Store Activity Date Transaction Code Transaction Quantity Document Number Customer/Work Order Number Customer Name Make-Model-Serial Number Defines Store Inclusions D/N Dollar Limits Demand Based Months Add-To Stock Calls Made-Stock Aging Days

52

Chapter 3 – Add-to-Stock Because the DBS system does not have an on-line Add-To-Stock review function, the essential decision support information displays in its most useable form only on the Non-Stock/Made-Stock Review Report. Understand that there are display and maintenance functions available that give access to parts masters, store records, the Price/NPR file, the Ordering Parameters and more. There just isn’t a “consolidated” territorial display that shows the demand history rolled up as the system would would use it in a territorial application. But, it does display as it was applied by the system (consolidated) on the Non-Stock/Made-Stock Review Report.


53


3.4 A Add-To-Stock P Par ameter s The Add-To-Stock process is controlled by a set of parameters that apply at the Source-Of-Supply and Store level. Depending entirely on how those parameters are set, the entire Add-To-Stock process can be as automatic or as manual as a dealer wants it to be.

Non-Stock/Made-Stock Non-Stock/Made-Stock Review: The Non-Stock/Made-Stock Review Parameters and the Add-To-Stock Parameters control the associated record-type changes and, the timing of when that information displays on the report.

As a parameter, both the Non-Stock/Made-Stock Review and the Add-To-Stock parameters use an equal to or greater than call qualification logic. In the example above, when a fast moving, returnable less than $150 part has one or more calls in 12 months, it will qualify to be displayed on the Non-Stock/Made-Stock Review Report. If the dealer’s net price on the the same part were, were, in this case, greater than than $150, it would not display the part until it had two calls or more in 12 months. NOTE: Remember when to use the call/month call/month parameters on the the left or right! If D/N LIM of a part is Less than or = D/N Limit, call/months parameters on the left hand side apply. If D/N LIM of a part is Greater than D/N D/N Limit, call/months parameters on the right hand side apply. The purpose of setting the parameter to cause a review is to validate qualifying calls in a timely fashion. It is easier to validate validate an activity related to a particular repair or some related activity shortly shortly after it occurs rather than weeks or months later. One part displaying on a review may lead to having to validate several others from the same order or perhaps the same job.


54

Chapter 3 – Add-to-Stock When the activity appears valid no maintenance is required. When the activity appears invalid, the the decision support support information needs to be modified. Do the maintenance on the Store Record and on the associated Non-Stock History Record.

Add-To-Stock: The Add-To-Stock parameters qualify a part for a record-type change (to madestock) and to display on the Non-Stock/Made-Stock Review report. As mentioned earlier, the Add-To-Stock Parameters use an equal to or greater than call qualification logic. In the example above, when a fast moving, returnable less than $150 part has two or more calls in 12 months, it will qualify to be stocked.

The Add-To-Stock “Months” for the Non-Stock/Made-Stock Review and Add-ToStock parameters are the same. When that isn’t the case (and it doesn’t have to be), the test for increasing demand will apply within each process independently. Further, Demand Base Months can be different different than Add-To-Stock Add-To-Stock months. The Add-To-Stock process will apply from the Add-To-Stock Parameters regardless of Demand Base Months. Test for Increasing Demand The Test for Increasing Demand is part of the process that selects the months of demand history that will be used to qualify or disqualify a part for a review or to be stocked. The purpose of the test is to give more credence to the demand history in the current month than for the oldest previous month called for by the parameter.


55

Chapter 3 – Add-to-Stock Given the parameters displayed below for fast moving parts, the test for increasing demand will compare the calls in the current month to that of the 12 th previous month. It includes the month with the greater number of calls calls and excludes the month with the lesser lesser number of calls. When calls are equal, equal, it uses the current month.


56

Chapter 3 – Add-to-Stock Below is an example of the demand history that displays on the Non-Stock/MadeStock Review report. It illustrates how the test for increasing demand works in DBSi. Example #1

SOS: AAA Store: 00 Demand History Curr 1st 2nd 3rd Calls 2 0 0 0 Pieces 3 0 0 0

Fast Moving Part

Add-To-Stock Months: 12

4th 0 0

8th 0 0

5th 0 0

6th 0 0

7th 0 0

9th 1 1

10th 11th 12th 0 0 1 0 0 1

In the example above (#1), the calls in the current month exceed those of the 12 th previous month (the parameter). The annual demand used for an Add-To-Stock decision is 3 calls for 4 pieces. At this point in time, the fact that demand in the current month exceeded that of the 12th previous month defines an “increasing demand” situation. Example #2


Fast Moving Part


4th 0 0

8th 0 0

5th 0 0

6th 0 0

7th 0 0

9th 1 1

10th 11th 12th 0 0 2 0 0 2

In Example #2, calls in the 12 th previous month (the parameter) exceed those of the current month (a common occurrence after a month-end process). process). Thus, the current th month is excluded and the 12 previous previous month is included. included. The annual demand used for an Add-To-Stock Add-To-Stock decision would be 3 calls for for 3 pieces. At this point in time, the fact that demand in the current month did not exceed that of the 12 th previous month is indicative of a “decreasing demand” situation. Example #3


Fast Moving Part


4th 0 0

8th 0 0

5th 0 0

6th 0 0

7th 0 0

9th 1 1

10th 11th 12th 0 0 2 0 0 10

When calls are equal (Example #3), DBS uses the current month regardless of the number of pieces. The test for increasing demand gives more credence to the current month.

Made-Stock Aging: Made-Stock Aging is a DBS routine that is associated with Add-To-Stock that “ages” stocking of qualified items for a parameter controlled number of days as a test for invalid demand. The parameter displays with the Add-To-Stock parameters and applies by the same variables as Add-To-Stock, i.e., fast, medium, slow, and the returnable/nonreturnable dealers net dollar limits.


57


Made-Stock Aging provides a way to age stocking decisions for a number of days to await the possibility possibility of a non-stock return. It is particularly valuable to dealers in short lead-time situations where a part can, at times, be stocked, ordered and received faster than a typical return can be processed. Made-Stock Aging isn’t a complex process but it does have variables. First, it applies by Source-Of-Supply and store. The more expensive parts can be aged longer than the less expensive ones and the Medium and Slow moving parts can be aged longer than the Fast moving parts. There are ample resources within DBS to help define the need for a shortened or an extended parameter setting. For example, the returns statistics on the DBS Returns Analysis Report provide a non-stock and stock return rate for a Source-Of-Supply and a store. The sale and returns transactions transactions in the Audit Trail define typical typical saleto-return cycle times. The temporary-stock category of inventory on the Min-Type Store Statistics Report shows the magnitude non-stock returns have on overall inventory performance in line items and dollars. Made-Stock Aging applies in “calendar days.” Day 1 is the day the part becomes made-stock. It changes from Made-Stock to Stock the day after it completes completes MadeStock Aging. In the following example, there is no weekend processing. Notice how the “weekend days” result in a grouping of the made-stock parts from the three previous days onto Monday’s order. The impact is minimal at that point but it might be much greater when all of those “new location items” arrive in the warehouse on the same day.


58


In order to avoid stacking of inventory it is important to maintain aging days in multiples of seven. As shown above the made-stock aging days of seven will prevent the grouping of stock orders for one day and spread it out evenly across the week. As stated before, the greatest impact impact is on the receipting side. By using multiples of seven aging days, all those “new location items” will arrive in the warehouse evenly spread through out the week.


59


In a daily stock replenishment cycle, a seven days (or a multiple of seven days) aging provides the benefit of a reasonable aging without imposing an abnormal number of new location assignment tasks in the warehouse when the parts come in. The same analysis works for weekly stock replenishment. Notice the difference a day makes. The made-stock to stock record-type change occurs during the stock stock replenishment process. Thus, on a weekly cycle, the record-type changes will only occur one time a week. In the following following analysis, Friday is stock stock order day. day. A one-day aging beyond the stock order day (Friday in this example) automatically results in an additional week of aging. Notice that aging 7, 8, 9, 10, 11, 12 and 13 days is the same. Aging 14, 15, 16, 17, 18, 19 and 20 is the same.


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3.5 Territor ial ial Stocking In the DBS systems, Territorial Stocking is an optional process that provides an effective way to consolidate non-stock demand history into a designated store in a sequence controlled by a defined defined hierarchy. Its purpose is to bring a territorial territorial consideration into the add-to-stock decision making process. (Note: If using territorial hierarchies, territorial is used for all phases of the life cycle. cycle. Territorial impacts will be discussed in each of the phases.) Without a territorial hierarchy, each store functions as a distinct distinct territory to itself. As such, it stocks based on its own, and only its own, demand history independent of all other stores in a dealer’s territory. With a territorial hierarchy, stocking decisions can be influenced not only by the activity in an individual store but also by the activity in a defined territory. For example, given the store locations in a territory such as the one to the left, a part could have as many as seven non-stock calls (one in each store) and not have qualified to have been stocked at any one store. An appropriately structured territorial hierarchy would have consolidated the non-stock calls and stocked the part in at least one but eventually more stores several calls sooner, which, at the minimum, would have reduced emergency procurement procurement costs. In this example, the part would most likely have been stocked in the largest store (the largest star) on the second call “in the territory.” As subsequent demand occurred in the other stores, they would have stocked according to the structure of the hierarchy and their individual Add-To-Stock parameters. In the Remove-From-Stock phase of a part’s life cycle, territorial logic effectively reverses the process. process. As demand subsides, a part will be stocked at fewer and fewer stores until finally, it can no longer qualify to be stocked anywhere and it becomes non-stock to the territory. The DBS territorial application applies by source-of-supply. Each source can can have multiple hierarchies and each of those hierarchies can have one to four levels. Level-4 is the highest level in the hierarchy, with a Level-3 store reporting non-stock history to a Level-4 store. A Level-2 store would report non-stock non-stock history up to a Level-3 store with a stock record and if none exists it would report on up to the Level4 store. The Level-1 store would report non-stock history on up to the level that has a stock record. The following Territorial Table shows shows that all stores are set at Level-4. In this configuration, there are six independent hierarchies defined within a single territory.


61


Territory Table Store 00

Store 01

Store 02

Store 03

Store 04

Store 05

Level-4

Level-4

Level-4

Level-4

Level-4

Level-4

There is a Territorial/Distribution Maintenance function in the DBS Ordering Parameters that is used used to establish each each store’s position in a hierarchy. The entries shown below established St. 01 as a Level-3 store reporting non-stock demand history to St. 00. St. 00 is, in this case, a level-4 store at the top of the hierarchy. TERRITORY STORE REPORTING

STORE: 01 SOURCE: AAA LEVEL 3

CATERPILLAR REPORT TO STORE 00

Note that as a result of this change, the six independent hierarchies were consolidated into five. Notice further that in any territory, there will only be one Level-4 store at the top of each hierarchy but there can be multiple hierarchies within an overall territory.

Territory Table Store 00

Store 02

Store 03

Store 04

Store 05

Level-4

Level-4

Level-4

Level-4

Level-4

Store 01 Level-3

The territorial hierarchy illustrated below utilizes all four levels and sets the stage for discussion of how a store’s record-type impacts the process.


62


Territorial Table

Store 00 Level-4

Store 01 Level-3

Store 02 Level-2

Store 03 Level-1

Store 04 Level-1

Store 05 Level-1

It is important to remember that in territorial stocking, stores with non-stock, madestock, temporary-stock or exhaust-stock records are considered “non-stock stores.” Stores with stocked records are considered “stocked stores.” In territorial stocking, demand from “non-stock stores” always rolls to the next highest level within the hierarchical structure until it rolls to and is consolidated into a stocked store or until it reaches the top of the hierarchy. The following Territorial Table is the same as the one above except that it brings the functionality of record-type into the process. Terr itorial itorial Table

Store 00 Level-4 Non-Stock

Store 01 Level-3 Stock

Store 02 Level-2 Made-Stock


Store 04 Level-1 Temporary

Store 05 Level-1 Exhaust

Here, all of the Level-1 stores are non-stock stores. Thus, the demand history from St. 03, St. 04 and, St. 05 rolls to the next highest level in the hierarchy and will be added to that of St. 02 because St. 02 is a non-stock store store (made-stock record). As a Level-2 non-stock store, St. 02 will roll its consolidated demand history (St. 02, 03,


63

Chapter 3 – Add-to-Stock St. 04 and 05) to St. 01 at Level-3. St. 01 is a stocked store store (stock record). The consolidated demand from St. 02 will be added to it but, because it is a stocked store, it rolls no further. In this example, nothing rolls beyond beyond St. 01 to St. 00. In the Territorial Stocking, Demand Base Months controls the number of months of demand history the system will roll to the next highest level, the number of months used in the test for increasing demand and the number of months to consider for stocking. The Demand Base Months selection will always include the current month plus the number of months called for by the Demand Base Months parameter. When, for example, the Demand Base Months parameter calls for six months, the system is authorized to use the current month plus the six (6) previous months of demand history. The Test For Increasing Demand occurs after the demand history has consolidated into a stocked stocked store or has reached the top of the hierarchy. Said differently, it only applies after all of the history has rolled up and found its rightful place in the hierarchy. As a review, recall that in a territorial hierarchy, demand history roll-up and consolidation in a territorial hierarchy begins at the lowest level in the hierarchy. Within each level, individual stores are processed in store number sequence. In this example, Store 03 in Level-1 would be the first store to process in the hierarchy. In summary, the basic structure of the territorial hierarchy defines a path for the demand history to take in the store-to-store roll-up process. process. Demand Base Months controls how much demand history will be rolled-up in terms of the number of months. The store’s record-type controls the timing or when that history rolls up and when it doesn’t.

Computing “Annual” Demand For Territorial Stocking In DBS, there is a lot going on within the functionality of territorial stocking. stocking. As the demand history rolls from level-to-level within a hierarchy, it qualifies stores for record-type changes. Record-type qualifies or disqualifies stores for subsequent processes within the stock replenishment update process. Individual store demand or consolidated demand can trigger a record-type change from non-stock, temporary or exhaust exhaust stock to made-stock. made-stock. Similarly, when demand history no longer rolls into a stocked store, its record-type can change to exhauststock which disqualifies it for stock replenishment in an other than surplus available role. The following exercise is admittedly lengthy but it is does show how demand history, Demand Base Months and record-types all apply within the defined structure of a territorial hierarchy. As a review, recall that in a territorial hierarchy, demand history roll-up and consolidation in a territorial hierarchy begins in the lowest level in the hierarchy. Within each level of a hierarchy, the stores are processed in store number sequence.


64


Territorial Table


Store 01 Level-3 Exhaust-Stock



Store 04 Level-1 Temporary-Stock


Level-1 Processing

Store: 03 Reco Record rd-T -Typ ype e Non-Stock

Demand Base Months: 06 Mont Month h Curr Curr 1st 2nd 3rd 4th 5th Calls 1 0 0 0 0 0 Pieces 1 0 0 0 0 0

Store 04 Recor ecordd-T Type ype Temporary Calls Pieces Store 05 Recor ecordd-T Type ype Exhaust

“Annual” Demand: 1 Call, 1 Piece 6th 7th 8th 9th 10th 11th 12th 0 0 1 0 1 0 1 0 0 1 0 1 0 1

Demand Base Months: 06 Curr urr 1st 2nd 3rd 4th 5th 0 0 0 0 0 0 0 0 0 0 0 0


Demand Base Months: 06 Curr urr 1st 2nd 3rd 4th 5th Calls 0 0 0 0 0 0 Pieces 0 0 0 0 0 0


Stores 03, 04 and 05 are Level-1 stores in this hierarchy. Each has a Demand Base Months parameter of 6 months, an Add-To-Stock parameter of demand equal to or greater than 2 calls in 6 months and an Exhaust-Stock parameter of demand less than 1 call in 6 months. This processing cycle started because St. 03 had a non-stock call. None of the Level-1 stores had previously or now qualified to be stocked. Their respective record-types, non-stock (St. 03), temporary-stock (St. 04) and, exhaust-stock (St. 05) define each as a non-stock store. As such, they qualify to roll demand history to the the next highest level in the hierarchy. The Demand Base Months parameter controls controls the number of months each store store can roll. So, in this case, the current month plus the six previous months of history for St. 03, 04, and 05 will roll to St. 02 at Level-2.


65

Chapter 3 – Add-to-Stock Territorial Table







Level-2 Processing

Pr ocessing R Recor d – IIncludes S St. 0 02, S St. 0 03, S St. 0 04, & & S St. 0 05 st nd rd th Curr 1 2 3 4 5th Calls 1 0 0 0 0 0 Pieces 1 0 0 0 0 0

6th 1 1

7th 0 0

8th 0 0

9th 0 0

10th 11th 12th 0 0 0 0 0 0

Store: 02 Recor ecordd-T Type ype Made-Stock



Store: 03 Reco Record rd-T -Typ ype e Non-Stock



Store 04 Recor ecordd-T Type ype Temporary



Store 05 Recor ecordd-T Type ype Exhaust



Store 02 is a Level-2 store in this hierarchy. It has a Demand Base Months parameter of 9 months, an Add-To-Stock parameter of demand equal to or greater than 2 calls in 9 months and an Exhaust-Stock parameter of demand less than 1 call in 9 months. When this processing cycle started, St. 02 could not qualify to be stocked on its own. However, when St. 03 had the non-stock call, it caused the history from the Level-1 stores to roll up and be added to that of St. 02 (see the St. 02 Processing Record). With the consolidated demand history, St. 02 qualified to be stocked and its recordtype changed from non-stock to made-stock.


66

Chapter 3 – Add-to-Stock In territorial stocking, a store with a made-stock record is still considered a non-stock store and as such, is qualified to roll demand to the next highest level in the hierarchy, which, in this case, is St. 01 at Level-3. Territorial Table







Level-3 Processing St. 01 Processing Record Record – Includes St.01, 02, St. 03, St. 04 & St. 05 st nd rd th th Curr 1 2 3 4 5 Calls 1 0 0 0 0 0 Pieces 1 0 0 0 0 0 Store: 01 RecordType MadeCalls Stock Pieces Store: 02 RecordType MadeCalls Stock Pieces Store: 03 Record- Month Type Non-Stock Calls Pieces Store 04 RecordType Temporary Calls Pieces Store 05 RecordType Exhaust

Calls Pieces

th

6 1 1

th

7 0 0

th

8 0 0

th

10 0 0

th

9 0 0

th

11 0 0

th

12th 0 0

th

th

Demand Base Months: 12 st nd Curr 1 2

Annual Demand: 0 Calls, 0 Pieces 3

4

5

6

7

8

9

10

11

12th

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

rd

th

th

th

th

th


“Annual” Demand: 1 Call, 1 Piece 3

4

5

6

7

8

9

10

11

12th

0

0

0

0

0

0

1

0

0

0

1

0

1

0

0

0

0

0

0

1

0

0

0

1

0

1

rd

th

th

th

th

th

th

th

th


3

4

5

6

7

8

9

10

11

12th

1 1

0 0

0 0

0 0

0 0

0 0

1 1

0 0

1 1

0 0

1 1

0 0

0 0

“Annual” Demand: 1 Call, 1 Piece rd

th

th

th

th

th

th

th

th


3

4

5

6

7

8

9

10

11

12th

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 2

0 0

0 0

0 0


th

th

th

th

th

th

th

th


3

4

5

6

7

8

9

10

11

12th

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 2

0 0

0 0

0 0


th

th

th

th

th

th

th

th


67

Chapter 3 – Add-to-Stock In this hierarchy, Store 01 is a Level-3 store. It has a Demand Base Months parameter of 12 months, an Add-To-Stock parameter of demand equal to or greater than 2 calls in 12 months and an Exhaust-Stock parameter of demand less than 1 call in 12 months. Previously, St. 01 could not qualify to be stocked on its own history or even territorially because there was just one previous call in the territory and all stores in this example stocked on second second call. However, when St. 03 had the the non-stock call that started this processing cycle, it was the second call in the territory. It caused the history from the Level-1 stores to be rolled up and added to that of St. 02 at Level-2. St. 02 qualified to be stocked and it’s record-type changed accordingly to madestock.

Territorial Table







From a processing standpoint, St. 02 is still considered to be a non-stock store and as such, is qualified to roll its consolidated demand history to the next highest level in the hierarchy which, in this case, is St. 01 at Level-3. The territorial demand from the lower level stores stores qualified St. 01 to be stocked. stocked. St. 01’s record-type changed to made-stock. From a processing standpoint, a made-stock record is still considered a non-stock store and as such, is qualified to roll demand to the next highest level in the hierarchy, which, in this case, is St. 00 at Level-4.

Level-4 Processing


68

Chapter 3 – Add-to-Stock St. 00 Processing Record – Includes Includes All Stores – Annual Demand: 2 Calls, 2 Pieces Curr 1st Calls 1 0 Pieces 1 0 Store: 00 Recor ecordd-T Type ype MadeStock

Calls

Calls

Calls

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0


Store 04 Recor ecordd-T Type ype Temporary Calls Pieces Store 05 Recor ecordd-T Type ype Exhaust

5th 0 0

Demand Base Months: 09 Curr urr 1st 2nd 3rd 4th 5th 0 0 0 0 0 0

Pieces 0 Store: 03 Reco Record rd-T -Typ ype e Non-Stock

4th 0 0


Pieces 0 Store: 02 Recor ecordd-T Type ype MadeStock

3rd 0 0


Pieces 0 Store: 01 Recor ecordd-T Type ype MadeStock

2nd 0 0

6th 1 1

7th 0 0

8th 9th 0 0 0 0

10th 11th 12th 0 0 0 0 0 0

Annual Demand: 0 Calls, 0 Pieces 6th 7th 8th 9th 10th 11th 12th 0 0 0 0 0 0 0 0

0

0

0

0

0

0

Annual Demand: 0 Calls, 0 Pieces 6th 7th 8th 9th 10th 11th 12th 0 0 0 0 0 0 0 0

0

0

0

0

0

0

“Annual” Demand: 1 Call, 1 Piece 6th 7th 8th 9th 10th 11th 12th 1 0 0 0 1 0 1 1

0

0

0

1

0

1


Demand Base Months: 06 Curr urr 1st 2nd 3rd 4th 5th 0 0 0 0 0 0 0 0 0 0 0 0




Store 00 is at Level-4 in this hierarchy. It has a Demand Base Months parameter of 12 months, an Add-To-Stock parameter of demand equal to or greater than 2 calls in 12 months and an Exhaust-Stock parameter of demand less than 1 call in 12 months. Previously, St. 00 could not qualify to be stocked on its own or even territorially because there was just one call in the territory and all stores stocked on second call. However, when St. 03 had the non-stock call that started this processing cycle, it was the second call in the the territory. It caused the history from the Level-1 stores to be rolled up and added to that of St. 02 at Level-2. It qualified St. 02 to be stocked stocked and its record-type changed to made-stock.


69

Chapter 3 – Add-to-Stock St. 02 is still considered to be a non-stock store and as such, remains qualified to roll its consolidated history to the next highest level in the hierarchy, which, in this case, was St. 01 at Level-3. The territorial demand from the lower level stores stores qualified St. 01 to be stocked. St. 01’s record-type changed to made-stock. St. 01 is still considered to be a non-stock store and as such, remains qualified to roll its consolidated history to the next highest level in the hierarchy, which, in this case, was St. 00 at Level-4. At the top of the hierarchy, and with all lower level stores as non-stock stores, St. 00 is qualified to stock based not at all on its own store demand but entirely on the consolidated or territorial demand from the lower level stores. In summary, at this point and until Made-Stock Aging expires, three stores in this hierarchy are made-stock and to some, it might appear as if all three might be on the brink of stocking this this part based only on the territorial demand of two calls. That isn’t, however, the case at all. See the rest of the story. The “rest of the story.” In this admittedly “best case scenario,” assume that the Made-Stock Aging Days will expire simultaneously for all stores. Terri torial Table Table







In territorial stocking, keep in mind that the demand history consolidation begins at the lowest level in the hierarchy and progresses upward until it consolidates into a stocked store or until it reaches the top of the hierarchy. In this example, none of the Level-1 stores qualify to be stocked but all qualify to roll their demand history to the next highest level in the hierarchy, which is Level-2. At Level-2, St. 02 qualified to be territorially stocked. So, at the expiration expiration of Made-Stock Aging, it will become a stocked store. As a stocked store, it no longer qualifies to roll history to the next highest level.


70

Chapter 3 – Add-to-Stock Without the consolidation of territorial demand, neither St. 01 nor St. 00 can qualify to be stocked. They revert to their previous record types. St. 01 goes back to to exhauststock and St. 00 to non-stock. no n-stock.

Territorial Table







St. 02 benefited from the Level-1 demand consolidation and became the territorial stocking store for this part at this point in time.


71

Chapter 3 – Add-to-Stock Territorial Considerations •

•

•

•

•

•

•

•

•

•

•

•

A dealer’s main store or one or more of their larger stores will become a dealership’s primary source for emergency parts. Often that store store is referred to to as a territorial territorial center. The demand consolidation into the higher level stores will qualify more parts to be stocked for the territory much sooner than they might be for any individual store. A territorial center will carry additional inventory to support the emergency demands of lower level stores. A territorial center may may need some additional warehouse capacity capacity to accommodate territorially stocking parts for lower level stores.

A territorial center may may need additional manpower for the re-deployment activities activities required to support lower level stores. Overall emergency procurement costs, i.e., emergency service charges charges and emergency freight expenses should decrease as more stores become accustomed to relying on the territorial center to be the dealership’s primary source for emergency parts. As the consolidation of demand impacts the higher level stores, it is reasonable to expect an improvement in over-the-counter service and customer satisfaction. Expect territorial stocking to significantly improve territorial service. The key performance indicators for a territorial center should account account for the redeployment activities required to support lower level stores. Lower level level territorial territorial stores stores need ready ready access access to territorial center inventory. An efficient, cost effective effective transportation transportation network is critical critical to the success success of territorial stocking. There will be instances where the consolidation of demand will result in stocking less of a specific part particularly when a package quantity is involved.


72

CHAPTER 4 4

Chapter

4.0 C Contr ol-Of -Stock The Control-Of-Stock process is the second phase of the Life Cycle. From an inventory investment standpoint, the most difficult decision is to stock a part in the first place. The Control-Of-Stock process manages available inventory and maintains demand history, replenishes stock, identifies and re-deploys surplus, and provides management reporting. Upon completion of this chapter, you will be familiar with: The Control-Of-Stock Process The Role of Lead-Time Demand Base Months and Annual Demand Dependent Store Processing Order Point Matrix and Min-Types Order Point Calculations Economic Order Quantity and Maximum Calculations Miscellaneous Control of Stock Concepts and Parameters • • • • • • • •


73

Chapter 4 – Control-of-Stock

4.1 T The C Contr ol-Of -Stock P Pr ocess In the DBS systems, the Control-Of-Stock process is driven by demand history and a set of Source-Of-Supply Source-Of-Supply and Store Level parameters. Depending entirely on how those parameters are set, the entire Control-Of-Stock process can be as automatic or as manual as a dealer wants it to be.

d n a m e D Time Add-To-Stock

Control-Of-Stock

Remove-From-Stock

In the Add-To-Stock phase in the Life Cycle Of A Part, discussions focused on what it takes to to qualify a part to be stocked. When those qualifications were met, the part became a stocked part (stock record-type) where the focus changed to what it takes for the part to remain a stocked part and then how many of that part will be stocked. How many will be stocked is also referred to as depth of inventory. Before getting into all the concepts and parameters, it would be helpful to have a basic understanding of the stock order process flow as well as understand what makes a part active, which is what triggers it to be processed for stock replenishment consideration.

Stock Order Process Flow First of all, dealers must determine how often they want to process a Source of Supply (SOS) for stock stock replenishment. After this determination, the dealer must set their parameters accordingly in DBSi. Many dealers choose to process their Caterpillar SOS daily, however, some dealers still choose to do this on a weekly basis. The parameters allow dealers to set each SOS differently, so non-Cat sources can also be processed daily or weekly, or they can be monthly or on demand. What parts get processed during stock replenishment? This is another parameter driven option that each dealer can determine based upon each unique SOS. A part will be processed through stock replenishment when it is considered considered active. A part is


74

Chapter 4 – Control-of-Stock considered active that has incurred a sale, return, a transfer in or out a change in record type or any other transaction that has the potential to impact inventory, an order point, or an on order quantity. In DBS, dealers have the option to only consider those parts that have become active since the last stock order replenishment cycle, or to consider all parts for which at least one store record exists exists active. Typically, most dealers only process those records for which actual activity has occurred, not all records, for their next stock replenishment cycle. Once the frequency and the parts to be processed are determined and the parameters set, the following is the flow generally used for stock order processing. 1) 2) 3) 4) 5) 6) 7) 8) 9) 10)

11) 12)

The Stock Replenishment Update batch job is run which creates the reports and files for the stock order. Review the stock order reports and files. The stock order should be reviewed using the paper report or using the on-line function. Also, the Nonstock/Madestock Report should be reviewed. Perform maintenance to the stock order files. Based on the review in step #2, items can be added, or removed from the stock order. Perform Stock Order Pickoff by running the appropriate batch job. This job picks off the items for stock order to Caterpillar and updates the on order quantities in DBS and creates open order detail records. Stock order is transmitted to Caterpillar. Caterpillar processes records and changes/exceptions are transmitted back to dealer. Dealer performs maintenance to their stock order file reflecting information transmitted by Caterpillar. Caterpillar picks the stock order; packing list is created and transmitted to dealer. Dealer performs packing list merge, which removes the parts shipped from the dealer stock order number to a Consolidated Shipping Order (CSO) number. Optional Step: Dealer may pre-stock the stock order upon arrival to to give visibility to parts not binned. Parts are binned, receipted, and verified against the packing list and discrepancies noted. If discrepancies exist, dealers utilize their discrepancy procedures to correct on-hand and on-order quantities and file claims as necessary.

Within the stock replenishment process, the system determines what parts had activity, does roll-up of history, determines record-type changes, calculates order points, maximums, and order quantities based upon parameters set for Control-ofStock. Key components of the Control-of-Stock phase are lead-time and annual demand. These are the basis for calculating order points.


75


4.2 T The R Role O Of L Lead-Time Lead-time is defined as the total number of elapsed days from when a part could reach order point to when the resulting stock order is received, binned and made available for sale. A shorter definition of lead-time is “min to bin.” Lead-time is typically expressed expressed in days. In the context of the order point discussions to follow, there will be references to lead-time, total lead-time, base leadtime and Poisson Lead-time. Lead-time and total lead-time refer to the basic concept of lead-time as stated above. However, base lead-time brings in the reference of lead-time plus safety-stock. Base lead-time is used to distinguish actual lead-time days from what is being applied as total lead-time when extra safety stock days are being applied to selectively add depth to inventory. inventory. In the DBS systems, the lead-time parameter displayed is referred to as Poisson Lead-Time. Lead-time does play an essential essential role in the stock stock replenishment process. When it isn’t used directly in an order point or an order quantity calculation, it would have been a consideration in choosing the type of order point formula being applied. Understand that lead-time can vary slightly from stock order-to-stock order and from store-to-store and certainly certainly from source-to-source. source-to-source. It can be adversely impacted by events such as a supplier shortage, manpower shortages, transportation delays, and inclement weather or, often as not, no t, holidays. In the context of a general guideline, g uideline, set stock replenishment lead-time equal to what is considered to be a maximum reasonable number of days. It doesn’t have to to be set equal to the shortest number of lead-time days or even equal to the longest number of lead-time days. Maximum reasonable means setting lead-time lead-time days equal to what happens most of the time. However, it is important to understand that when lead-time is severely overstated, it will most certainly create needless surplus of stocked items often to the point that eventually, it will impose a negative impact on turnover. Conversely, when lead-time is severely understated, it will just as certainly cause stock backorders that impact customer service. All other things being equal, it does seem logical that it will require less inventory investment to survive (not run completely out of stock and have a backorder) a shorter lead-time than a longer one.

Tracking Lead-Time: Lead-time is applied in calendar days. Therefore, it takes little more than a simple calendar and a log or record of the successive steps that occur in the stock replenishment cycle to effectively effectively track lead-time. It isn’t difficult but it isn’t something that should be taken lightly ligh tly either. Normally, each step in the stock replenishment process contributes something to the accumulation and extension of total lead-time. In the DBS systems, systems, an Audit Trail Inquiry provides the dates specific transactions occurred that mark each step in the stock replenishment process.


76

Chapter 4 – Control-of-Stock The elements that define a stock replenishment lead-time are listed below with their corresponding DBS transaction codes. There are a number of other transactions that will cause a part to be active or that can take a part to order point but these typically define a stock replenishment lead-time cycle.

Primary Elements Of Lead-Time Lead-Time Element Stock Sale Stock Order Update Stock Order Review Stock Order Transmission Cat Entry - Pick-Pack-Ship Pre-Stock Bin Receipt

Transaction Code 61-63-64-66 40A-40S-40T-40U 41M-41S-41T-41X 42 43-44-46-47

Use a calendar or make up one similar to the one below to track the lead-time for a successive number of stock orders. If weekly, at least a month and perhaps more should be reviewed. Daily processing may only require reviewing the stock stock orders from two or three weeks. The important thing is to be comfortable with what is reasonable or normal versus an exception. In the following example, the numbers in the parentheses refer to the DBS transaction codes that will be assigned and reported in an Audit Trail Inquiry as each successive step in the process occurs. Pick a few common items from stock orders that have recently completed what might be termed normal or best case stock replenishment cycles. Use the DBS Audit Trail Inquiry to determine when each step step occurred. The following example example is meant to illustrate the the process. It is admittedly a best-case scenario for a daily stock replenishment cycle. There will be instances where more than one activity occurs on the same day. Just group the events together because from a practical standpoint, lead-time is expressed in calendar days. If, for example, the stock arrived and was binned in the same day, count that as a single or one day of lead-time.


77


Monday’s Order - 4 Day Lead-Time

Tracking Daily Stock Replenishment Lead-Times Stock Order Review

Sunday

Monday Day 1 Sale (61) Stock Order Update (40)

Wednesday’s Order - 6 Day Lead-Time

Day 5

Day 4

Day 3

Day 6 Pre-Stock (42) Binned & Receipted (44) Day 5 Cat Entry Order Fill Pack & Ship Day 4 Stock Order Review & Transmit (41)

Tuesday Day 2 Stock Order Review & Transmit (41) Transmit Day 1 Sale (61) Stock Order Update (40)

Thursday’s Order - 6 Day Lead-Time

Day 6 Pre-Stock (42) Binned & Receipted (44) Day 5 Cat Entry Order Fill Pack & Ship

Wednesday Day 3 Cat Entry Order Fill - Pack & Ship (41) Day 2 Stock Order Review & Transmit (41) Day 1 Sale (61) Stock Order Update (40)

Friday’s Order - 6 Day Lead-Time

Thursday Day 4 Pre-Stock (42) Binned & Receipted (44) Day 3 Cat Entry Order Fill Pack & Ship Day 2 Stock Order Review & Transmit (41) Day 1 Sale (61) Stock Order Update (40)

Friday

Tuesday’s Order - 4 Day Saturday Lead-Time

Day 4 Pre-Stock (42) Binned & Receipted (44) Day 3 Cat Entry Order Fill Pack & Ship Day 2 Stock Order Review & Transmit (41) Day 1 Sale (61) Stock Order Update (40)

Day 4

Day 3

Day 2

Day 6 Pre-Stock (42) Binned & Receipted (44)

Include weekend days as part of the total lead-time assessment. Later order point and order quantity calculations use a 365-day year so, to remain consistent, include weekend days in total lead-time as well. Notice in particular, the dramatic impact weekend days has on total lead-time when a cycle spans a weekend. weekend. It is better to account for than to ignore weekend days because they do have an impact particularly if understated.

Setting Lead-Time Parameters: Recall the earlier statement that stock replenishment lead-time should be set equal to what is a maximum reasonable number of days. The implication in that statement statement is that base lead-time or lead-time doesn’t have to be equal to the absolute shortest number of days ever experienced nor does it have to be equal to the longest number of days. From a very practical practical standpoint, set lead-time equal to what happens most often. Ignore, for example, the cycles where an extended extended lead-time was attributable to a holiday, an occasional transportation delay or delays related to inclement weather. Count the regular days in the usual and customary or regular lead-time cycles. In the example above, the maximum reasonable lead-time is six (6) days because that is what happens most often.


78

Chapter 4 – Control-of-Stock Weekly Stock Replenishment: A similar technique is used to calculate lead-time for a weekly or any other cycle. However, there is one important distinction to consider when the need to compute lead-time goes beyond what what is required for daily replenishment. The first increment of time (days) is the number of days from cutoff-to-cutoff. cutoff-to-cutoff. Cutoff is a term that refers to the point where the stock order program begins the process of accumulating all of the activity that occurred occurred since the last time it ran. In a weekly cycle, the stock replenishment program runs every seven seven days. In a monthly cycle, it might be every 30 days. Regardless, that first increment of time is from cutoff-to-cutoff. cutoff-to-cutoff. In theory, a part could have had activity and thus needed to be replenished the very day after the previous cutoff. However, the stock replenishment replenishment program cannot react to that condition until it runs again and that won’t be for a week. week. Therefore, the first first increment of time is the number of days from cutoff-to-cutoff. Cutoff-to-cutoff isn’t a factor in daily replenishment cycles because the stock order update typically runs at the end of each business day. Therefore, that day’s activity will be part of that evening or night’s stock order update. If replenishment is required, the process starts immediately. It isn’t the same with more extended leadtimes.

Tracking Weekly Weekly Stock Stock Replenishment Lead-Time Stock Order Review Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday Day 1

Stock Order Update (Cut-Off) Day 2

Day 3

Day 4

Day 5

Day 6

Could Reach Order Point





Day 9

Day 10

Day 11

Weekend Day

Stock Review

Day 13 Stock Order Entry @ Cat

Day 16

Day 17 Stock Order Fill Complete Pack & Ship

Day 18 Stock Shipment In Transit

Day 12 Stock Order Review Finish and Transmit To Cat Day 19 Stock Shipment In Transit

Day 24 Check-In Sortation Binning Receipting

Day 25 Check-In Sortation Binning Receipting

Weekend Day Day 23 Weekend Day

Order

&

Stock Review

Order

&

Day 20 Stock Arrives At Dlr. Store Pre-stock & Unload

Day 7 Could Reach Order Point & Stock Order Update (Cutoff) Day 14 Stock Order Fill Process Begins Day 21 Check-In Sortation Binning Receipting

Could Reach Order Point Day 8 Weekend Day Day 15 Weekend Day

Day 22 Weekend Day &

Stock replenishment cycle was completed when parts were made available for sale at the end of day 25. 25. Total Lead-Time for this stock order was 25 days.


79

Chapter 4 – Control-of-Stock It is important to understand understand what actual lead-time is for each source-of-supply source-of-supply at each store. It is important to insure that what is being routinely applied in the stock replenishment programs is both reasonable and appropriate. In the DBS systems, base lead-time is referred to as Poisson Lead Time (Days). (Days). It is part of the Store, Source Ordering Parameters.

Base Lead-Time


80


4.3 D Demand B Base M Months A And A Annual D Demand Explanation of Demand Base Months and Impact on Annual Demand Calculation Annual demand is a key component for the Control-of-Stock phase of the life cycle as it is used in the calculation of order points. Before we move into what is involved in order point and order quantity calculations, it is important to have an understanding of how demand history is used, particularly when the Demand Base Months, Territorial Stocking, and Dependent Store Processing (when a store is dependent for all stock from another store rather than Caterpillar) features in DBS are utilized. DBS dealers now have a feature called Demand Base Months, which allows them to determine how much demand history history is used in annual demand calculations. In the past, the system was coded to always use 12 months of history for annual demand. Today, dealers have the flexibility to use more or less than 12 months of history for each activity indicator (F-M-S), returnability status and base dealer net dollar breaks. The Demand Base Months parameter was discussed in Chapter 2, as it is a Life Cycle parameter. It is used for determining Add-to-Stock as well as for the history history used in Control-of-Stock. There may be situations where dealers will want to use more or less than 12 months worth of demand history. history. For example, a dealer may decide they want to include more than 12 months months for low value, fast moving, moving, and returnable parts. This may require little increase in investment, but provide improved improved stock service. service. Or, the dealer may choose to use less than 12 months for high value, slow moving, nonreturnable parts and use more recent history rather than a full 12 months. Demand Base Months now gives the dealer the flexibility to determine the amount of history used rather than the system deciding it for them. While the dealer now has more flexibility, it has introduced some complexity when using territorial territorial hierarchies and dependent store processing. Previously, when when qualified by record-type, all 24 months of history included on the part’s store record were rolled to to the next next highest-level store within the territorial hierarchy. Now, Demand Base Months defines or limits the number of months of demand history that can qualify to roll to the next highest-level store. Similar to the Add-to-Stock phase, the Test for Increasing Demand Demand is used in Control-of-Stock. The purpose of the test is to give more credence to the demand history in the current month than for the oldest previous month called for by the parameter. In summary, Demand Base Months is a powerful parameter and simple though it may seem, it does bring additional complexity complexity to an already complex process. In order to get a better understanding of this concept, exercises have been developed to manually calculate annual demand for two scenarios. 1) No Territorial Stocking 2) Territorial Stocking Implemented


81


Below are the life-cycle parameters used for both scenarios.

LIF LI F E CYCLE PAR A AM ME E TE R S BASE D/N LIMITS RETURNABLE < $500 < $250 < $150

FAST MEDIUM SLOW

NON-RETURNABLE < $250 < $150 < $ 75

DEMAND BASE MONTHS FAST MEDIUM SLOW

Less Than 12 12 06

Greater Than 12 09 06

FAST MEDIUM SLOW

12 09 03

12 06 03

FAST MEDIUM SLOW

12 09 03

12 09 03

FAST MEDIUM SLOW

12 09 03

12 09 03

FAST MEDIUM SLOW

09 06 03

09 06 03

FAST MEDIUM SLOW

09 06 03

09 06 03

FAST MEDIUM SLOW

06 03 01

06 03 01

Store 00

Store 01

Store 02

Store 03

Store 04

Store 05

Store 06


82

Chapter 4 – Control-of-Stock 1) Annual Demand Calculation – No Territorial Stocking

When a dealer has not set up territorial hierarchies, the system assumes all stores to be Level-4 stores. Level-4 means that the store is at the top top of the hierarchy. In this case, no history is rolled up to another store and remains at the transaction store only. Compute what is to be used as annual demand for for the following stores. Use the Demand Base Months from the Life Cycle Parameters on the previous page, the test for increasing demand and, the Territorial Table displayed.

Territory Table

Store 00

Store 01

Store 04

Store 06

Level-4

Level-4

Level-4

Level-4

The part is a Returnable, Medium Moving, $25 D/N.

(1). (2). (3). (4). Store 00

Select the Demand Base Months parameter for each store displayed below. Reference the Territorial Table for any demand consolidation requirements. Use the Test For Increasing Demand Demand to include/exclude the current month. Compute annual demand (calls and pieces) for each store.

Demand Base Months Month Curr 1st 2nd Calls 1 1 0 Pieces 1 1 0 Demand Base Months

3rd 0 0 3rd 0 0

Store 04

Month Curr 1st 2nd Calls 1 1 0 Pieces 1 1 0 Demand Base Months

3rd 0 0

Store 06


Store 01

Month Curr Calls 1 Pieces 1

1st 1 1

2nd 0 0

3rd 0 0

Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0

Calls

Pieces

7th 8th 0 1 0 1 Calls

9th 0 0

10th 11th 1 0 1 0 Pieces

12th 1 2


9th 0 0


12th 1 2


9th 0 0


12th 1 2

7th 0 0

9th 0 0

10th 1 1

12th 1 2

8th 1 1

11th 0 0


83

Chapter 4 – Control-of-Stock Exercise Discussion (1). Select the Demand Base Months parameter for each store. Part is a Returnable, Medium Moving, $25 D/N part. Demand Base Months for Store 00 is 12 months; Store 01: 9 Months; Store 04: 6 Months; Store 06: 3 months. (2). See the Territorial Table Table for any demand consolidation requirements. All stores in this exercise are at Level-4 in the territorial hierarchy. Each store is a territory to itself meaning that there will be no consolidation of demand history. Record-type is not a factor in this exercise because the territorial hierarchy does not call for any demand consolidation. (3). Use the Test For Increasing Demand Demand to include/exclude the current month. The test for increasing demand works on calls. Compare the calls in the current month to that of the last month specified by Demand Base Months. When calls are equal, use the current month in favor of the last previous month called for regardless of the number of pieces demanded in either month. The green shaded area in the following store records represents the application of the test for increasing demand. (4). Compute annual demand (calls and pieces) for each store. Store 00: 4 Calls, 4 Pieces. Store 01: 3 Calls, 3 Pieces. Store 04: 2 Calls, 2 Pieces. Store 06: 2 Calls, 2 Pieces. Store 00

Demand Base Months

12


3rd 0 0 9

Store 04


3rd 0 0 6

Store 06


3rd 0 0 3

Store 01

Month Curr Calls 1 Pieces 1

1st 1 1

2nd 0 0


3rd 0 0

Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0 Annual Demand th 4 5th 6th 0 0 0 0 0 0

Calls

4

Pieces

4


9th 0 0 3


12th 1 2 3


9th 0 0 2


12th 1 2 2


9th 0 0 2


12th 1 2 2

7th 0 0

9th 0 0

10th 1 1

12th 1 2

8th 1 1

11th 0 0

84

Chapter 4 – Control-of-Stock 2) Annual Demand Calculation – Territorial Stocking Implemented

Use the Demand Base Months from the Life Cycle Parameters displayed previously, the test for increasing demand, the territorial hierarchy displayed below and the record-types from each store record to compute what would be used as annual demand in any subsequent stock replenishment process. REMINDER: Territorial stocking rolls non-stock history from the lowest-level store to the next highest-level store, and continues to do so until it encounters a stocked store, or until it reaches the top of the hierarchy.

Territory Table Store 00 Level-4

Store 01

Store 02

Store 03

Level-3

Level-3

Level-3

Store 04

Store 05

Level-2

Level-2

Store 06 Level-1

The part is a Returnable, Medium Moving, $25 D/N.


85

Chapter 4 – Control-of-Stock Store 00 RecordType Stock Store 01 RecordType Non-Stock Store 02 RecordType Exhaust Store 03 RecordType Stock Store 04 RecordType Stock Store 05 RecordType Temporary Store 06 RecordType Non-Stock

Demand Base Months Month

Curr

1st

2nd

Calls 1 1 0 Pieces 1 1 0 Demand Base Months Month

Curr

1st

2nd


Curr

1st

2nd


Curr

1st

2nd


Curr

1st

2nd


Curr

1st

2nd

Calls 0 0 0 Pieces 0 0 0 Demand Base Months

3rd 0 0 3rd 0 0 3rd 1 1 3rd 1 1 3rd 0 0 3rd 0 0

Month

Curr

1st

2nd

3rd

Calls Pieces

0 0

0 0

0 0

1 1


Annual Demand th 4 5th 6th 0 0

0 0 0 0 Annual Demand th 4 5th 6th 0 0





0 0 0 0 Annual Demand 4th 5th 6th 0 0

0 0

0 0

Calls 7th

8th

0 1 0 1 Calls 7th

8th

0 0 0 0 Calls 7th

8th

0 0 0 0 Calls 7th

8th

0 1 0 1 Calls 7th

8th

0 1 0 1 Calls 7th

8th

0 0 0 0 Calls

Pieces 9th

10th 11th

12th

0 0

1 0 1 0 Pieces

1 2

9th

10th 11th

12th

0 0

0 0 0 0 Pieces

1 6

9th

10th 11th

12th

0 0

1 0 1 0 Pieces

0 0

9th

10th 11th

12th

0 0

1 0 1 0 Pieces

0 0

9th

10th 11th

12th

0 0

0 0 0 0 Pieces

0 0

9th

10th 11th

12th

0 0

0 0 0 0 Pieces

1 4

10th 11th

12th

7th

8th

9th

0 0

1 1

0 0

1 1

0 0

1 2

86

Chapter 4 – Control-of-Stock Exercise Discussion (1). Select the Demand Base Months parameter for each store. Select the Demand Base Months parameter for each store from the Life Cycle Parameters displayed previously.

Demand Base Months

Store 00 12

Store 01 9

Store 02 9

Store 03 9

Store 04 6

Store 05 6

Store 06 3

Demand Base Months also controls the number of months of demand history that can be rolled from a lower level to the next highest-level store. If, for example, Demand Base Months is nine (9), the system will roll the current month “plus” the nine previous months of history to the next highest-level store in the hierarchy. (2). Check the Territorial Territorial Table for any demand consolidation requirements. In a multi-level hierarchy, recordTerritory Table type plays a pivotal role because it determines when demand history Store 00 will or will not roll to the next highestLevel-4 Stock level store. Non-Stock demand history rolls from the lowest level store to the next highest-level store, and continues to do so until it encounters a stocked store or until it reaches the top of the hierarchy.






Store 06

Level-1 When the non-stock demand history Non-Stock from a lower level store rolls to a higher-level stocked store, the non-stock demand history is added to that of the stocked store. A store with a non-stock, exhaust-stock, exhaust-stock, temporary-stock or a madestock record is considered a non-stock store. In a territorial application, non-stock stores always qualify to be rolled to the next highest level.

A store with a stocked record is considered a stocked store. A stocked store can absorb demand history from lower level non-stock stores but unless it is a dependent store, it cannot roll demand history to the next highest level in a hierarchy. (3). Use the Test For Increasing Demand Demand to include or exclude the current month in the calculation of annual demand. When Demand Base Months is used to select a number of months to use in an order point or an order quantity calculation or to roll to the next highest level in a territorial hierarchy, it will always include the current month plus the number of months called for by the Demand Base Months parameter. It always includes the current current month because the Test For Increasing Demand occurs after the demand history has consolidated into a stocked store or has reached the top of the hierarchy.


87

Chapter 4 – Control-of-Stock In a territory hierarchy, the test for increasing demand applies after all of the demand history has been rolled to and consolidated with that of the next highest-level store. To do that, the system rolls the current month plus the number of months specified by the Demand Base Months parameter. The test for increasing demand compares the calls in the current month to that of the last month specified by Demand Base Months. If Demand Base Months were six months, for example, the system would compare the calls in the current month to those of the 6th previous month. When calls in the current month exceed those of the last month specified by Demand Base Months, the system includes the current month and excludes the the last month specified specified by Demand Base Months. When calls in the last month specified by Demand Base Months exceeds those of the current month, the current month is excluded excluded and the last month specified is included. When calls are equal, use the current month in favor of the last previous month called for regardless of the number of pieces demanded in either month. The green shaded area in the following store records represents an appropriate application of the test for increasing demand. (4). Compute annual demand (calls and pieces) for each store. This is how it ended up. The bright green months highlight the Current Month plus the number of months specified by the Demand Base Months parameters. The darker green highlights the months where territorial has added in some demand history from a lower level non-stock store. The blue tells what happened. Start with store 06, which is the lowest level store.


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Store 00

Demand Base Months: 12

Annual Calls: 7 Pieces: 7 Demand Record-Type Month Curr 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Stock Calls 1 1 0 2 0 1 0 0 1 0 1 0 Pieces 1 1 0 2 0 1 0 0 1 0 1 0 Store 00 – Level-4 – Stock Store – Top Of Hierarchy – Includes St. 00 + 01 + 06 + 05 + 02 Store 01 Demand Base Months: 9 Annual Calls: 1 Pieces: 1 Demand Record-Type Month Curr 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Non-Stock Calls 0 0 0 0 0 1 0 0 0 0 0 0 Pieces 0 0 0 0 0 1 0 0 0 0 0 0 Store 01 – Level-3 – Non-Stock S tore – Qualified to roll Current + 1-9 Months to St. 00 Store 02 Demand Base Months: 9 Annual Calls: 2 Pieces: 2 Demand Record-Type Month Curr 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Exhaust Calls 0 0 0 2 0 0 0 0 0 0 1 0 Pieces 0 0 0 2 0 0 0 0 0 0 1 0 St. 02 – Level-3 – Non-Stock Store – Includes St. 06 & 05 – Will roll Current + 1-9 to St. 00 Store 03 Demand Base Months: 9 Annual Calls: 3 Pieces: 3 Demand st nd rd th th th th th th th th Record-Type Month Curr 1 2 3 4 5 6 7 8 9 10 11 Stock Calls 0 1 0 1 0 0 0 0 1 0 1 0 Pieces 0 1 0 1 0 0 0 0 1 0 1 0 St. 03 - Level-3 - Stock Store – Will not roll history to next highest level. Store 04 Demand Base Months: 6 Annual Calls: 0 Pieces: 0 Demand st nd rd th th th th th th th th Record-Type Month Curr 1 2 3 4 5 6 7 8 9 10 11 Stock Calls 0 0 0 0 0 0 0 0 1 0 0 0 Pieces 0 0 0 0 0 0 0 0 1 0 0 0 St. 04 – Level-2 - Stock Store – Stands Alone – Will not roll history to next highest level. Store 05 Demand Base Months: 6 Annual Calls: 1 Pieces: 1 Demand st nd rd th th th th th th th th Record-Type Month Curr 1 2 3 4 5 6 7 8 9 10 11 Temporary Calls 0 0 0 1 0 0 0 0 0 0 0 0 Pieces 0 0 0 1 0 0 0 0 0 0 0 0 St. 05 –Level-2 - Non-Stock Store – Includes St. 06 – Will roll Current + 1-6 months to St. 02 Store 06 Demand Base Months: 3 Annual Calls: 1 Pieces: 1 Demand st nd rd th th th th th th th th Record-Type Month Curr 1 2 3 4 5 6 7 8 9 10 11 Non-Stock Calls 0 0 0 1 0 0 0 0 1 0 1 0 Pieces 0 0 0 1 0 0 0 0 1 0 1 0 St. 06 –Level-1 - Non-Stock Store – Will roll Current + 3 Previous Months to St. 05.


12th 1 2

12th 1 6

12th 0 0

th

12 0 0

th

12 0 0

th

12 1 4

th

12 1 2

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4.4 D Dependent S Stor e P Pr ocessing Dependent store processing is an extension of territorial stocking, which was introduced in section 3.5. In territorial stocking, non-stock history history is rolled to the next highest-level store that has a stocked record or to the store at the top of the hierarchy. Dependent store processing is when a dealer determines that a store will source all of its stock order for a particular Source-of-Supply (SOS) to another store within the dealership, rather than to the SOS’s vendor. The store sourcing to another store store within the dealership is called the dependent or child, while the sourced store is called the parent. In this situation, the dependent store rolls its stock history up to the parent store store for annual demand calculations. The history is retained at the dependent store level and also included in the parent store. store. This history is used to calculate the order points for each store. In order to utilize dependent store processing, the dealer must also be utilizing territorial stocking. A territorial hierarchy must must be set up and the dependent store store must be at a level lower than the parent store. store. Generally, the dependent store will also roll its non-stock history territorially to the parent store as well, not just its stock history. In this case, basically all history is rolled up to the parent store. While this is generally how it is used, it is possible parameter-wise to have a dependent store roll stock history to the parent store while rolling non-stock history to a different territorial store. In DBS, the territorial and distribution relationships are displayed as shown below:

When a store number displays in parentheses, it is the Distribution store to the Dependent Store to the immediate left. Here, Store 03 (Level2) is dependent on Store 00 (Level-4), and reports non-stock history to Store 01 (Level-3) first, and then to Store 00 if it is not a stock record at Store 01. Store 02 (Level-3) is also dependent on Store 00 (Level-4) and also reports non-stock history to Store 00.


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Chapter 4 – Control-of-Stock It should be noted that when looking at a parent store’s store record or that of the territorial store’s store record on-line, the rolled up call/demand history is not displayed. Only the recorded history history that transacted transacted from that store is displayed. When using the paper reports generated by DBSi, the consolidated history is displayed. While the dependent store concept has just been introduced in the Control-of-Stock phase of the life cycle, it is also put to use in the Add-to-Stock phase. phase. The use of dependent store processing along with territorial stocking can cause a part to qualify for a record-type change as demand history rolls from level-to-level within a territorial hierarchy. As the record-type record-type changes, it can qualify or disqualify the store for specific routines in subsequent stock replenishment processes. Dependent Store Processing and Annual Demand

Demand base months are used the same way with dependent store processing as with territorial stocking. stocking. The number of demand base months set for the dependent store controls the number of months of stock history rolled from the dependent to the parent. The test for increasing demand is also applied in the same manner to dependent store processing in conjunction with demand base months, as it is with territorial stocking. For example, Store 03 is dependent on Store 00, and Store 03’s demand base months are set at three three months and Store 00’s are set at 12 months. Store 03 will roll the current month plus the previous three months of history up to Store 00 and Store 00 will look at the consolidated demand and then perform the test for increasing demand and compare current month history to the previous 12th month of history and use the month with the greater number of calls (or the current month if they are both equal) for annual demand. This is used for both both Add-to-Stock for for stocking decisions and for Control-of-Stock once a record has become a stock record. Dependent Store Processing and Lead-Time

The main advantage or benefit of dependent store processing is that the lead-time for the dependent store can be reduced, resulting in less depth of inventory required at the dependent to to maintain targeted service service levels. Package quantity purchases purchases can also be potentially minimized or eliminated at the dependent store. The parent store will stock more line items as a result of territorial and dependent store processing as well as carry more depth of inventory because they are the primary source of stock stock and emergency parts. The offset should be that lead-times could be reduced at the dependent store, thus resulting in less depth of the inventory at the dependent stores. Depending upon the mix of the dealer’s inventories, this could possibly result in a reduction of overall dealership inventory and improved turnover and customer service. Finding this balance of performance with dependent store processing is essential to receive the full benefit.


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Chapter 4 – Control-of-Stock How Dependent Store Processing Works

First of all, dependent and territorial stocking are used to determine if a part qualifies for stock at the dependent store as well as at the parent store based on the Add-toStock parameters at each store by making use of demand base months and the territorial hierarchy and dependent store parameters. Once an item is stocked, the Control-of-Stock parameters established for both the dependent and parent store are applied. Again, as in the Add-to-Stock decision, demand base months are used to determine the amount of history used to calculate annual demand, which is used in the order point calculation, as well as lead-time. The discussion of order point calculations will be covered later in the chapter. Once the dependent’s order quantity is calculated, the stock transfer search sequence is utilized to determine if surplus can be used to fulfill the dependent store’s need. If it cannot be filled, then the item is sourced to to the parent store. The amount filled by the parent store is based upon a parameter setting that can either take the parent store to its minimum or to zero. Any unsourced amount is then added to the parent store’s stock order to the vendor and a pending transfer is retained in the system. system. On a daily basis the pending transfers are compared compared to the parent store’s current on-hand quantity and then transferred to the dependent store when any portion of the required on-hand quantities exist at the parent store. Impacts of Dependent Store Processing

Earlier, we discussed the impact of dependent store processing on annual demand and lead-time, but there are other impacts to be considered as well. Reduced inventories at the dependent store should result in a reduction of inventory carrying costs. From a customer service standpoint, total and territorial service percents should improve as a result of dependent and territorial stocking. A part will qualify for stock sooner with territorial stocking than without and that should improve service percents. In addition to reduced carrying costs and improved service percents, emergency service fees should be reduced. More line items will be stocked stocked within the dealership and if backorder sourcing sequences are properly aligned, more items should be sourced within the dealership rather than sourcing to the vendor. The impact on the warehouse operations should not be ignored when considering the implementation of dependent store processing. processing. Dependent store processing requires the parent store to bin and receipt the parts into its inventory and then wait for the transfer to be generated to transfer the the parts to the dependent store. This will increase the amount of warehouse activity and a cost should be determined to assess if the increased warehouse costs will exceed the reduced emergency service fees and carrying costs costs dependent store processing processing offers. Also, the increased number of line items and depth of inventory at the parent store should be analyzed to determine the additional storage space requirements.


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4.5 O Or der P Matr ix a and M Min-Types Point M Once a part has qualified as a stock record, in the Control-of-Stock phase it is assigned a min-type based upon the order point matrix it is assigned to. The order point matrix applies minimum control logic, or service targets, for regular buy items and determines their reorder points. (This section is to make you you aware of the the various min-types and how they are assigned to each part. A more detailed explanation of the use of the order point matrix and minimum control logic, or service targets, will be covered in the next section covering Order Point Calculations.) In DBSi, an order point matrix is used to determine the target service levels for each classification of inventory or min-type, which determines depth of inventory. Mintypes are assigned based upon activity indicator (F-M-S), dollar value breaks (average value per call or unit dealer net) as well as annual demand. There are two order point matrices in DBS, which allows for a unique base lead-time for each as well as target service levels for each ea ch min-type classification. Below is an example of an order point matrix in DBS.

Low Activity Low Value

High Activity Low Value

High Activity High Value Low Activity High Value

For stock record (Record Type “S”) parts, the order point matrices determine its mintype. Across the top of the table are dealer-defined call ranges A, B, C, and D, going from lower activity parts to higher activity parts. Generally, the A range is from 3 or 4 calls to 6 calls annually (annual calls as determined by Demand Base Months), the B


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Chapter 4 – Control-of-Stock range is from 7-12 calls, the C range from 13-25 calls, and the D range 26 calls and up. In addition to call ranges, average value per call or unit dealer net categories are used to determine a part’s min-type. The dealer has the option option to use average value value per call or the unit dealer net of the part. Average value per call is calculated by dividing demand in pieces by the number of calls and taking that value times the unit dealer net value. The categories are 1 through 5, for Order Point Matrix I and go from low value (1) to high value (5). The categories are 6 through 10 for Order Point Matrix Matrix II and go from low value (6) to high value (10). The combination of value and call ranges determine the min-type for a stock part. For example, min-type min-type 1D is for a low value, high activity part. Again, call ranges and values are dealer-defined and can vary by Store, Source-of-Supply, Order Point Matrix, and activity indicator (F-M-S). Stock parts (Record Type “S”) that are not manually controlled and have annual calls less than call range A, are considered as Buy-as-Sold parts. (Buy-as-Sold will be explained in more detail when when minimum calculations are discussed.) There are two categories of Buy-as-Sold parts and thus two two separate min-types. min-types. Please see the table below. BUY-AS-SOLD DEFINITION MATURE – Date to stock is more than one year old. NEW – Date to stock is less than one year old.

MIN-TYPE MBS

NBS

Date to stock is defined as the date of the last time that a part’s store record had its record type changed to a stocked record (Record Type “S”). For Record Type “S” parts that are manually controlled, the method by which it is controlled determines its min-type. Below is a table for the manually controlled min-type categories of stock parts. MANUAL CONTROL DEFINITION Protective Stock Permanent Frozen Temporary Frozen

MIN-TYPE PS PF TF

The manually controlled min-type a part is assigned to, is dependent upon the Frozen Min/Max indicator a part is assigned on the Store Record. Values 1, 2, 3, 6, 7, and 8 will be min-types PF; value 3 with months protected will be min-type PS; values 4 and 9 will be min-type min-type TF for temporary frozen. frozen. (See the DBS/DBSi Parts Inventory Processing Training Guide for a definition of each of the Frozen Min/Max indicators.)


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Chapter 4 – Control-of-Stock Min-types PS, PF, and TF are not included on the order point matrix. Their minimums and maximums are determined by the dealer and are set at their frozen levels. For Made-Stock, Exhaust, and Temp Stock parts, the record type determines its mintype. See the table below.

RECORD TYPE M E

DEFINITION Made-Stock Exhaust

T

Temporary

MIN-TYPE MS – Made-Stock ES – Exhaust Stock ER – Exhaust Replaced TS – Temporary Stock

Min-types MS, ES, ER, and TS are not included on the order point matrix. Their minimums and maximums are always 0 and 0. This gives a high level overview of what min-types are and how parts are assigned to the various categories. The next step is to understand how the order point matrix and min-types are used to determine order point calculations.


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4.6 O Or der P Calculations Point C By definition, an order point (or minimum) helps the system determine when a part should be ordered. Parts are considered considered for reordering when when the total available is less than or equal to minimum. At a high level, there are basically two types of order points – Manually Controlled and System Generated. Manually Controlled Order Points

When inventory management at the dealership decides to determine their own order points for parts, rather than use a system generated order point, this is called a manually controlled order point. There may be a variety of reason why some some parts are manually controlled (New Product Introduction, Customer Support Agreements, cost of a part, warehouse space, etc.) There are three categories of Manually Controlled order points as listed below: 1) Permanent Frozen 2) Temporary Frozen 3) Protected Stock

In each case, the dealership has decided to override the system calculated order point and manually control control the order points for each of these these categories. The key difference of each of these is the manner in which the manual control on the part is released.

Permanent Frozen (PF) The order point is frozen until the user manually releases the frozen indicator. The system will never automatically release a Permanent Frozen order point.

Temporary Frozen (TF) A Temporary Frozen order point will automatically release when the system calculated minimum exceeds Temporary Frozen minimum set by the dealer.

Protected Stock (PS) The Protected Stock order point can be thought of as Permanent Frozen with “months protected.” It will automatically release when the months that are protected expire. It includes an optional free-form reason field that is manually entered and deleted as needed. System Generated Order Points

System generated order points are calculated by the dealer’s business system using parameters and formulas to automatically determine order points. The majority of a dealer’s inventory order points should be system generated. There are three categories of system generated order points as listed below: 1) Buy-As-Sold 2) Days-of-Supply


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Chapter 4 – Control-of-Stock 3) Poisson

Buy-As-Sold (BAS) The Buy-As-Sold order point is generally used for slower moving/more expensive parts, or those parts with shorter lead-times. A BAS min-max will stock a number of pieces equal to one average call. Buy-as-Sold can be a min-type which is controlled by BAS order point logic, or it can be an MCL (minimum control logic) or service target set on the order point matrix.

Formul Formula: B uy-As -Sol -S old d Order Order P oint E 1. x a 2. m p 3. l 4. e :

Compute Annual Demand in calls and pieces (see Demand Base Months). Compute the Average Number of Pieces Per Call (annual pieces divided by annual calls). Set Maximum at the Average Number of Pieces per Call. Call. Set Minimum at one less than the Average Number of Pieces per Call.

Step 1 – Demand base months for a part is 12 months. It has one call for 3 pieces in the current month, one call for 5 pieces in the previous month, and one call for 4 pieces in the 5 th previous month. Total annual demand in calls is 3 and in pieces is 12. Step 2 – Divide annual pieces (12) by annual calls calls (3). Average pieces per call is 4. Step 3 – Maximum is equal to average pieces per call. Maximum is equal to 4. Step 4 – Minimum is one less than average pieces per call. Minimum is equal to 3.

HANDS ON EXERCISE Calculate BAS Minimums and Maximums for the following three parts. 3 Calls for 27 Pieces

Min_____

Max_____

2 Calls for 4 Pieces

Min_____

Max_____

1 Call for 1 Piece

Min_____

Max_____


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Chapter 4 – Control-of-Stock Days-of-Supply (DOS) Days-Of-Supply (DOS) is generally applied to sources/vendors with extended or erratic lead times, or parts that have the highest highest demand and least cost. An example would be low cost, general-purpose hardware. DOS is normally expressed as 30, 45, 60, 90 or 120 days-of-supply, days-of-supply, but will also take any number between between 1+999. A DOS strategy should consider a number of stocking days based on total lead-time, plus a set number of days as safety stock.

Formu For mula la:: Days Of Suppl S upplyy Order Order Point DOS x Annual Demand (in pieces) Days of Supply = ___________________ 365 Example:

A part has it minimum control logic set to DOS of 60 and annual demand of 10 calls for 50 pieces. Multiply DOS (60) by annual demand in pieces (50), which equals 3000. Divide 3000 by 365, which equals 8.2. Use general rounding rules and round to 8. Minimum for this part is 8.

HANDS ON EXERCISE Calculate DOS Minimums using the DOS Order Point formula.

30 DOS Order Point 3 Calls for 27 Pieces 7 Calls for 109 Pieces

Pcs./Call ___ ___

Min_____ Min_____


___ ___

Min_____ Min_____


___ ___

Min_____ Min_____


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Poisson Poisson uses minimum control logic (MCL) or service targets to determine the order points for parts. parts. The Poisson-controlled parts are referred to as the parts whose min-type is assigned by the order point matrices and controlled by the corresponding MCL and safety stock days, in addition to the assigned lead-time for the matrix. Poisson calculates an order point in calls for each min-type, and then multiplies that by the part number’s average pieces per call to calculate that specific part number’s minimum. Below is a screen print of an order point matrix in DBS/DBSi.


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Chapter 4 – Control-of-Stock Poisson-Order Point Minimum Calculation

There are six basic steps used in calculating a Poisson minimum. 1. From the Part Master record, record, determine the part’s Activity Indicator (F-M-S), Unit Dealer/Net, and Returnable/Non-Returnable Returnable/Non-Returnable status. Below is a screen print of a part master record in DBS/DBSi.


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2. From the Ordering Parameters , determine the demand base months considering activity indicator, returnable/non-returnable status, and unit dealer net, and territorial hierarchy. Below is a screen print of the ordering parameter screen for a specified store and source-of-supply combination.


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Chapter 4 – Control-of-Stock 3. From the Store Record, consolidate Call/Demand activity considering territorial hierarchy, record type, and demand base months. months. Compute annual demand in calls and pieces considering demand base months and the test for increasing demand. Using annual demand, compute compute average pieces per call. call. Using average pieces per call, calculate average dealer net value per call. Below is a screen print of the store record screen from DBS/DBSi.


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Chapter 4 – Control-of-Stock 4. From the Ordering Parameters , select the appropriate Order Point Matrix considering the activity indicator. Note the base lead-time for for the order point matrix. matrix. Using annual calls and average dealer net value per call, determine the min-type, minimum control logic (MCL), (MCL), and safety stock stock (SS) days. Below is a screen print of the order point matrix from DBS/DBSi.

Estimated Demand in Calls During Lead-Time (EXDLT). Estimated 5. Compute Estimated Demand During Lead-Time is the number of calls expected within the base lead-time plus safety stock days and is a key element in determining a Poisson minimum. The EXDLT formula is shown below.

Calls x (Base Lead-Time + Safety Stock Days) EXDLT =

_______________ _______________________ ________________ ______________ ______

365 6. Determine Order Point in Calls. Using the Poisson Order Point in Calls table, take the EXDLT number down the Desired Service Percent column to the value


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Chapter 4 – Control-of-Stock equal to or greater than EXDLT. EXDLT. The number in the Calls column column to the far right or far left is the Order Point in Calls. Multiply the Order Point in Calls times the Average Pieces per Call to determine the final minimum for the part. Below is an example of the Poisson Order Point in Calls table.

Calls 0 1 2 3 4 5

90% 91% 92% 0.11 0.09 0.08 0.53 0.50 0.47 1.10 1.05 1.00 1.74 1.68 1.61 2.43 2.35 2.27 3.15 3.06 2.96

Poisson Order Points In Calls 93% 94% 95% 96% 97% 98% 99% 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.43 0.39 0.36 0.31 0.27 0.21 0.15 0.94 0.88 0.82 0.75 0.66 0.57 0.44 1.53 1.45 1.37 1.27 1.16 1.02 0.82 2.18 2.08 1.97 1.85 1.71 1.53 1.28 2.85 2.74 2.61 2.47 2.30 2.09 1.79

Calls 0 1 2 3 4 5

Example:

Compute an order point for a part that is classified by Caterpillar as Fast moving with a unit dealer net value of $35 with annual call demand activity of 7 calls for 21 pieces. Use the Order Point Matrix shown below and the Poisson Order Points in Calls table from above.

ORDER POINT MATRIX - 1 STORE: 00 MAIN STORE SOS: 000 CATERPILLAR

CTG 1 CTG 2 CTG 3 CTG 4 CTG 5

BASE LEAD-TIME: 6 Days

ACTIVITY INDICATOR – F – FAST MOVING PARTS CALL RANGE – A CALL RANGE – B CALL RANGE – C FROM TO FROM TO FROM TO 4 6 7 12 13 25 MAX MCL SS MAX MCL SS MAX MCL SS COST COST COST 15 99% 28 15 99% 26 15 99% 33 50 99% 28 50 99% 26 50 99% 25 100 99% 5 100 99% 12 100 99% 12 350 99% 0 350 99% 1 350 99% 4 99999 BAS 0 99999 BAS 0 99999 95% 0

CALL RANGE - D FROM TO 26 UP MAX MCL SS COST 15 030 0 50 045 0 100 99% 19 350 99% 12 99999 99% 0

For this example exercise, it is not necessary to complete steps 1 and 2 or the annual demand calculation from step 3, as activity indicator, unit dealer net value, and annual demand have already been identified. The remainder of steps 3 through 6 must be completed and are shown below. Step 3 - Average Pieces per Call is equal to annual demand in pieces (21) divided by annual demand in calls calls (7). The Average Pieces per Call is equal to 3.

Average Dealer Net Value per Call is equal to the Average Pieces per Call (3) times the Unit Dealer Net Value ($35). The Average Dealer Net Value per Call is equal to to $105. Step 4 - From the Order Point Matrix above, note the base lead-time for the order point matrix. Using annual calls and average dealer net value per call, determine determine the min-type, minimum control logic (MCL), and safety stock (SS) days.


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Chapter 4 – Control-of-Stock Base lead-time is equal to to 6 days. The min-type is 4B ($105 avg. value per call with 7 annual calls). MCL is 99% and the number of safety stock days is 1. Step 5 – Compute Expected Demand During Lead-Time.

Calls (7) x (Base Lead-Time (6) + Safety Stock Days (1)) EXDLT =

_______________ _______________________ _______________ ______________ _______

365 EXDLT = 0.13

Minimum in Calls is equal to 1. (From the Order Step 6 – The Poisson Order Point Minimum Point in Calls table, go to the 99% MCL column. The EXDLT for this part is 0.13, which is between .01 and .15. .15. Using the Poisson Order Point in Calls table, take the EXDLT number down the Desired Service Percent column to the value equal to or greater than EXDLT. In this case EXDLT is greater than .01 (0 calls), so so go to the next value for which it is less than, which is .15 (1 call)). Now, multiple the Order Point Minimum in Calls (1) times the Average Pieces per Call (3) from step 3. The Order Point Minimum in Pieces is 3.


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Chapter 4 – Control-of-Stock HANDS ON EXERCISE Calculate Poisson Minimum using the Poisson Order Point formula. (Use the Order Point Matrix and Poisson Minimum Order Points in Calls table from above.) Fast moving part, Unit Dealer Net $20, Annual Demand of 15 Calls for 60 Pieces. Min-Type_____

Minimum in Calls_____

Minimum in Pieces_____

The Importance of Order Point Calculations

Mastering Order Point calculations increases confidence by revealing the mystery of numbers and making the inventory control process process less complex. Understanding Order Points also helps you manage life cycle cycle parameters. Once the formula is understood, an Inventory Manager can confidently set call breaks, apply safety stock, and verify or change Minimum Control Logic.


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4.7 E Economic O Or der Q and M Maximum C Calculations Quantity a The previous section detailed how minimums are calculated. calculated. Remember, the importance of a minimum determines when a part is considered for reordering. When the total available for a part is less than or equal to minimum, that part is considered for reordering. Once it is determined determined the part should be replenished, the next question is how many should be ordered? The Economic Order Quantity (EOQ) is what is used in determining how many and, combined with the minimum, sets the maximum for a part. Similar to minimum calculations, at a high level, there are basically two types of maximums defined – Manually Controlled and System Generated. Manually Controlled Maximums

When inventory management at the dealership decides to determine their own minimum and maximum for parts, rather than use a system-generated minimum and maximum, this is called a manually controlled part. There may be a variety of reasons why some parts are manually controlled (New Product Introduction, Customer Support Agreements, cost of a part, warehouse space, etc.) There are three categories of Manually Controlled maximums as listed below: 1) Permanent Frozen 2) Temporary Frozen 3) Protected Stock

In each case, the dealership has decided to override the system calculated order point and maximums and manually control the order points for each of these categories. The key difference of each of these is the manner in which the manual control on the part is released.

Permanent Frozen (PF) The order point and maximum is frozen until the user manually releases the frozen indicator. They system will never automatically automatically release a Permanent Frozen Frozen order point minimum and maximum.

Temporary Frozen (TF) A Temporary Frozen order point and maximum will automatically release when the system calculated order point exceeds Temporary Frozen minimum set by the dealer.

Protected Stock (PS) The Protected Stock order point can be thought of as Permanent Frozen with months protected. It will automatically release when the months that are protected expire. It includes an optional free-form reason field that is manually entered and deleted as needed. System Generated Maximums

System generated maximums are calculated by the dealer’s business system using


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Chapter 4 – Control-of-Stock parameters and formulas formulas to automatically automatically determine EOQ’s and maximums. maximums. The majority of a dealer’s inventory EOQ’s and maximums should be system generated. There are three categories of system generated EOQ’s and maximums as listed below: 1) Buy-As-Sold 2) Days-of-Supply 3) Poisson

Buy-as-Sold Maximum is equal to the average number of pieces per call. Please refer to the the formula in section 4.6 relating to minimum order point calculations.

Days-of-Supply Maximum is equal to Minimum plus the Economic Order Quantity (EOQ).

Poisson Maximum is equal to Minimum plus the Economic Order Quantity (EOQ). For both Days-of-Supply and Poisson calculated maximums, Economic Order Quantity or EOQ, is the critical calculation. Maximum is simply the sum of minimum and the EOQ. So how is EOQ calculated?

Economic Order Quantity (EOQ) Calculation Economic Order Quantity (EOQ) is an accounting formula that effectively balances inventory acquisition cost and inventory carrying cost to provide the most cost effective stock replenishment order quantity. The formula is used to determine how much to order for a given part at a specific point in time. It determines the the point at which the the combination of order cost and inventory carrying cost, both constant elements, are the least for a given part. The other key elements, which are variable, are the dealer net value and the annual demand for the given part. The result derived from the formula for for a given part is the most cost effective quantity to order. The Caterpillar recommended EOQ formula for dealers is based on the accepted standard “Norton Formula” which is: EOQ =

2 * ( AcquisitionCost ) * ( AnnualDemand ) (CarryingCo st ) * (UnitDealer sNet Pr ice)

Acquisition Cost is the reoccurring cost a dealer has every time he orders a line item for stock. It includes the expenses expenses that can be directly directly attributed to the costs of acquiring stock. Typically, the expenses start with the manpower cost cost related to the stock order review and accumulate to that required to receive and bin the resulting stock order. Beyond manpower costs, there might be transportation transportation costs and other miscellaneous items that directly contribute to inventory acquisition cost.


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Chapter 4 – Control-of-Stock It is commonly accepted that the acquisition cost is the same for every part with the assumption being that it doesn’t cost any more to include one part versus another on a stock order just as it doesn’t cost more to order a hundred pieces than ten of a particular line item. Carrying Cost includes the direct expense plus the allocated expense that can be attributed to the cost to carry inventory plus the cost of money. Inventory Carrying Cost is expressed as a percentage of total inventory investment. Direct Expense includes such things as interest expense, taxes, salaries, certain systems costs, material handling and storage equipment and more. Allocated Expense includes management salaries, occupancy and certain other general expenses that can be attributed to inventory management and control. It will be apparent shortly that applying the EOQ formula itself isn’t particularly difficult. What isn’t so apparent is how difficult it can be to calculate a dealer specific acquisition cost or a dealer specific carrying cost. cost. It isn’t that the process is so complex; it is the availability availability and accessibility of the information. In most most organizations, information related to allocated expenses and particularly employee compensation is considered confidential and is not generally available. Applying the EOQ Formula

The EOQ formula as applied by Caterpillar dealers considers acquisition costs, annual demand, carrying costs and the unit dealer net price of the part. Again, the basic EOQ formula is:

EOQ =

2 * ( AcquisitionCost ) * ( AnnualDemand ) (CarryingCo st ) * (UnitDealer sNet Pr ice)

The acquisition costs and the carrying costs are the same for all parts. So, once they have been determined and set, they can be applied as a constant to all parts to simplify the the EOQ formula. In the simplified EOQ formula, the the constant that associates acquisition and carrying carrying costs is referred to as the EOQ “K” Factor. The EOQ “K” Factor formula is:

K=

2 * ( Acquisitio nCost ) (CarryingCo st )

Thus, the simplified EOQ formula as applied by dealers is:

EOQ = K *

AnnualDemand UnitDealer sNet Pr ice


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“Annual demand” as applied in EOQ is the same annual demand that results from the application of the Demand Base Months parameters in the order point calculations.

The resulting EOQ is the calculated EOQ and not necessarily what will be the final EOQ, as there are rules to apply a high limit and a low limit for the determining the final EOQ. EOQ High Limit

Compare the calculated EOQ to the EOQ High Limit. In the DBS systems, the EOQ High Limit parameter applies as a percentage of annual demand. A setting of 1.0 means that the EOQ High High Limit is 100% of annual demand, while 0.5 is 50% of annual demand. •

•

If the calculated EOQ exceeds the EOQ High Limit, use the EOQ High Limit as the EOQ. If the calculated EOQ doesn’t exceed the EOQ High Limit, use the calculated calculated EOQ as the EOQ.

The EOQ High Limit doesn’t apply that often but when it does it is most likely to be applied to a relatively inexpensive slower moving item. EOQ Low Limit

Compare the calculated EOQ quantity to the EOQ Low Limit. In DBS, the EOQ Low Limit parameter applies as Days-Of-Supply. A low limit setting of 15 would mean that the EOQ Low Limit is equal to 15 “Days-Of-Supply.”

D ays-Of-S ys-Of-Sup upp ply F or mula Days-Of-Supply x Annual Demand (pieces) 365 •

•

If the calculated EOQ is less than the EOQ Low Limit, use the EOQ Low Limit as the EOQ. If the the calculated EOQ is greater than the EOQ Low Limit, use the calculated EOQ as the EOQ.

The EOQ Low Limit doesn’t apply that often but when it does it, is most likely to be applied to a relatively expensive faster moving item.


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Chapter 4 – Control-of-Stock EOQ Rounding Rules

When the final EOQ quantity is less than one (1.00), round the fractional EOQ to one (1.00). You cannot buy less than a quantity quantity of one piece as an EOQ. Beyond 1.00, the regular rounding rules apply. apply. For example, 1.4 will round down to 1.00 and 1.5 will round up to 2.0. Final EOQ

The program calculates an EOQ. Parameters exist to apply an upper and lower limit to the EOQ. These limits are established established based on a part's part's anticipated daily sales sales rate and other DBS parameters. If the EOQ falls below the lower limit, it is increased to the lower limit value. Similarly, if the EOQ is above the upper limit, it will be reduced to the the upper limit value. Fundamentally, the limits exist to adjust the application of the EOQ for warehouse efficiency considerations. DBS EOQ Parameters

In the DBS systems, the EOQ parameters are part of the Ordering Parameters that apply by Store within within Source-Of-Supply. Below is a DBS screen print of the EOQ parameters.


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Exercises: Calculate an EOQ for each of the following. Use the following following parameters and a calculator with a square root function key. The EOQ Formula: EOQ = K *


(pieces) by the Unit Dealers Net Price of the How to: Divide the Annual Demand (pieces) part. Take the square root of the answer (touch the square root key on your calculator) times (multiply) “K” which is 2.14. Calculate the EOQ High Limit (percentage of annual demand). Calculate the EOQ Low Limit Days-Of-Supply.

EOQ K Factor 2.14 EOQ High Limit 1.0 (100% of annual demand) EOQ Low Limit 15 (Days-Of-Supply) (Days-Of-Sup ply) Annual Demand

1 2 3 4 5 6 7 8 9 10 11 12

12 12 12 18 12 55 12 34 12 388 235 651

Unit D/N Price

Calculated EOQ

High Limit

Low Limit

Final EOQ

.05 .25 5.25 685.00 1.29 25.10 15.00 19.45 125.00 1.26 1432.00 .05


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4.8 M Miscell llaneous C Contr ol o of S Concepts a and Stock C Par ameter s The major topics of the Control-of-Stock phase of the l ife cycle have been presented, but there are still a few other related topics that are necessary to be understood. These concepts/parameters are as follows: 1) 2) 3) 4) 5) 6) 7)

Total Available Auto Order Extended Cost Limits Force Part to Suggest Order Surplus Base Months Stock Transfer Search Sequence Stock Transfer Dollar Limits Buy-as-Sold (BAS) Aging Days

Total Available

Total available helps determine when and how much to replenish by accounting for quantities on order. In DBS/DBSi, total available available is equal to the sum of on hand plus on order plus in process plus in return. A part is at order point only when total available is less than or equal to minimum. minimum. The initial order quantity (not considering package/minimum order quantities) is maximum minus total available.


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Chapter 4 – Control-of-Stock Auto Order Extended Cost Limits This parameter blocks automatic ordering by forcing a review of all items with an extended order cost (order quantity times unit dealer ne t) greater than or equal to the parameter setting. This parameter applies to all activity indicators indicators (F-M-S). Below is a DBS/DBSi screen print showing where this parameter is located.

6


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Force Part to Suggest Order This parameter can can disqualify a part for automatic automatic stock replenishment. When it applies, the part will appear on the Stock Order Review as a Suggested Order or a Suggested Transfer. This parameter is meant to draw attention to stock stock records that are at or below minimum but no longer meet the add-to-stock parameters. Below is a DBS/DBSi screen print showing where these parameters are set.

When a stock part is active and considered for stock replenishment, if the number of calls is less than the category to which it applies, then the part appears as a Suggest Order. Keep your dealership’s inventory management strategy in mind as you face these stock replenishment decisions. decisions. Remember, these parts have already been stocked, stocked, but they have fallen below established add-to-stock levels. levels. Be mindful that as stocked items, they are at order point so the decision is to replenish or not to replenish. If the decision decision falls to replenishing the item, item, do so. If it falls to not replenishing the item, make it exhaust exhaust or non-stock. It’s mostly a judgment call call and obviously it should be different for the slower moving, more expensive items than for the others.


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Chapter 4 – Control-of-Stock Surplus Base Months Surplus Base Months controls the amount of on-hand inventory that can be declared available for stock transfer surplus re-deployment and Dealer Parts Inventory Sharing (DPIS) if stock records have been included. Below is a DBS/DBSi screen print of this parameter.

The Surplus Base Months parameters are part of the life-cycle parameter settings and can be synchronized when they are set. The amount of inventory available for internal stock transfer or DPIS is the greater of either on-hand in excess of demand in Surplus Base Months or on-hand in excess of maximum. A low Surplus Base Months potentially forces more inventory to be available for internal stock transfers and DPIS while a higher Surplus Base Months will maintain more depth in inventory.


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Chapter 4 – Control-of-Stock Stock Transfer Search Sequence The Surplus Base Months parameter determines what amount of inventory is available for internal transfer. transfer. The Stock Stock Transfer Transfer Search Sequence parameter determines the order in which stores are searched for available inventory. When it is determined that a store needs to replenish a part and the amount to order has been calculated, before the part is ordered from the vendor (or parent store in the case of dependent store processing), a search is done within the dealership to determine if there is excessive inventory that can be redeployed to fulfill the need. Below is a DBS/DBSi screen print of a stock transfer search sequence.


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Chapter 4 – Control-of-Stock Stock Transfer Dollar Limits This parameter controls surplus redeployment in the the stock replenishment program. It sets an extended dealer net transfer limit that must be exceeded before a surplus quantity can qualify to be transferred. Below is a DBS/DBSi screen print p rint of this parameter setting:

A typical strategy might be to slow the transfers down on the less l ess expensive, faster moving stocked items while accelerating transfer activity on the slower moving, more expensive items. An effective strategy will typically vary by size of store and general business conditions.

6


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Buy-as-Sold (BAS) Aging Days Buy-as-Sold aging provides a way to delay the replenishment of a Buy-as-Sold item for a specified number of days as a way to to compensate for returns. The only exception is for parts going from Made-stock to Stock and ordering for the first time. The BAS Aging does not apply in this situation because the part has just been aged in the Made-stock aging process. Below is a DBS/DBSi screen print p rint of this parameter:

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With today’s short lead-times (i.e. daily stock), often stock will have been ordered, shipped, and received before a customer/service technician can process a return. An effective strategy might be to slow the replenishment of medium and slow moving BAS parts, particularly if a dealership’s return rates are on the high side. Like Add-to-Stock Aging, the ideal setting for Buy as Sold Aging days for a daily stock replenishment cycle is 7 days. Note: This parameter only applies to min-types MBS and NBS. If the part has a min-type of 1A-10D but the MCL is BAS, BAS aging does not apply.


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Setting BAS Aging to Avoid “Mondays”

This table shows the impact of the BAS aging days and the day when the aging expires and will potentially order. As stated before, in order to avoid stacking of inventory it is important to maintain aging days in multiples of seven. As shown above the BAS aging days of seven will prevent the grouping of stock orders for one day and spread it out evenly across the week. The greatest impact is on the receipting side. By using multiples of seven aging days all those “new location items” will arrive in the warehouse evenly spread through out the week.


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Chapter 4 – Control-of-Stock Reference – Poisson Order Points in Calls Tables Poisson Order Points In Calls

Calls 70% 71% 72% 73% 74% 75% 76% 77% 78% 79% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

0.36 1.10 1.91 2.76 3.63 4.52 5.41 6.31 7.22 8.13 9.05 9.97 10.9 11.82 12.75 13.69 14.62 15.56 16.5 17.44 18.38 19.32 20.26

0.34 1.07 1.88 2.72 3.58 4.46 5.35 6.24 7.15 8.05 8.97 9.88 10.80 11.73 12.65 13.58 14.51 15.45 16.38 17.32 18.26 19.20 20.14

0.33 1.04 1.84 2.67 3.53 4.40 5.28 6.17 7.07 7.97 8.88 9.79 10.71 11.63 12.55 13.48 14.40 15.33 16.27 17.20 18.13 19.07 20.01

0.31 1.02 1.80 2.63 3.48 4.34 5.22 6.10 6.99 7.89 8.80 9.70 10.61 11.53 12.45 13.37 14.29 15.22 16.15 17.08 18.01 18.94 19.88 20.81

0.30 0.99 1.76 2.58 3.42 4.28 5.15 6.03 6.92 7.81 8.71 9.61 10.52 11.43 12.34 13.26 14.18 15.10 16.03 16.95 17.88 18.81 19.74 20.68

0.29 0.96 1.73 2.54 3.37 4.22 5.08 5.96 6.84 7.73 8.62 9.52 10.42 11.33 12.24 13.15 14.07 14.99 15.91 16.83 17.75 18.68 19.61 20.54

0.27 0.93 1.69 2.49 3.31 4.16 5.01 5.88 6.76 7.64 8.53 9.42 10.32 11.23 12.13 13.04 13.95 14.87 15.78 16.70 17.62 18.55 19.47 20.40

0.26 0.91 1.65 2.44 3.26 4.10 4.95 5.81 6.68 7.56 8.44 9.33 10.22 11.12 12.02 12.93 13.84 14.75 15.66 16.57 17.49 18.41 19.33 20.26

0.25 0.88 1.61 2.39 3.20 4.03 4.88 5.73 6.60 7.47 8.35 9.23 10.12 11.01 11.91 12.81 13.72 14.62 15.53 16.44 17.36 18.27 19.19 20.11

0.24 0.85 1.57 2.35 3.15 3.97 4.81 5.65 6.51 7.38 8.25 9.13 10.02 10.91 11.80 12.69 13.59 14.50 15.40 16.31 17.22 18.13 19.05 19.96 20.88

0.53

0.56

0.59

0.62

0.65

0.68

0.71

0.74

0.78

0.81


Calls

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

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Chapter 4 – Control-of-Stock Reference – Poisson Order Points in Calls Tables Poisson Order Points In Calls

C al alls 80 80% 81% 82% 83% 84% 85% 86% 87% 88% 89 % 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

0.22 0.82 1.54 2.30 3.09 3.90 4.73 5.58 6.43 7.29 8.16 9.03 9.91 10.79 11. 11.68 12. 12.57 13. 13.47 14. 14.37 15. 15.27 15. 15.27 17. 17.08 17. 17.99 18. 18.90 19. 19.81 20. 20.72

0.21 0.80 1.50 2.25 3.03 3.84 4.66 5.50 6.34 7.20 8.06 8.93 9.80 10.69 11.56 12.45 13.34 14.24 15.13 15.13 16.93 17.84 18.75 19.65 20.56

0.20 0.77 1.46 2.20 2.97 3.77 4.59 5.41 6.25 7.10 7.96 8.82 9.69 10.56 11.44 12.32 13.21 14.10 14.99 14.99 16.79 17.69 18.59 19.49 20.40

0.19 0.74 1.41 2.15 2.91 3.70 4.51 5.33 6.16 7.00 7.86 8.71 9.58 10.44 11.32 .32 12.19 .19 13.09 .09 13.96 .96 14.85 .85 14.85 .85 16.63 .63 17.53 .53 18.43 .43 19.33 .33 20.23 .23

0.17 0.71 1.37 2.09 2.85 3.63 4.43 5.24 6.07 6.90 7.75 8.60 9.46 10.32 11.19 .19 12.06 .06 12.94 .94 13.82 .82 14.70 .70 14.70 .70 16.48 .48 17.37 .37 18.26 .26 19.16 .16 20.06 .06

0.16 0.68 1.33 2.04 2.79 3.56 4.35 5.15 5.97 6.80 7.64 8.48 9.34 10.19 11.06 11.92 12.79 13.67 14.55 14.55 16.31 17.20 18.09 18.96 19.88 20.77

0.15 0.65 1.29 1.98 2.72 3.48 4.26 5.06 5.87 6.70 7.53 8.36 9.21 10.06 10.92 11.78 12.64 13.51 14.39 14.39 16.14 17.03 17.91 18.80 19.69 20.58

0.14 0.62 1.24 1.93 2.65 3.40 4.18 4.97 5.77 6.58 7.41 8.24 9.08 9.92 10.77 .77 11.63 .63 12.49 .49 13.35 .35 14.22 .22 14.22 .22 15.97 .97 16.84 .84 17.73 .73 18.61 .61 19.49 .49 20.38

0.13 0.59 1.20 1.87 2.58 3.32 4.09 4.87 5.66 6.47 7.29 8.11 8.94 9.78 10.62 .62 11.47 .47 12.33 .33 13.19 .19 14.05 .05 14.05 .05 15.78 .78 16.65 .65 17.53 .53 18.41 .41 19.29 .29 20.17

0.12 0.56 1.15 1.81 2.51 3.24 3.99 4.76 5..55 6.35 7.16 7.97 8.80 9. 9.63 10.47 .47 11.31 .31 12.16 .16 13.01 .01 13.86 .86 13.86 .86 15.59 .59 16.46 .46 17.32 .32 18.20 .20 10.07 .07 19.95 20.88

0.85

0.88

0.92

0.96

1.00

1.04

1.09

1.13

1.18

1.23


Calls

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

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Reference – Poisson Order Points in Calls Tables Poisson Order Points In Calls Calls

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 0.11 0.53 1.10 1.74 2.43 3.15 3.89 4.66 5.43 6.22 7.02 7.83 8.65 9.47 10.30 11.14 11.98 12.82 13.67 14.53 15.38 16.24 17.11 17.97 18.84 19.72 20.59

0.09 0.50 1.05 1.68 2.35 3.06 3.79 4.54 5.31 6.09 6.88 7.68 8.48 9.30 10.12 10.95 11.78 12.62 13.47 14.31 15.16 16.02 16.88 17.74 18.60 19.47 20.34

0.08 0.47 1.00 1.61 2.27 2.96 3.68 4.42 5.17 5.94 6.72 7.51 8.31 9.12 9.93 10.75 11.58 12.41 13.24 14.08 14.93 15.78 16.63 17.48 18.34 19.20 20.06

0.07 0.43 0.94 1.53 2.18 2.85 3.56 4.29 5.03 5.79 6.56 7.34 8.12 8.92 9.73 10.54 11.35 12.18 13.00 13.84 14.67 15.51 16.36 17.20 18.05 18.91 19.76 20.62

0.06 0.39 0.88 1.45 2.08 2.74 3.43 4.14 4.87 5.62 6.37 7.14 7.92 8.71 9.50 10.30 11.11 11.92 12.74 13.56 14.39 15.22 16.06 16.89 17.74 18.58 19.43 20.28

0.05 0.36 0.82 1.37 1.97 2.61 3.29 3.98 4.70 5.43 6.17 6.92 7.69 8.46 9.25 10.04 10.83 11.63 12.44 13.25 14.07 14.86 15.72 16.55 17.38 18.22 19.06 19.90 20.75

0.04 0.31 0.75 1.27 1.85 2.47 3.12 3.80 4.49 5.21 5.94 6.68 7.43 8.19 8.95 9.73 10.51 11.30 12.10 12.90 13.71 14.52 15.33 16.15 16.97 17.80 18.63 19.46 20.29

0.03 0.27 0.66 1.16 1.71 2.30 2.93 3.58 4.26 4.95 5.66 6.38 7.11 7.85 8.60 9.36 10.13 10.91 11.69 12.47 13.26 14.05 14.86 15.67 16.48 17.29 18.11 18.93 19.75 20.58

1.29

1.35

1.41

1.48

1.56

1.65

1.76

1.89

0.02 0.21 0.57 1.02 1.53 2.09 2.68 3.31 3.95 4.62 5.30 6.00 6.70 7.42 8.15 8.89 9.54 10.39 11.15 11.92 12.69 13.47 14.25 15.04 15.83 16.63 17.43 18.23 19.04 19.85 20.66

0.01 0.15 0.44 0.82 1.28 1.79 2.33 2.91 3.51 4.13 4.77 5.43 6.10 6.78 7.48 8.18 8.89 9. 9.62 10.35 11.08 11.83 12.57 13.33 14.09 14.85 15.62 16.48 17.17 17.96 18.74 19.53 20.32 2.06 2.33


Calls

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25 26 27 28 29 30 31 K

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CHAPTER 5 5

Chapter

5.0 R Remove-f r ro m-Stock The Add-to-Stock phase was presented as being the difficult decision to be made in the Life Cycle of a part. The next most difficult decision in a part’s Life Cycle is the Remove-from-Stock phase. Upon completion of this chapter, you will be familiar with: The Remove-from-Stock Process Exhaust Stock Parameters Decision Support Information Replaced Parts • • • •


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Chapter 5 – Remove-from-Stock

5.1 T The R Remove-f r Pr ocess ro m-Stock P Despite the best of intentions and the loftiest of goals, adding an item to inventory is an investment of dealership dealership resources with no real guarantee of a return. Of course the intent is to to always make that that correct decision. decision. Well, whether they were good or bad and for whatever the reason, at some point in time the dealer will be faced with removing a part from inventory.

Time Add-To-Stock

Control-Of-Stock

Remove-From-Stock

While this action may only be temporary for some parts, for others it could well be a permanent decision. In either case, at some point in time the result is dealer inventory dollars being tied up in non-productive or surplus inventory.


126

Chapter 5 – Remove-from-Stock A dealer’s inventory system is a demand driven system and is the basis for the Life Cycle of a part. The Remove-from-Stock phase or process occurs due to the demand falling below the dealer’s established level used to support an inventory strategy. While the Remove-from-Stock Remove-from-Stock phase is driven by the lack of calls, it is controlled by a set of system parameters that can be applied at the Source-of-Supply and Store. Depending entirely on those those parameters, the Remove-from-Stock process can be as automatic or as manual as desired. Once a part has become a Stock record type, the DBS system continually reconfirms to assure the item qualifies to remain stocked. stocked. That check is made against the Life Cycle Exhaust Stock Stock Parameters. This check occurs each time the part has had activity and during month-end processing. Territorial and dependent store processing considerations also apply in the Removefrom-Stock phase. This is especially important important to remember when viewing the store store record for a part to which history is being reported up to. In addition to territorial and dependent store processing, be aware of Demand Base Month impacts. Once the decision has been made manually or automatically to remove a part from stock, the part will change its record type. For a part with no total available inventory, the record type will change from Stock (S) to Non-stock (N). For a part with total available inventory, it will change from Stock (S) to Exhaust (E). A part with an Exhaust record record type can have one of two different min-types. If the part is Exhaust because it is replaced, it is classified classified as Exhaust Replaced (min-type ER). If the part is Exhaust because of declining demand, it is classified as Exhaust Surplus (min-type ES).

Parts that are classified with an Exhaust record type are considered surplus and will be available for redeployment within the dealership through the stock replenishment process provided the store with exhaust inventory is included in the Stock Transfer Search Sequence tables. Also, for dealers participating in the Dealer Parts Inventory Sharing (DPIS) program, Exhaust parts will be available for emergency sourcing by other participating dealers.


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5.2 E Exhaust S Stock P Par ameter s For parts with declining demand, the system will automatically change the record type of a Stock part to Exhaust. The Exhaust Stock Parameters are set by Store Store and Source-of-Supply and are part of the Life Cycle Cycle parameters. If the Life Cycle parameters are synchronized, the call values set for exhaust stock will be set one call less than the add-to-stock parameters. Below is a screen print of the DBS/DBSi Exhaust Stock Parameters.

It is extremely important to understand how DBS interprets the Exhaust Stock parameter when setting this. For the call values, DBS interprets interprets this as a Less Than value. For example, if the the parameter setting is 1 call in 12 months, DBS interprets that as Less Than 1 call in 12 months. months. So, a part would need to have no calls in 12 months before it would change to exhaust. As stated in section 5.1, remember that territorial and dependent store processing is considered, as well as Demand Base Months, for this parameter when determining demand activity.


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5.3 D Decision S Suppor t IInf or mation Whenever DBS/DBSi has reclassified a part as Exhaust, it will be displayed on the Remove From Stock Review report. This report should be reviewed to determine the appropriateness of the decision the system parameters have set in motion. Also, when a part appears as a Suggest Order item due to the Force Suggest Order parameters, which indicate a part with declining demand, it should be determined if this part should be reclassified re classified as exhaust or non-stock. In either case, whether reviewing the automatic decisions made or making a manual decision, important support information should be reviewed when reviewing or making these decisions. The following support information should be considered: 1) Demand History Territorial and/or dependent stores 2) Non-Stock BAS detail Customer, machine model and serial number number 3) Machine Population 4) Customer Information 5) Activity Indicator 6) Fast – Medium – Slow 7) NPR Information Serviceability – Returnability 8) Unit Dealer Net 9) Parts Product (Commodity Code) 10) Store/Business Unit Information 11) Instinct, Instinct, common sense, an eye for detail •

•

•

The fact a part has not been sold a specified number of times within a specific timeframe is not always a valid reason for a part to qualify to be removed from stock and/or declared surplus. It might cause the analyst to consider manually controlling the part if it is to remain in inventory, or it might cause the dealer to review their Remove-from-Stock strategy, which could cause the Exhaust Stock parameters to b e reset. One must remember, by the very nature of the business, Caterpillar and dealers continually wrestle with the frustrating demand characteristics of slow moving parts. Call intervals (number of months between calls), for example, can often be so infrequent that the “phase out” of one life cycle might be followed almost immediately by the “phase in” of the next. The slower moving parts do tend to experience shorter but repeated life cycles. Thus, a circle may be as descriptive of a slower moving part’s life cycle as a “demand over time” graph.


129


Note: Some life cycles can be viewed as a “circle.” Parts come in & go out of inventory, repetitively. However, whatever action is deemed appropriate, let instinct and common sense help guide the process.


130


5.4 R Replaced P Par ts Replaced parts with a total available quantity are automatically reclassified to have a record type of E (Exhaust) and a min-type min-type of ER (Exhaust (Exhaust Replaced). If the part does not have any total available, it is reclassified as D (Dead Stock). Whenever a part is replaced, the dealer can determine when the history from the replaced part is transferred to the replacing part(s). part(s). This parameter is set at the Source-of-Supply level and applies to the entire dealership. Below is a DBS/DBSi screen print of the SOS Ordering Parameter screen where this parameter is located.

The options are Y (automatically transfer history), N (no automatic history transfer occurs), or M (history transfers when either a days-of-supply or on-hand value minimum parameter is met). Whenever a part is replaced, its history is displayed on the Automatic Replaced Parts History Transfer report in DBS. If the history is not automatically transferred, it still displays on this report but gives the reason why the history did not automatically transfer. This report should be reviewed to determine determine if history should be transferred to the replacing part(s), whenever the history did not automatically transfer


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CHAPTER 6 6

Chapter

6.0 S Sur plus M Management Since parts can rapidly move through the Life Cycles, surplus accumulation is inevitable. inevitable. In addition to the the Life Cycle parameters causing surplus, vendor policies and dealers processes can contribute to surplus accumulation. As a result, it is crucial crucial for a dealer to actively manage their surplus inventory by identifying the causes of surplus accumulation and then determining redeployment op tions. Upon completion of this chapter, you will be familiar with: The Surplus Management Process Surplus Accumulation Surplus Min-Types Improvement Potential and Opportunity Surplus Disposition • • • • •


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Chapter 6 – Surplus Management

6.1 T The S Sur plus M Management P Pr ocess It is inevitable that a dealer will accumulate surplus inventory. The key is to minimize this accumulation by reviewing parameters and operational processes. Also, once surplus has accumulated it should be optimally redeployed within the dealership, made available to other dealers, returned to the vendor, or scrapped. What are the signs of excessive surplus inventory?

You would think that inventory investment would be up and turnover down. Right? Well, not exactly. What about service percents and emergency emergency purchases? Who knows for sure? They could be up up or they could be down or there there could be no difference. The point here is that true surplus can be difficult to identify. identify. In order to know if you have a surplus problem you must first understand how surplus can accumulate, how to identify it, and then decide what to do with it.


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6.2 S Sur plus A Accumulation How does a dealer accumulate surplus inventory? Listed below are some of the primary causes. Declining Demand – Demand activity has decreased and parts have met the Exhaust stock parameters and now are classified as surplus inventory. Invalid Demand – Can be caused by demand activity not being backed out when returns occur. Can also be caused by order processing errors when demand-posting demand-posting transactions are created when they should not be (e.g. TEPS stock orders, inventory adjustments done by documents, etc.). Non-Stock Returns – Surplus accumulates when customers or the service department orders non-stock non-stock parts and then returns returns them. These are parts that would not have been stocked according to Add-to-Stock parameters, but now are because they have been returned. Obsolescence – Parts that have been replaced or discontinued by the vendor and are now classified as surplus inventory. Vendor Purchasing Rules – Package quantity or minimum order quantities are typical examples of vendor purchasing rules, which can cause surplus inventory to accumulate. Special Purchase Programs – Programs that require a large quantity to be purchased to attain a pricing advantage can cause total available to exceed systemcalculated maximums.


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6.3 S Sur plus M Min-Types How are surplus surplus parts identified? Typically, when referring to surplus inventory, three DBS/DBSi min-types are used to identify surplus surplus inventory. The three categories are: 1) ES - Exhaust Stock 2) ER - Exhaust Replaced 3) TS - Temp Stock ES - Exhaust Stock

As stated in the previous section, declining demand, which causes a part to meet the Exhaust Stock parameters in the Remove-from-Stock phase, is a significant contributor to a store’s surplus surplus inventory. The parts that have met the Exhaust stock parameters in DBS/DBSi have a record type of E (Exhaust Stock) and a min-type of ES (Exhaust Surplus). The aggressiveness at which a dealer chooses to to add parts to stock and exhaust them has a significant impact on surplus accumulation. ER - Exhaust Replaced

In addition to declining demand, replaced parts are another contributor. When a part is replaced, in DBS/DBSi, the part will have a record type of E (Exhaust Stock) and a min-type of ER (Exhaust Replaced). TS - Temp Stock

Another key contributor to surplus inventory is customer and service department non-stock returns. Whenever a part that is a non-stock record record is ordered and then returned, the part is assigned a record type of T (Temp Stock). The T record type is reserved for only those parts that are in inventory as a result of non-stock parts returns. Temp Stock is the least desirable type of surplus inventory. inventory. While these are the min-types used to categorize surplus, it should be pointed out that any of the min-types min-types might have surplus inventory. inventory. For example, the manually controlled min-types may include surplus inventory for parts permanently frozen for which no activity has occurred in some time. time. This type of surplus is disguised and emphasizes the need to periodically review manually controlled inventory to determine if it is productive and whether or not it should still be manually controlled. The Poisson controlled min-types may also include surplus inventory or on-hand quantities greater than maximum. There can be a variety variety of reasons why (e.g. returns, special purchase programs, declining demand, etc.), but we should be aware that surplus inventory could exist in these min-types. It is also important to note that the three min-types commonly used to categorize surplus is at a store level and not at a dealership level. Parts that are categorized as surplus at one store may be a productive part at other stores within the dealership.


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Chapter 6 – Surplus Management The point here is that one must be careful when using the word surplus and that there must a full understanding of what the definition is and the parts that make up the surplus inventory.

6.4 IImpr ovement P Potential a and O Oppor tunity Improvement Potential What is the potential potential for a dealer to reduce the accumulation of surplus inventory? In what areas does the dealer have the most influence in controlling surplus accumulation? How can the dealer identify the opportunity to reduce surplus? surplus? Let’s take a look at some of the primary reasons for surplus accumulation and the level of control a dealer has in each area. Obsolescence – It is the vendor that determines a part has been replaced or discontinued, not the dealer. Looks like the dealer cannot influence this this area. Declining Demand – Dealers have some influence in reducing surplus as a result of declining demand. For a part already stocked with declining demand, a dealer can reduce the depth of inventory through parameter settings, which can reduce surplus accumulation. Invalid Demand – Dealers are in control of the demand history being recorded for inventory control purposes. purposes. All order entry personnel should be properly trained on the use of the various sale types and transaction codes in their dealer business systems to ensure accurate call demand history is recorded. By keeping accurate call/demand data, a dealer can reduce the accumulation of surplus inventory.

The Add-to-Stock phase is where the dealer determines to add a part to stock and is an opportunity to validate demand by making use of the Non-Stock/Made-Stock Review report (if the dealer is using DBS/DBSi). Another report that can be used to to validate demand is the Stock Backorder Review report that lists all stock parts that had a backorder occur. Experience has shown that by working these reports, invalid demand activity can be identified and records can be corrected. Customer Returns – A dealer has partial control over customer returns. Things like providing the customer with the right information prior to their purchase and proper selling techniques may cause a decrease in the number of parts returned. But, as more customers place their own orders directly through the Internet or through integrated procurement processes and bypassing dealer counter personnel, the dealer now has almost no influence over customer returns. Ultimately, a return return lies in the hands of the customer. The dealer can reduce customer returns through strict return policies or commercial terms, but that must be balanced with customer satisfaction. Service Department Returns - Service department returns is an area that the dealer has more influence over than most of the other causes for surplus accumulation. While it is impossible impossible to eliminate all returns, especially field service returns, processes and procedures should should be put in place to to limit them. It is


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Chapter 6 – Surplus Management important that dealership personnel in both the parts and service departments are educated and be informed of the expenses associated with returns, especially returns of backordered parts which have incurred emergency service fees and premium freight charges. Better planning and communication between the service and parts departments can reduce parts returns.

Improvement Opportunity What is the opportunity to reduce surplus accumulation? How is the dealership impacted by returns? These are areas that need to be reviewed on a periodic basis and monitored to reduce surplus accumulation and reduce expenses. The first step to identify improvement opportunity is to perform a returns analysis. Returns of both stock and non-stock parts contribute to surplus inventory, especially non-stock returns which are identified identified as Temp Stock parts in DBS/DBSi. For those DBS/DBSi dealers there are two reports that identify returns. Those reports are: Returns Analysis Purchases and Returns by Employee Returns Analysis – This report prints a summary listing of current week, month-todate, and year-to-date line item and dealer net dollar value of both customer and service department returns. Purchases and Returns by Employee – This report prints a summary list of line items and dollars for shop orders and returns by service department employee ID. The report is produced on a monthly basis providing month-to-date and year-to-date totals. Totals are printed for employee, cost center, and store. store.

These reports can be used to identify if the dealer has a growing return problem and then can use either these reports or query their system to pinpoint specific problem areas and formulate plans to correct the problem. Another step to eliminate surplus accumulation is to review procedures. Order entry procedures should be reviewed to determine if correct sale types and transaction codes are used used for either recording or not recording demand activity. activity. Inventory control procedures should be reviewed to ensure key reports like the NonStock/Made-Stock Review, Stock Backorder Review, and Automatic Replaced Parts History Transfer reports are being analyzed to validate demand activity. Return policies should also be reviewed. Most dealers have return policies and typically have them printed on their packing lists that are received by the customer. Many times these policies are either ineffective or not adhered to. These policies should be reviewed to determine their practical application and fairness for both the dealer and the customer. Inventory managers should also be analyzing their Min-Type Store Statistics report to analyze their surplus min-types – ES (Exhaust Surplus), ER (Exhaust Replaced), and TS (Temp Stock) Stock) to identify if surplus is increasing or decreasing. This could lead to a review of parameters to determine if parts are being add-to-stock quickly or


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Chapter 6 – Surplus Management maybe stock parts are being exhausted too quickly and not given enough time to perform. Additionally, it may require that special queries be created to identify surplus inventory so managers can proactively manage the underperforming inventory rather than being reactive.

6.4 S Sur plus D Disposition Since it is inevitable that a dealer will accumulate surplus inventory, what methods do they have to redeploy or dispose of this underperforming inventory? At a high level, dealers basically have four avenues to either redeploy or dispose of surplus inventory. inventory. Those avenues are: 1) 2) 3) 4)

Internal redeployment Dealer Parts Inventory Sharing Return to Vendor (Caterpillar) Obsolescence

Internal Redeployment The first method a dealer should pursue is to redeploy underperforming inventory internally within the dealership. For dealers using DBS/DBSi, this can be done on a daily basis through the stock replenishment process. Surplus Base Months and the Stock Transfer Search Sequence Parameters are used to drive internal redeployment. Additionally, the DBS/DBSi Surplus Return Return program can be used to redeploy surplus inventory.

Surplus Base Months Surplus Base Months control the amount a mount of on-hand inventory in excess of maximum that can be declared a available vailable for stock transfer surplus re-deployment. Below is a DBS/DBSi screen print of this parameter.


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The Surplus Base Months parameters are part of the life-cycle parameter settings and can be synchronized when they are set. The amount of inventory available for internal stock transfer is the greater of on-hand in excess of Surplus Base Months or Maximum. A low Surplus Base Months potentially forces more inventory to be available for internal stock transfers.


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Chapter 6 – Surplus Management Stock Transfer Search Sequence The Surplus Base Months parameter determines what amount of inventory is available for internal transfer. transfer. The Stock Stock Transfer Transfer Search Sequence parameter determines the order in which stores are searched for available inventory. When it is determined that a store needs to replenish a part and the amount to order has been calculated, before the part is ordered from the vendor (or parent store in the case of dependent store processing), a search is done within the dealership to determine if there is excessive inventory that can be redeployed to fulfill the need. All Temp and Exhaust stock are available for redeployment as well as Stock records in excess of the greater of Surplus Base Months or the Maximum. Below is a DBS/DBSi screen print of a stock transfer search sequence.

Another parameter that should be considered and reviewed for internal deployment is Outbound Transfer Dollar Limits, which set an extended dealer net transfer limit that must be exceeded before a surplus quantity can qualify to be transferred. Additionally, review the Demand Base Months parameters, which are used to calculate annual demand and impact depth of inventory.


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Chapter 6 – Surplus Management Surplus Return Program The DBS/DBSi surplus return program can be used to redeploy surplus to other stores. By using this program’s transfer functionality dealers are able to execute transfers without transmitting transmitting a return request to Caterpillar. Dealers also have the the option to cancel the execution and re-run the program without transfers. The system ID is by dealership and territory. territory. Life cycle parameters are properly applied throughout the process and the transfer logic inherent in the system will make transfers more automatic. Dealers can create their their own redeployment rules and use the functionality to run transfers before vendor returns.

Dealer Parts Inventory Sharing (DPIS) The Dealer Parts Inventory Sharing program, which is better known throughout the dealer community as DPIS, is a Caterpillar hosted method for redeploying inventory within the dealer network. While it has been more commonly used for for redeploying Temp and Exhaust (surplus) parts, it can also be used to share Stock records. In DBS/DBSi, dealers have one of three options to share inventory in DPIS. The options are: 1) Do not share any inventory 2) Share only Temp and Exhaust record record types 3) Share all inventory (with exclusion capabilities) The records that are made available through DPIS are transmitted to Caterpillar and are given visibility through ANTARES for emergency orders. Dealers can add other dealers to their emergency order search sequence table in ANTARES to source emergency parts. DPIS has proved to be a good outlet for dealers to redeploy surplus inventory while it has also proved a benefit to the sourcing dealer and their customers to fulfill emergency orders that may not otherwise have been available from Caterpillar. For dealers that elect to share all inventory including Stock record types, exclusion capabilities exist in DBS/DBSi. Below is a screen print of the Dealer Search Parameters exclusion screen.


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As shown on the screen, even though a dealer elects to share all inventory including Stock record types, there are multiple exclusion capabilities for a dealer to limit how much they share (Set Protect Quantity Equal to Surplus Base) as well as exclude certain categories of inventory. These exclusions only apply against Stock Stock record types.

Return to Vendor (Caterpillar) Caterpillar has return policies in place to accept dealer returns of surplus inventory. These policies can vary by regions throughout throughout the world. These returns allow dealers to return their surplus inventory to Caterpillar with specified terms and conditions. It should be noted that not all surplus parts are returnable. There are two basic dealer-to-vendor returns allowed by Caterpillar. They are: 1. Rapid Response Returns 2. Periodic Surplus Returns

Rapid Response Returns Rapid response return policies are specific to the Caterpillar subsidiary to which a dealer belongs. (Please refer to Partsgram of your your Caterpillar Subsidiary for their Rapid Response Return policy.) Rapid response returns typically only apply to parts designated as “non-returnable” with a minimum extended dealer net value and are


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Chapter 6 – Surplus Management requested to be returned within a specified number of days since the Caterpillar invoice date. For example the policy could be that a non-returnable part with an extended dealer net value of $25 or more can be returned within 45 days of purchase. If the return request is accepted, the dealer will be credited credited for the returned part(s), but will be responsible for the freight charges incurred to return it. DBS/DBSi generates a Daily Returns Report, which reports all parts returned, both stock and non-stock. This report should be reviewed reviewed on a daily basis, especially the non-stock returns of non-returnable parts to determine if they can be redeployed within the dealership or should be entered as a request for rapid response return.

Periodic Surplus Returns While everyone may not agree, it should be noted that Caterpillar actually has one of the most liberal dealer parts return policies in the industry. The reason for this this is to support the dealers in their quest to provide superior product support to end-users. Periodically (the frequency of Surplus Returns varies by Caterpillar Subsidiary – Please refer to your subsidiary’s Partsgram to determine frequency), dealers are invited to submit a surplus return request. Surplus should be defined on a dealership-wide basis and not on an individual store basis. The DBS/DBSi surplus return program approaches surplus identification from a dealership-wide perspective. To be surplus, a part must first qualify as surplus to the dealership, then surplus to the dealer territory or territories and finally as surplus to the individual store. The returns program retrieves Demand Base Months and the territorial hierarchy from the ordering parameters. The intent is to use the same parameters in surplus identification and declaration as those used in add-to-stock and stock replenishment. Any parameter retrieved from stock replenishment is fully maintainable within the surplus return program. The surplus return program also provides functionality to automatically or suggest transfer surplus to internal dealer stores as part of the surplus return process.


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DBS/DBSi Surplus Return Program

The first step in creating creating a surplus return is to create return parameters. Below is a screen print from DBS/DBSi when creating a surplus return file.

It should be noted that non-returnable parts can be included in creating a surplus return file, however, they will not qualify for return to Caterpillar. Typically, dealers always include Temp and Exhaust parts on their returns, but can include Stock records as well. If Stock records are included, the Date To Stock Parm is checked to determine if they should be excluded for return consideration. Also note that manually controlled items can be either included or excluded for return consideration.


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Once the dealer has completed their selections on the previous screen, they must proceed to the next screen shown below to input the dollar limits (based upon the Subsidiary to which they belong) that apply for the return.

The bottom of the screen lists other functions that can be accessed to perform surplus transfers, exclusion parameters and store inclusion parameters.


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Chapter 6 – Surplus Management Below is a screen print of the Surplus Transfer Sequence screen.

The surplus return process provides the ability to transfer surplus quantities between stores in order to meet the dollar values specified and will create either automatic or suggested transfers. The transfers are automatic if the combined surplus value from one “from” and one “to” store meets or exceeds the designated minimum surplus value. The transfers will will be suggested if surplus from from more than two stores is required to meet or exceed the designated minimum surplus value.


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Chapter 6 – Surplus Management The Exclusion Parameters screen is shown below.

Commodity codes, order methods, and min-types can be excluded by inputting them in this screen. It should be noted that parts from all activity indicators (F-M-S) will be excluded with the above parameters.


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All stores that are to be included in the surplus return must be entered on the Store Inclusion parameter screen show below.

To have the system automatically set up all stores key “**” “**” in the first field. The system will retrieve retrieve all valid inventory store numbers to the screen. If some branch numbers retrieved are not to be included, remove them by spacing spacing them out. out. All stores’ surplus will display on the Returnable Surplus Report that gets generated, however, only the stores listed on this screen will be shown as being eligible for return.


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Chapter 6 – Surplus Management Below is a screen print of the Surplus Return Parameters Report Parameters screen.

Here, the dealer indicates whether a report and file will will be created for each report. A value of ‘Y’ will create both a file and report, while a value of ‘N’ will create neither a file nor a report.


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Chapter 6 – Surplus Management Finally, the Demand Base Months to be used for annual demand, and dealer store numbers and return numbers must be entered. Please see the screen screen below.

Once completed with all the steps, the return suspense file can be created. A paper report and file will be created which the dealer will use to review and perform maintenance. Once the dealer has finished finished their review and maintenance, they will create a transmission file to the Cat mailbox. Caterpillar will then review and create a returns authorization file that will be sent to the dealer’s mailbox. Upon receipt of the authorization file and “pink cards,” the dealer can then physically pick the return parts and ship to Caterpillar as per their authorization instructions.

Obsolescence When all other options have been exhausted, what else can be done to dispose of the remaining obsolete or underperforming surplus inventory? Obsolescence may be the only other alternative available. What are some obsolescence alternatives? Bargain List

These are parts selected due to the fact they have been replaced/discontinued by the vendor, are non-returnable to the vendor, or have had no sale activity for quite


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Chapter 6 – Surplus Management some time. Develop a list of these parts and offer them to other dealers or or customers who could potentially use them at a discounted price. Disassemble

These are parts that are normally sold as assemblies but can be broken down to the individual piece parts and sold. Before assemblies are disassembled, determine the the sales activity of the piece parts to estimate potential for sale and compare potential revenue to disassembly costs. Used Parts

If the dealership has a used parts department, the dealer may elect to remove the parts from their new Cat inventory and move them to the used parts department, which may have the ability to sell these parts at a discounted price. Scrap

This may be the least desirable method for disposing of obsolete or underperforming inventory, but must be done periodically. Many dealers have a policy to ‘write off’ underperforming inventory on a monthly/quarterly/annual basis. They may may set a policy that parts that have had no activity dealership-wide for two years and are nonreturnable to the vendor are written off and scrapped.

In closing, surplus accumulation is unavoidable, but inventory managers should continually monitor their surplus, identify the cause of the accumulation and methods to reduce it, and then redeploy or dispose of the surplus in the most optimum manner for their dealerships.


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CHAPTER 7 7

Chapter

7.0 IInventor y R Repor ting Inventory management reporting is critical for monitoring performance and identifying opportunities for improvement. Daily reports provided by the dealers business system should be distributed to the responsible individuals and analyzed. analyzed. Performance reports provided provided by the dealers business system must be fully understood in order to interpret the data and determine inventory inventory performance. Key Performance Indicators (KPIs) should be identified and reported on a regular basis to dealership management. In general, reporting will will indicate if your inventory management strategy is working or if adjustments adju stments need to be made. Upon completion of this chapter, you will be familiar with: Dealer Business System Reports Key Performance Indicators (KPIs) • •


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Chapter 7 – Inventory Reporting

7.1 D Dealer B System R Repor ts Business S This section will focus on reports from DBS/DBSi, however, for non-DBS/DBSi dealers, please relate these reports to those generated from your business system. The purpose here is to make everyone familiar with the reports available from the system and their purpose.

Daily Reports There are a multitude of daily reports created, but only some of the reports directly relating to inventory management are listed here.

Missing History Store Records The report displays parts that were sold from the inventory store but the call demand history could not be updated at the history store. This may occur because a Parts Inventory store record was not found. The report can be used to determine which store records need to be established and history updated.


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Chapter 7 – Inventory Reporting Daily Returns Report This report shows shows all slow-moving slow-moving returned items. In addition, return activity for Temporary, Non-stock, Exhaust, and Dead-stock are reported for medium-moving and fast-moving part numbers. The parts are further categorized categorized as non-returnable non-returnable and returnable. Corresponding information from the Non-Stock History file and the Parts Inventory file will be displayed. This report can be used to analyze daily return activity and also determine parts that meet the criteria for a Rapid Response Return.


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Bin Count Listing This report displays all part numbers for one of the following three conditions: 1) A part going to zero on hand due to a sale. sale. 2) A shipping exception. 3) A manual sale or return. This report should be forwarded to the warehouse to count all parts on the report. Counts should be entered (which automatically updates on-hand quantities) and significant discrepancies should be investigated.


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Chapter 7 – Inventory Reporting Unadjusted Demand This report shows all activity for a part when the history cannot be backed out of the first three months for a return. This report can be used to to determine which month of history should be manually adjusted.


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Chapter 7 – Inventory Reporting Stock Order Summary This report summarizes the number of line items and extended value amounts for all automatic, transfer, and suggested ordered parts.


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Chapter 7 – Inventory Reporting Stock Order Review The Stock Order Review report is produced from every run of the Stock Replenishment Update process. This report displays all store information information on a part if one of the stores had an order quantity calculated. Print parameters exist to limit the information shown on the the report. This report is used to review items items that are either either automatic or suggest order/transfer. order/transfer. After review, the stock order file should should be updated to reflect stocking decisions. Note: The Stock Order Review can also be viewed and maintained on-line, eliminating the need to print the paper report.


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Chapter 7 – Inventory Reporting Remove From Stock Review This report displays the Stock records that met the Exhaust Stock parameters. These records have been changed from Stock to Non-stock or Temporary stock. This report can be used to review the part numbers that the system has changed the status to Exhaust or Non-stock.


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Chapter 7 – Inventory Reporting Non-Stock/Made-Stock Review This is a report of not stocked parts that have had activity since the last run of the Stock Replenishment Update process. process. This report will show those those Made-stock, Nonstock, Exhaust-stock, and Temporary-stock parts that are not discontinued or replaced. To display on this report, the part must must have had activity activity during the current processing period and have met the review parameters established. Also, this report will contain those parts that have been changed from Non-stock to Made-stock during the Stock Replenishment Update. All Non-stock history on the Non-stock History database for the past two two years will also print for each part. This report should be reviewed daily to validate call/demand history and determine if parts should be added to stock or not.


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Chapter 7 – Inventory Reporting Automatic Replaced Parts History Transfer This report is produced every time the Stock Replenishment Update process is executed. All Caterpillar parts that have monthly monthly history in the most current 13 months will appear on this report. The replacing parts that are listed on the Price/NPR file will also appear on this report along with the non-stock history for the replaced parts. If a part is replaced but history did not automatically transfer, it will be listed on the report with the reason history did not transfer. This report can be used to review those replaced parts whose history is being transferred to the replacing part number(s).


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Audit Trail Reports There are a multitude of audit trail reports created, but only some of the reports are listed here.

Stock Backorder Review This report prints a detail listing of selected activity for stock parts that backordered. This report should be used to analyze the reasons for stock backorders. This information can be used to determine if operational processes need to be improved or if stocking parameters should be changed.

Note: Refer to Appendix page 208 and 209 for an explanation of Stock Back Order reasons and graph analysis.


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Inventory Adjustments This report prints a detail listing of adjustments to the on-hand quantity on the Parts Inventory Control database. database. This report can be used to analyze at the detail level parts where adjustments have been made to verify amounts and identify the person making the adjustments.


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Chapter 7 – Inventory Reporting No Location This report prints a detail listing of stocked, temporary stock, and exhaust stock parts with an on-hand quantity greater than zero on the Parts Inventory Control database that do not have a location. This report should be forwarded to the store’s warehouse and ensure the parts are accounted for and then properly located in the warehouse and the location updated u pdated in the system.


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Chapter 7 – Inventory Reporting Min-Type Store Statistics This report prints a summary listing of stock sale and transfer activity and on-hand inventory dollars within store, store, activity activity indicator, and min-type. min-type. The first first line summarizes all stock sale and transfer activity while the second line summarizes stock sale activity only. This report is used to analyze analyze inventory investment by mintype and activity indicator as compared to activity and stock backorders. This is a key report used in generating the data for an inventory control review.

Note: Please refer to Appendix page 210 and 211 for graphs related to the Min Type Store Statistics analysis.


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Chapter 7 – Inventory Reporting Min-Type Performance This report prints a management summary of min-type parameter statistics compared to actual performance. The report information is displayed displayed by store within each min-type. This report is used to determine how different min-types are performing as compared to the service levels desired.


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Chapter 7 – Inventory Reporting Branch Transfer Activity Summary This report prints a summary of Stock and Backorder transfers from each store and the store to which it was transferred. This report can be used to manually calculate a Territorial Service Percent measurement.


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Chapter 7 – Inventory Reporting Demand Summary This report prints a summary of stock and total line items processed and calculates a Stock Service and Total Total Service Percent measurement. Additionally, it also includes includes the amount of dollars ordered and filled and calculates the same measurements from a dollar standpoint.


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Chapter 7 – Inventory Reporting Returns Analysis This report prints a summary of parts returned for both stock and non-stock parts in line items and dollars and by over-the-counter customers and service department. This report should be monitored to determine opportunities to reduce returns and possible causes of surplus accumulation.

Note: Please refer to Appendix page 212 for charts related to the Return Analysis.


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Chapter 7 – Inventory Reporting Activity Summary This report prints a summary listing of sale, return, transfer, receipt, inventory count, and location change activity. activity. This report can be used to monitor parts department activity and can be used to roughly calculate activity per employee or cost per activity to measure overall productivity.


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Chapter 7 – Inventory Reporting Deposit Summary This report prints a summary listing of core transactions. This can be used to monitor reman and dealer exchange activity. This can also be used with with the Activity Summary report to calculate productivity measurements.

Note: Please refer to Appendix page 212 to 214 for charts related to the Warehouse Activity analysis.


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Chapter 7 – Inventory Reporting Locations Available This report prints all temporary and exhaust stock items that have gone to zero onhand and have exceeded the Exhaust Stock Aging Days Parameter for retaining locations. This report traditionally has been used to remove bin tags, verify the bin is empty, and identify open bin locations to locate NO-LOC parts.


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7.2 K Key P Per f fo r mance IIndicator s ((KPIs) In order to assess your dealership’s inventory strategy and determine if expected results have been attained, it is necessary to identify the Key Performance Indicators (KPIs) that should be tracked and reported to dealership management. It should be noted that seldom will one number ever tell the whole story. The objective of inventory management is to maintain a balance between inventory investment and customer satisfaction. satisfaction. As a result, several KPIs will need to be identified and monitored. Below is a list of KPIs commonly tracked by inventory management to assess performance. 1) 2) 3) 4) 5)

Inventory Investment, Vendor Purchases, Purchases, and Sales Sales Moving and Adjusted Turnover Stock, Total, and Territorial Territorial Service Service Percents Stock v. Emergency Purchases Emergency Service Fees as a Percent of Sales and Purchases

Inventory Investment, Vendor Purchases, and Sales A comparison of your dealership’s inventory investment to purchases and sales trend is an initial look to identify if you have had a consistent inventory management, or if some changes have taken place. Here is an example of a five-year trend comparing these three categories.


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Comparison of Monthly Inventory, Purchases, and Sales (Millions of Dollars) $9.50 $9.00 $8.50

$8.72 $8.30

$8.42

$8.00

$7.78

$7.74

$7.65

$2.60

$2.62

$2.77

$2.44

$2.46

$2.57

YR01

YR02

YR03

$7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00

$2.63

$2.94

$2.50 $2.00

$2.83

$2.58

$2.66

$2.69

YR98

YR99

YR00

$1.50 $1.00

Inventory

Total Purchases

Sales

Moving and Adjusted Turnover Inventory turnover is a measurement of the performance of your dealership’s inventory investment by calculating how many times per year you are turning over, or selling, that investment. There are two values used to assess turnover performance. performance. They are Moving and Adjusted Turnover. Moving Turnover is calculated calculated by dividing annual sales by inventory investment. As a KPI, Moving Turnover reflects total network performance (i.e. Dealer and Caterpillar) because it includes sales regardless of where the inventory came from (Dealer’s or Caterpillar’s). Adjusted Turnover is calculated by dividing the sum of annual sales, minus emergency and warranty purchases from Caterpillar, by inventory investment. Adjusted Turnover measures only the dealer side of the distribution network as sales fulfilled through emergency and warranty purchases from Caterpillar are excluded. Adjusted turnover is the dealership’s territorial off-the-shelf off-the-shelf performance. Below is a graph showing the relationship between Moving and Adjusted Turnover.


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MOVING AND ADJUSTED TURNOVER 5.0

4.5

4.0 4.0

3.7

3.8

3.8

3.8

2.4

2.3

2.3

YR00

YR01

YR02

3.7

3.5

3.0

2.5

2.0

2.1

2.1

YR98

YR99

2.4

1.5

1.0

Adjusted

YR03

Moving

When analyzing the relationship between Moving and Adjusted Turnover, you should determine if the gap between Moving and Adjusted Turnover is getting closer together or getting further apart. If the gap is getting closer closer together, it is an indication that the dealer is probably less dependent upon Caterpillar emergency purchases to fulfill sales orders, while if the gap is getting wider it can be an indicator that the dealer is becoming more dependent on Caterpillar emergency purchases to fulfill sales orders. So, what does it mean if a dealer’s turnover values are improving and declining? That could be good or bad, depending upon the impact this could have on customer service.

Stock, Total, and Territorial Service Percent The next KPIs to evaluate are service percents, which are used as an indicator of parts availability and customer customer satisfaction. There are three service percent measurements used to assess availability performance – Stock, Total, and Territorial.


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Chapter 7 – Inventory Reporting Stock Service Percent measures the line item off-the-shelf availability for stocked parts only. It is calculated calculated by dividing stock stock line items completely filled from stock divided by stock line items ordered. (For DBS/DBSi dealers, this is reported on the Demand Summary Report.) Total Service Percent measures the line item off-the-shelf availability for all parts, stock and non-stock. non-stock. It is calculated calculated by dividing total line items completely filled divided by total line items ordered. (For DBS/DBSi dealers, this is reported on the Demand Summary Report.) Territorial Service Percent measures the dealership availability for all parts ordered. It takes into consideration the internal backorder transfers filled within the dealership. It is calculated by dividing the sum of total line items completely filled plus the inbound backorder transfers by total line items ordered. (For DBS/DBSi dealers, this can be manually calculated by using the Demand Summary Report and the Branch Transfer Activity Summary Report). Below is a graph showing the three service percent measurements.

Line Items Service Percentages 100.0% 97.5%

96.8%

96.4%

97.0%

97.4%

97.2%

9 7 .2 %

89.1%

89.3%

89.4%

89.9%

81.9%

82.1%

82.2%

82.7%

YR00

YR01

YR02

YR03

95.0% 92.5% 90.0%

87.9%

87.7%

87.5% 85.0% 82.5% 80.0%

80.7%

80.5%

YR98

YR99

77.5% 75.0% 72.5% 70.0%

Stock %

Territorial%

Total %


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Chapter 7 – Inventory Reporting Generally, each Caterpillar Subsidiary has established targets or ranges for dealers to achieve to ensure customers are receiving expected parts availability.

Stock v. Emergency Purchases This KPI measures the dealer’s percentage of purchases from Caterpillar on a stock v. emergency order basis. When dealers place orders to to Caterpillar, they have have three order classes – ‘S’ Stock, ‘E’ Emergency, and ‘W’ Warranty. Order classes E and W are combined to derive total emergency purchases. This KPI is tracked to determine determine dealer ordering practices on Caterpillar. Generally, if there is a noticeable change in the gap between Moving and Adjusted Turnover, there will also be a corresponding corresponding change in Stock v. Emergency Purchases. A change in Service Percents could also indicate a change in dealer ordering practices, but not always. Today, many dealers place backordered items on their stock order, so while not getting credit for a fill from stock, they are placing the backorder on stock order. This practice will increase their stock purchases but not their service percent. Below is a graph of Stock v. Emergency Purchases.

Stock v. Emergency Purchases 80.0% 75.0% 70.0% 65.0% 60.0%

62.2%

63.3%

64.3%

37.8%

36.7%

35.7%

YR00

YR01

62.0%

62.0%

38.0%

38.0%

YR02

YR03

57.1%

55.0% 50.0% 45.0% 40.0%

42.9%

35.0% 30.0% 25.0% 20.0% YR98

YR99

Stock%


Emerg%

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Emergency Service Fees as a Percent of Sales and Purchases This KPI measures the trend in the amount of emergency service fees the dealership is being assessed for emergency purchases. For parts that a dealer must procure from Caterpillar on an emergency basis, an emergency service fee is assessed, based on the Caterpillar-defined activity indicator (Fast, Medium, Slow). Typically, the trend in Stock v. Emergency Purchases is a good indicator of the trend for emergency service fees. The value used for emergency service fees is the gross amount charged to the dealer and is not netted out for recoveries the dealer realizes for warranty or charges passed on to the customer. The formula for the calculation is to divide the gross service fees by sales and then also by total purchases. As mentioned in the section relating to Stock v. Emergency Purchases, many dealers today are using the practice of placing some of their backordered items to Caterpillar on a stock order, thus avoiding emergency service service fees. They ask their customers when the backordered parts are required and based upon the customer’s order window they determine if it is available via their stock order lead-time. If so, it is placed on a stock order basis so the customer receives their parts within their required timeframe and the dealer avoids the emergency emergency service fee. It is a win-win win-win for both the the dealer and the customer. (Question: In these types of situations, should the dealer record call/demand history for these parts placed on a stock order? What is the resulting resulting impact on inventory investment? How will service percents be affected?) Below is a graph of Emergency Service Fees as a Percent of Sales and Purchases: Emergency Service Charges as a Percent of Sales and Total Purchases 1.700% 1.607%

1.607%

1.600% 1.580%

1.482%

1.500%

1.492%

1.515%

1.457%

1.458%

1.400%

1.409%

1.401%

1.404%

YR02

YR03

1.370%

1.300% 1.200% 1.100% 1.000% 0.900% YR98

YR99

YR00 Ser Serv Chg% Sales les

YR01

Parts Seminar SerInventory v Chg% PurchaControl ses ses

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These KPIs give a high-level overview of dealer inventory management performance. There are other supporting measurements that that must be researched when the high-level KPIs indicate a performance problem. Remember this about KPIs – seldom will one number tell the whole story. The objective of inventory management is to maintain a balance between inventory investment and customer satisfaction. satisfaction. As a result, inventory inventory managers need to analyze several key indicators to determine if their strategy is working effectively or if adjustments must be made. When a dealer does make changes to their strategy strategy and adjusts parameters, this should be noted so changes in the key indicators can be tracked to determine the effects of those changes. Changing business and economic conditions can also have an affect on the key indicators and should be noted when they occur to help explain any abnormal fluctuations. What about future future KPIs? Today, service percent is measured by line item fill. Is that a true measure of customer customer satisfaction? The voice of the customer has been telling us that complete order fill is most important. And not just that, but complete complete order fill to their required delivery location within their required timeframe. Don’t be surprised if this becomes the measure for customer satisfaction in the future and that line item service percents become a supporting measure for this new, high-level KPI. In closing, good inventory management reporting, the establishment and monitoring of actionable KPIs, and keeping upper-level management informed of inventory performance is important for a successful inventory manager.


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Chapter

GLOSSAR Y

Acquisition Cost: The order cost associated with with each line item ordered for stock. stock. There is no association between a parts cost and the quantity ordered. It deals with the physical activities required to process a stock stock order. It is one of the key elements in the Economic Order Quantity Formula. Formula. See EOQ. Activity Indicator: A Caterpillar established indicator based on the the number of calls for a part worldwide. Values are: F = Fast Moving M = Medium Moving S = Slow Moving See Master Record. The DBS Parts System utilizes this indicator thorough out the system system to set parameters, see Life Cycle Parameters. A majority of the DBS inventory control reports are segregated by this indicator. For non-Caterpillar sources-of-supply the the activity indicator defaults to to (M-Medium Moving). In addition, the Caterpillar Emergency Service Service charge structure is tied to the activity indicator. See Caterpillar Emergency Service Charge. Add-To-Stock (ATS): One of the three Life Cycle phases a part will pass through. See Life Cycle and Life Cycle, AddTo-Stock Parameters. Add-To-Stock Calls: Add-to-Stock Calls is one of the three key elements of the Life Cycle Parameters. Within the Life Cycle parameters they are further defined by the activity indicator and a dealer-net dollar limit for both returnable and non-returnable status parts. When synchronized the Add-To-Stock Calls will be used as the basis to set the Non-Stock / Made-Stock, Add-To-Stock, Control-Of-Stock, RemoveFrom-Stock and Surplus Return call fields. See Life Cycle Parameters. Add-To-Stock Parameters: A key Life Cycle parameter used in the Stock Replenishment process to determine if and when a part's store Record-Type indicator should change from “N,” Non-Stock to “M,” Made-Stock to “S,” Stock. The parameter is specified by activity activity level and takes into consideration consideration the parts’ annual demand (required number of calls within a specified specified number of months). See Add-to-Stock Parameter Made-Stock Aging. The dealer-net (cost) of the part, and whether or not the part status is returnable or non-returnable is also required. See Master Record. The add-to-stock parameters apply at the SOS/Store and activity indicator level and are maintained in the Parts Ordering Parameters. Adjusted Turnover: This key performance indicator (KPI) measures the territorial performance of the dealer’s inventory investment side of the dealer-CAT distribution network. See KPI. The Adjusted Turnover ratio is calculated by subtracting annual emergency and annual warranty purchases from annual sales and then dividing by current inventory value at replacement cost. Sales, emergency and warranty purchases and the inventory value are all at dealer-net (or cost). Annual: Typically, annual refers to 12 months or a year. Within the DBS system annual is defined by


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Glossary parameters. See, Life Cycle Parameters and Demand Base Months. Annual Calls: The total accumulated calls at a store for a specific part number within the number of months as defined by the Life Cycle parameters parameters or the Demand Base Months parameter. parameter. The same number of months used to determine annual calls will also be used to determine annual pieces. See, Store Record and Test For Increasing Demand. Annual Demand: Annual demand is applied to many subjects. subjects. Within the context of this this document annual demand will refer to the total number of calls and or pieces that occur at a store for a specific part number within some number of months. See, Life Cycle Parameters, Demand Based Months and Test For Increasing Demand. Annual Pieces: The total accumulated number of pieces requested at a store for a specific part number within a number of months as defined by the Life Cycle parameters or Demand Base Months parameter. The same number of months used to determine annual pieces will also be used to determine annual calls. See, Store Record and Test For Increasing Demand. Apply Package Quantity Rules Parameter: A parameter the simulator program can use use to determine whether package quantity rules apply during the surplus return process. Auto Order / Transfer Limits Parameter: A parameter that will help to determine whether a part automatic or suggest order and/or transfers during the Stock Replenishment process. process. These are SOS/Store parameters structured to help control a part’s progression through its “S,” Stocked portion of its life cycle. See Ordering Parameters. Automatic Order/Transfer: A term applied during stock replenishment process to those parts at order point that meet or exceed all the stock order parameters established to qualify a part to order. Those parts at order point that do not meet or exceed the parameters will be Suggest Order/Transfer. Backorder: A term indicating the need for special handling for a line item that cannot be filled completely at point-of-sale. Backorder Activity: Backorder activity is measured measured at point-of-sale. It is the line item activity and associated associated activities, such as backorder receiving, when a part is not filled completely when originally placed on an or der. See Line Item Activity. Backorder Search: An automated method of utilizing other dealer store inventories versus emergency ordering the part from the vendor. See Simulator Program, Backorder Transfer Search Sequence parameter. Backorder Quantity: The quantity of a part required to completely fill the originally order quantity of a part.


182

Glossary

Base Dealer-Net Limits: Base Dealer-Net Limits are one of the three key elements that can be used to synchronize the Life Cycle Parameters. They define by activity indicator indicator what is considered to be an expensive versus inexpensive dealer-net for both returnable and non-returnable parts. parts. When synchronized the the same Base D/N Limits will be utilized by the Non-Stock / Made-Stock, Add-To-Stock, Control-Of-Stock, Remove-From-Stock and Surplus Return review parameters. See Life Cycle Parameters. A SOS/Store level parameter structured to help control control a part’s progression through its life cycle. The parameter is maintained in the Parts Ordering Parameters. Base Lead-Time: Base lead time is the number of days from when a part could go to minimum or order point until the resulting stock order has been received received and made available for sale. A SOS/Store level parameter structured to help control a part’s progression progression through its “S,” Stocked portion portion of its life cycle. The parameter is maintained in the Parts Ordering Parameters. See Ordering Parameters. In addition, see Lead-Time, Total Lead-Time and Safety-Stock. Business Economic Code (BEC): The BEC Code is a 3-position code established by Caterpillar to further define the 2-position Commodity Code. See, Commodity Code and Master Record. Buy-As-Sold Aging Days: The Buy-As-Sold Aging Days parameter can be used to delay the actual replenishment of buy-assold parts, Min-Types NBS and / or MBS, for a specified number number of days. This delay helps compensate for the possibility of a customer return of a stocked stocked part. It is a SOS/Store parameter structured to help control a part’s progression progression through its “S,” Stocked portion portion of its life cycle. The parameter is maintained in the Parts Ordering Parameters. See, Ordering Parameters and MinTypes. Buy-As-Sold Exposure Time: This number represents what percent of a calendar year, for any part controlled by the buy-as-sold formula, the parts bin location will will be empty. When empty the part is subject to a stock backorder. The Exposure percentage is calculated by multiplying the buy-as-sold part’s annual calls by the store lead-time and dividing by 365. See, Test For Increasing Demand and Lead-Time. Buy-As-Sold Formula: One of the three DBS systems order point formulas used to determine a part’s minimum or order point. See, Buy-as-Sold Minimum and Buy-as-Sold Maximum. Buy-As-Sold Min-Type: There are two BAS Min-Types. The Order Point Matrix 1 and 2 (Fast, (Fast, Medium or Slow), call range “A” category determines what is limited demand. All parts, record-type of “S,” stocked, stocked, with annual calls (See Demand Base Months ) less than the beginning call value in any one of the ten “A” categories will automatically be assigned as either a Fast, Medium or Slow “MBS” or “NBS’ MinType. “MBS” will be assigned to parts that have been an “S,” Stock record-type record-type for one calendar year, or more. “NBS” will be assigned assigned to parts Stocked Stocked for less than one year. See Activity Indicator in the Master Record, Min-Type in the Store Record and the Fast, Medium and Slow Order Point Matrix 1 and 2.


183

Glossary

Buy-As-Sold Maximum: The Buy-As-Sold order point formula sets a BAS maximum for a part equal to the average number of pieces per call, rounded. See, Demand Based Months, Annual Calls and Annual Pieces. Buy-As-Sold Minimum: The Buy-As-Sold order point formula sets BAS minimum at one (1) less than BAS Maximum. See Buy-As-Sold Maximum. Calls: Number of events or parts orders placed against a given part. See Annual Calls. Call Interval: The time measured in months between customer calls. See Store Record. Call Range Categories: The call range identifies points on the the horizontal axis of either Order Point Matrix 1 or 2. The actual range of annual calls, (lower limit to upper limit), will identify parts for the purpose of assigning a Min-Type and also helps identify the minimum or order point formula and values to be used in the Stock Replenishment process for calculating minimums. There are four call ranges (A, B, C, C, D) per Order Point Matrix. There are two Matrices, each supporting supporting activity indicators fast, fast, medium and slow moving parts. The points on the vertical axis of the Order Point Matrix are identified by Maximum Cost Categories. This SOS/Store level parameter helps control a part’s progression through its Stocked portion of its life cycle. These parameters are used in the Stock Stock Replenishment process to determine determine Min-Types and Minimums. The parameter is maintained in the Parts Ordering Parameters. See Ordering Parameters, Order Point Matrix 1 and 2, Maximum Cost Categories and Min-Types. Caterpillar Emergency Service Charge: Service charge percentages are applied to all Caterpillar source-of-supply emergency and / or warranty parts orders and are based on the Caterpillar parts activity indicator. indicator. Values are: Fast Moving = 8% Medium Moving = 5% Slow Moving = 0% A 2% charge is applied to selected items regardless of whether that part is F, M or S. The dealer can by recover service charges for warranty part orders filing a parts claim. See Activity Indicator. Commodity Code: A table or matrix (see (see appendix) appendix) used by Caterpillar to assign two position codes to a group of like parts for marketing and pricing purposes. See Business Economic Code. Consumer List: The suggested sell price assigned to a part within a source-of-supply. See Master Record. Control-Of-Stock: One of the three Life Cycle phases phases a part will pass through. See Life Cycle parameter, Force Part to Suggest Order, Poisson/Order Point Matrix and the Auto Order/Transfer Limits parameters. Cost: See Unit Cost.


184

Glossary

Cost Of Carrying Inventory: It represents the annual cost per average on hand inventory unit. Stated another way it relates direct expenses plus allocated expenses divided by inventory plus the cost cost of money. It is one key element used in the Economic Order Quantity Formula. See EOQ. Current History Month/Year: This date field is automatically updated at month-end during the Parts Stock Replenishment update. It is a Dealer level level parameter maintained in the parts Ordering Parameters. It identifies the current calendar month. Current Month History: A Dealer level parameter structured to help control a part’s progression through its Stocked part portion of its life cycle. The parameter is maintained in the Parts Parts Ordering Parameters. Parameters. See Ordering Parameters. The current month’s calls and pieces are accumulated and stored for each part number at the inventory store store in which the activity occurred. occurred. There are 24 additional monthly history fields for each part. See Store Record. The current month month history fields are automatically updated at the point of sale or return. During the stock replenishment month-end process process the current month’s data is rolled into the “1Prev” data fields, “1Prev” into the “2Prev” etc. until eventually the “24Prev” is deleted. See Test For Increasing Demand. Customer Name: The customer’s name is associated with the customer number in the DBS Customer Name and Address record. See Customer Number. Customer Number: A value used to identify the dealer's customer. See Customer Name. Days-Of-Supply (DOS): DOS is a numeric field in the Store Record. Valid values are 001-360. The value is used used in the Days-Of-Supply Formula and helps determine a part’s order point. This value is also used to determine the parts Min-Type. Days-Of-Supply Formula: One of the three DBS systems order point formulas used to determine a parts minimum or order point. See, Days-of-Supply Minimum, Days-of-Supply Maximum, Store Record, Order Point Matrix 1 and 2. Days-Of-Supply Min-Type: The DOS Min-Type is assigned based on the numeric value entered in the DOS Store Record field. See Store Record field, Days-Of-Supply and the Min-Type Store Statistic Report. Days-Of-Supply Minimum: Inventory at minimum in terms of days-of-supply. Valid number of days to be used are 001 through 365. To calculate a DOS Minimum multiply multiply DOS Days times Annual Demand Demand Pieces and then divide by 365. See, Days-of-Supply Formula and Demand Base Months. Days-Of-Supply Maximum: Inventory at maximum in terms of days-of-supply. days-of-supply. DOS Maximum is equal to to DOS Minimum plus EOQ. See, Demand Based Months, Test For Increasing Demand, Annual Pieces, Days-ofSupply Formula and EOQ.


185

Glossary

Dead-Stock: The description used to identify Record-Type “D.” It represents a part that has been replaced, there is no demand history (call and pieces) pieces) and the total available quantity is zero. This store record will eventually be deleted from the inventory file unless the Block Delete indicator in the Store Record has been set to “Y.” See, Record-Type, Total Available and Store Record. Dealer-Net (D/N): The unit value or cost associated with a part. See Master Record. Dealer Parts Inventory Sharing (DPIS): DPIS is a Caterpillar ANTARES ANTARES system program. Dealers participate in this program by supplying Caterpillar with the inventory records they are willing to sell. A buying dealer either through DBS or by directly entering into ANTARES system can submit an inquiry or parts order with the selling dealer. See Ordering Parameters. Declining Demand: When the demand history for a part or a group of parts is trending downward, it is considered to be in a “declining demand” situation. See Test For Increasing Demand. Demand: A description applied to many inventory terms. See, Annual Demand, Annual Calls, Annual Pieces, Declining Demand and Increasing Demand. Demand Base Months: Demand Base Months is the life cycle parameter utilized to calculate annual demand for a part, in the Control-Of-Stock life cycle cycle phase, during the stock replenishment replenishment update. Demand Base Months can optionally be used to establish or synchronize the months fields in the life cycle parameters Non-Stock/Made-Stock review, Add-To-Stock, Force-Suggest-Order, Remove-FromStock and Surplus Identification parameters. parameters. This SOS/Store level parameter helps control a part’s part’s progression through its life cycle. The parameter is maintained in the the Parts Ordering Parameters. See Ordering Parameters, Life Cycle Parameters. Dependent Store Replenishment: Dependent Store Stock Order Replenishment is a DBS replenishment routine that consolidates or rolls up record-type “S” stock demand from store/s defined by a parameter as dependent into a parent or distribution store according to to an established territorial hierarchy. A dependent store looks to its assigned distribution distribution store for its stock stock replenishment requirements. The distribution store uses its demand plus all dependent stores’ stock demand to establish the distribution store’s minimum or order point for for a part. See, Store Record, Territorial Hierarchy, and Test For Increasing Demand. Description: Description refers to the text text in the description field for a part part number. See Master Record. Distribution Store: When a dealer’s parts strategy includes territorial and dependent store processing it assumes one or more dealer stores will control their inventory based on their demand plus demand from one or more other dealer stores. The term distribution or parent is typically associated with with those stores that support other dealer stores for their emergency and/or stock order requirements. See, Territorial Hierarchy, Dependent Store Replenishment and Replenishment and Territorial Stocking.


186

Glossary EOQ: EOQ is an accounting formula that has been used for many years, long before computer systems. The formula is used to determine “how much” to order for a given part at a specific point in time. See Maximum. It determines the point at which the combination of order cost and inventory carrying cost, both constant constant but key elements of the formula, are the least for a given part. part. The other variable but key elements of the formula include dealer-net and annual demand. The results derived from the formula for a part is the most cost effective quantity to order. See, Annual Demand, and Test For Increasing Demand. While the EOQ formula’s best use is generally thought to be for parts where demand is steady over a long period of time it also works works well for lower demand parts over a short time period. See, Demand Base Months, EOQ “K” Factor, EOQ High Limit, EOQ Low Limit, Poisson Order Formula, and the Days-Of-Supply Order Formula. EOQ High Limit: The EOQ High Limit parameter in the Ordering Parameters, see Poisson / Order Point Matrix limits the calculated EOQ to a percentage of annual demand, expressed in pieces. For example, if the high limit parameter is set at 1.0 the final EOQ value will not exceed 100% of annual demand. If the parameter is set at .5 .5 the final EOQ value will not exceed exceed 50% of annual demand. See, Demand Based Months, EOQ “K” Factor, EOQ Low Limit and Maximum. EOQ Low Limit: The EOQ Low Limit parameter in the Ordering Parameters function, see Poisson / Order Point Matrix limits the calculated EOQ to to a minimum days-of-supply, expressed expressed in pieces. For example, the final EOQ can never be less than a certain number of days of supply. supply. See, Demand Based Months, EOQ “K” Factor, EOQ High Limit, Maximum and the Days-of-Supply Formula. EOQ "K" Factor: The “K” factor parameter in the Ordering Parameters, see Poisson / Order Point Matrix can be applied as a constant in the EOQ formula. formula. The “K” factor represents the ratio of acquisition or order cost and inventory carrying cost, which are both constant but key elements of the EOQ formula. See, Demand Based Months, EOQ High Limit, EOQ Low Limit and Maximum. Estimated Demand During A Lead-Time (EXDLT): EXDLT is a key element in determining a Poisson Minimum. EXDLT is equal to Annual Calls times times Total Lead-Time (Base Lead-Time plus Safety Stock) divided by 365. See, Demand Based Months, Annual Demand Calls, Order Point Matrix, Safety Stock, Base Lead-Time, Poisson Order Formula, Store Record, and Total Lead-Time. Exhaust-Stock: One of the six DBS Record-Type Record-Type values associated with the Life Cycle of a part. This record-type identifies those parts at a store as being in a surplus condition (i.e. total on-hand is surplus). There are two Min-Types associated with this record-type.

identifies parts that have been replaced by Caterpillar. Caterpillar. When the Total ER = The Min-Type that identifies Available Quantity for “ER,” replaced parts parts is = to 0, the “ER” record-type will automatically change to “D,” Dead-Stock. ES = The Min-Type classification that identifies those (non-replaced) parts where annual calls fall below that store’s Life Cycle, Cycle, Exhaust-From-Stock Parameter. When the Total Available Quantity for “ES,” parts is = to 0, the “ES” record-type will be changed changed automatically to “N,” Non-Stock. Non-Stock. If a part qualifies to go exhaust and the total available is = to zero (0) the record-type will bypass the


187

Glossary “ES” record type and go directly to the record-type of “N,” Non-Stock. Regardless of the exhaust-stock part’s min-type classification (“ER” or “ES,”) when on-hand is greater than zero (0) the the quantity is considered as surplus at that store. It may not however, be surplus to the territory or the dealership. See, Store Record, Record-Types, Life Cycle Parameters, Annual Demand Calls and Surplus Return. Exhaust-Stock Parameter: One of the Life Cycle Parameters used to determine if and when a parts record-type should be changed from “S,” Stock to “E,” Exhaust-Stock. It is also used in the Parts Audit Trail to determine when to make the “E” part’s Bin Location Location available. Exhaust- stock parameters provide the low call limits for the part to move from being a good stocking item with a record-type of “S,” Stocked to a “E,” Exhaust-Stock record-type within within a dealer store. These parameters are at the Source of Supply/Store level and are maintained in the Parts Parts Ordering Parameters. The parameter is specified for a part’s activity indicator, status (returnable/non-returnable) dealer-net (expressed as high or low) and the parts history (number of calls per specified number of months). Associated with this parameter parameter is the exhaust aging period that indicates how long after the Exhaust-Stock part goes to zero on hand hand (Non-Stock) should its Bin Location be retained. See, Store Record, Record-Types, Life Cycle Parameters, Annual Demand Calls and Surplus Return. Extended Cost Limits-Outbound Transfers: This Auto Order/Transfer Limits parameter prevents a system generated stock order transfer decision during the stock replenishment process. process. The check is against the the extended transfer value (transfer order quantity times dealer-net) of the part being transferred. This is a transfer “from” “from” store check. It provides the ability to limit limit the inter-store transfer of parts based on the cost associated with a trip or for transportation reasons or any other reason. reason. These parameters are at the Source of Supply/Store Supply/Store level and are maintained maintained in the Parts Ordering Parameters. See Ordering Parameters, Auto Order / Transfer Limits and Master Record. Filled: Line items counted as filled complete. See KPI. Financial Management Reporting Guide (FMRG): The FMRG is the dealers’ accounting reporting guide when reporting financial information to Caterpillar. Numerous sections of this report refer to the dealers dealers parts department. department. One piece of key information references the parts contribution to the total enterprises’ enterprises’ profit picture. See past years’ average dealers Profitability Report. Force Part To Suggest Order If Not Calls/Mo: See Life Cycle Parameters, Control-Of-Stock Parameters . This Calls per Months parameter provides the capability to limit the parts p arts that qualify for automatic ordering/transferring (as opposed to suggested), based upon the parts call history. For parts to qualify for automatic automatic stock ordering they would have to have at least the specified number of calls at the store during the specified number of months. Parts could qualify for automatic stock transfer to a particular store if the replenishment store’s annual calls within the specified number of months is equal to or greater than the parameter. The parameters are by Activity Activity level (fast, medium, slow) slow) at the SOS/Store level and are maintained in the Parts Ordering Parameters. The parameters are used to control control automatic and suggested processing in the Parts Stock Replenishment Update. See, Life Cycle Parameters, Annual Demand Calls and Transfer Dollar Limit.


188

Glossary Frozen Min/Max Indicator: This store record indicator (see appendix for valid values) is values) is used to establish various types of manual control for a parts Minimum Minimum and/or Maximum. It allows the standard stocking stocking calculations of Minimum and/or Maximum to be overridden during the Stock Replenishment process History: This is a term that refers to the type of activities activities that occur against a part. part. See, Annual Calls, Annual Pieces and Non-Stock Detail History to name a few. Increasing Demand: When the demand history for a part or a group of parts is trending upward, it is considered to be an “increasing demand” situation. See Test For Increasing Demand. In-Process Order: Represents the quantity of a part that a dealer has in the store but not in its current bin location. This quantity represents Pre-Stocked Stock Order/s quantities that have not been binned. This quantity is included in a part’s total total available. See Store-Record. In-Process Return: The quantity of a part returned from the dealer’s customer (counter/shop) but has not been inspected nor binned (receipted). This quantity is included in a part’s total available. See StoreRecord. Inventory Balance: The most obvious and the most most ignored concept in inventory management. Generally refers to the balance between Inventory Investment, Customer Service and Warehouse Productivity. Inventory Control: The science based art of controlling the amount of inventory a business needs to meet the demands placed upon that business. Inventory Management Reporting: Is used to monitor inventory performance and identify opportunities for improvement. Reports include those provided by the dealer’s business system and an assortment of Key Performance Indicators. In general, reporting will indicate if an inventory management strategy is working or if adjustments need to be made. Inventory Store Number: When a customer sale or return occurs this store number is where the history (call and demand) is recorded and where on-hand quantity is reduced due to a sale or increased due to a return. For example, if Store 01 is specified as the Inventory Store for Store 00 and a sale is made at Store 00, on hand will be adjusted at the inventory store 01 rather than store 00. If a part's store record does not exist for Store 01, the system will set it up. Inventory Store is maintained in the parts Store Parameter. This parameter is used in Order Entry Entry processes. Inventory Strategy: Is simply a plan that begins with a definition of the organization’s expectations (goals and objectives) for inventory performance. It defines what needs to be done, and the measurements that will tell if it has been done.


189

Glossary Inventory Velocity: The speed with which inventory moves through a defined cycle. Inventory velocity is another term for turnover. The quicker you turn your inventory, the higher velocity you have. Invoice Store Number: Indicates store number where a document will be invoiced and which pricing parameters will be used. For example: If Store 01 is specified specified as the Invoice Store for for Store 00, and a customer sale occurs at Store 00, Store 01 will be used in the Selling rate routines to calculate Sell price, and the Invoice will print on the printer designated for Store 01. Invoice Store Number is a store level parameter that is maintained via the the parts Store Parameters function. This parameter is used in Order Entry processes. Key Performance Indicator (KPI): Refers to one of many measurements used to determine the success of a dealer’s parts department. There are standard DBS parts reports and files files that provide information that allows pertinent key parts performance indicators indicators to be determined. The KPI’s are used to analyze the health of the dealer’s parts operations Lead-Time: A parameter that expresses the elapsed time in days from when a part could reach order point to the time when the part is receipted into inventory. When using the Dual Order Point Matrix Processing, lead-times can vary by matrix. The Lead Time parameter is a key element in the calculation of Poisson Minimums (order point) for parts based upon a desired service percentage. This is a Source of Supply/Store level parameter that is maintained in the Parts Ordering Parameters and is used in the Stock Replenishment process. See, Lead-Time, Safety-Stock and Poisson Formula. Life Cycle: Each part will eventually eventually pass through the three life cycle cycle phases. See, Add-To-Stock, ControlOf-Stock and Remove-From-Stock. Life Cycle Parameters: A DBS set of parameters structured structured to help control a part’s progression through its life cycle phases. The parameters are by Activity Indicator (fast, medium, slow) at the SOS/Store level and are maintained in the Parts Ordering Parameters. See, See, Base Dealer-Net Limits, Demand Based Months, Add-To-Stock Calls, Add-To-Stock, Control-Of-Stock and Remove-From-Stock parameters. Line Item: Indicates a part number rather than a quantity ordered for that part. Line Item Activity: Line Item Activity associates a level of sales activities to a required level of order orde r reference, order processing and related warehouse activities. activities. This activity can be related to stocked items, nonstock items, items items filled from stock and/or items backordered. See Key Performance Indicator. Made-Stock: One of the six DBS Record-Types Record-Types associated with the Life Cycle Cycle of a part. There is a part store record and its record-type is “M,” Made-Stock. This part may or may not have an on-hand quantity, but accumulated history indicates it should be stocked. The Life Cycle parameters, NonStock/Made-Stock Review and Add-To-Stock provide the control over the display of this store


190

Glossary record on the the Non-Stock/Made-Stock Non-Stock/Made-Stock Review report. The Min-Type associated with this recordtype is “MS.” See, Store Record, Record-Types, and Life Cycle, Add-To-Stock Parameters. Made-Stock Aging Days: An element of the Add-To-Stock parameter parameter that specifies the number number of days a part will remain as “Made-Stock” before the Stock Replenishment process will change the Record-type to “Stock.” When a part qualifies to be added-to-stock this parameter controls the number of days to wait to validate that qualifying call. If the part still qualifies for stocking after made-stock made-stock aging days have expired the system will automatically automatically change the record type to ‘S” Stock. Made-Stock Aging Days is a SOS/Store parameter that can be maintained in the Parts Ordering Parameters. See Life Cycle, Add-To-Stock. Maximum Cost Categories: There are five (5) Maximum Cost categories on the vertical axis of Order Point Matrix 1 and five on Order Point Matrix 2. The cost fields along with the the four (4) Call Range categories on each matrix horizontal axis are used to identify identify a grouping of parts. The values entered into the Max Cost categories represent the average cost per call or the unit cost of the part (as designated by the “Use Unit Cost Instead of Average Cost per Call” parameter). The Max Cost parameters identify identify the limits for that category on the OP Matrix. The Order Point Matrix parameters are Source of Supply/Store and are maintained in the Parts Ordering Parameters. Parameters. These parameters are used in the Stock Replenishment process to establish Min-Types, and Minimums. See, Order Point Matrix 1 and 2, Call Range Categories, Minimum, and Min-Type. Maximum (Max): Max helps define “how much” to to order. It identifies the maximum number of pieces for a part for a store (i.e. inventory). This quantity can be manually set set or for regular buy items determined by one of three order point formulas utilized in the Stock Replenishment process. See, Buy-As-Sold Formula and EOQ. Minimum (Min): Min helps define “when” to order. It identifies the minimum number number of pieces for a part at a store. This quantity can be manually set or for regular buy items determined by one of three formulas utilized in the Stock Replenishment process. process. See, Buy-As-Sold Formula, Poisson Formula, and Days-Of-Supply Formula. Minimum Control Logic (MCL): The MCL fields are the points within Order Point Matrices 1 and 2 where a part’s annual demand and the cost intersect. The Order Point Matrix parameters are used used in the Stock Replenishment process to determine which one of the three Minimum order formulas will be used to calculate a parts minimum. See Minimum. They also are used used to establish the the “S” Stocked parts parts Min-Type. See Min-Type. Valid entries are: BAS = Indicates the Buy-As-Sold Formula is to be used. See Buy-AS-Sold Formula. Days-Of-Supply Formula is to be used. Valid values are 001 - 365. NNN = All numeric indicates the Days-Of-Supply See Days-Of –Supply Formula. NN % = Numeric plus the percent sign sign indicates the Poisson Formula is to be used. “NN” indicates the desired service percent to be attained attained during the parts lead-time. Valid values are 50 - 99%. See Poisson Formula. Order Point Matrices are Source of Supply/Store parameters, maintained in the Ordering Parameters. See Ordering Parameters, Poisson / Order Point Matrix.


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Glossary Minimum Order Quantity (MOQ): It is a “must purchase purchase at least” quantity associated associated with a part. In other words if MOQ is four four at least four must be purchased but if the dealer orders five then they they will receive five. See, Master Record and Package Quantity. Min-Type: Min-Type is a sub-set of Record-Type. The function of Min-Type is to categorize the store’s inventory according to its type type of order point control. This field reflects how on the shelf inventory items are identified and controlled in the Stock Replenishment process. Some Record-Types also identify the parts Min-Type. “E,” Exhaust-Stock, “M,” Made-Stock, “T,” Temporary-Stock and “D,” Dead-Stock Record-Types directly define min-types. The Min-Types for “S,” Stock records are assigned according to how the parameters are set in Order Point Matrix-1 and 2. The only exception to this rule is for the Manually Controlled Record-Type “S” Min-Type parts. Valid values, (see appendix).

MIN-TYPE Store Statistics Report: This report prints a summary listing of stock sale and transfer activity and on-hand inventory dollars within store, activity indicator, and min-type. The first line summarizes all stock sale and transfer activity while the second line summarizes summarizes stock sale sale activity only. This report is used to analyze inventory investment by min-type and activity indicator as compared to activity and stock backorders. This is a key report used in generating the data for an inventory control review. Month End: A term associated with the last Stock Replenishment process of the month. Demand for a part is captured and retained in monthly increments within the DBS system and during the month-end update numerous data cleansing functions occur. The system retains demand for the current month and 24 previous months. Each month-end the history automatically rolls (i.e. 1st previous month rolls to the 2nd previous, etc.). etc.). As a result, each part’s life cycle phase must be reaffirmed. If it remains a record-type “S” min/max must be re-calculated based on the parts new annual demand regardless of whether the part was active. See, Record Active, Test For Increasing Demand, Demand Base Months and Life Cycle Parameters. Months Remaining: A part's store record data field that identifies the number of months months (max value is 99) a parts min min and/or max will be protected from the system’s routine recalculations. recalculations. This field is used in conjunction with the store data field Frozen Min/Max Indicator and is only valid for Min-Types, “PS” Protected Stock and “TF” Temporary Temporary Frozen. If a part's store record has a Months Protected value greater than zero, the record will be protected for that number of months. months. Both fields are maintainable at any time. The Months Protected field will will be automatically decremented by 1 during the “Month End” Parts Stock Replenishment process. Moving Turnover: The Moving Turnover ratio is calculated by dividing annual sales by inventory value at replacement cost. Sales and the inventory inventory value are all at dealer’s net (or cost) cost) price. This key performance performance indicator (KPI) measures the total (dealer and CAT) parts network performance because it includes sales regardless of where the inventory came from, i.e. the dealer’s or Caterpillar’s inventories. See KPI. New Product Introduction (NPI): NPI is a marketing program that launches a series of strategic activities, processes and procedures intended to insure the successful introduction of a new product or service.


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Glossary

Non-Returnable D/N Limit: One of the parameters associated with Base D/N Dollar Limits. It determines for a non-returnable part what the dealer considers a low versus high dealer-net value. Normally a dealer will have a different strategy based on the part’s value and status. This parameter is maintained in the Parts Ordering Parameters. The parameter is used in the Parts Stock Replenishment process. See LifeCycle Parameters. Non-Returnable Indicator: Indicates the the part status. Values are: Y = Non-Returnable N = Returnable See Part Master. Non-Stock: One of the six DBS Record-Types Record-Types associated with the Life Cycle Cycle of a part. The record-type is “N.” These part’s are not stocked at the particular store, but history is accumulated to see if they should be stocked. The Life Cycle parameter, Non-Stock Non-Stock / Made-Stock Review parameter parameter provides the control over the display of these store records on the Non-Stock / Made-Stock Review report which is produced as part of the Stock Replenishment Replenishment process. See, Store Record, Record-Types, and Life Cycle Parameters. Non-Stock / BAS History: When a parts store record-type is “N,” Non-Stock or “S,” Stocked with a Min-Type of “MBS” or “NBS” pertinent customer information from the Order Entry processes is captured and retained in the stores Non-Stock Non-Stock / BAS History file for that part. See Store Record. The data from from this file is used as Decision Support Information when the Non-Stock / Made-Stock Review and the Stock Replenishment reports are produced. See Minimum Unit Cost for Retaining Non-Stock Detail. Non-Stock / Made-Stock Review Parameter: One of the life cycle parameters used in the Stock Replenishment process that determines when a part will appear on the Non-Stock / Made-Stock Review report. The parameters are specified by activity level and take into consideration the part’s annual demand (required number of calls per specified number of months), See Life Cycle, Demand Base Months, the dealer-net (cost) of the part, and whether or not the part status is returnable or non-returnable, see Master Record. These parameters apply at the source/store and activity indicator level and are maintained in the Parts Ordering Parameters. Non-Stock Return: A part, that was a non-stock non-stock record type, that came came into inventory as a result of a return. These parts are designated as Temp-Stock parts. Number Of Months: Determines the number of months of transaction data to use when the simulator runs. Obsolescence: A term associated with a surplus part that could be non-returnable or returnable. Usually these items can’t be returned to the vendor and have had no demand for some extended period of time. See, Master Record, Store Record, and Annual Demand.


193

Glossary On Hand: The quantity of a specific part located in a bin location at a dealer store. See, Store Record and Total Available. On Order: The quantity of a specific part submitted on an order to the vendor vendor for a dealer store. See, Store Record and Total Available. Order Point: See Minimum. Order Point Matrix 1 and 2: There are two order point matrices for for each source-of-supply within a store. store. Each matrix has four call ranges on the horizontal axis and five dollar categories on the vertical vertical axis. See, Order Point Matrix-Call Range Category and Order Point Matrix-Dollar Range Category. There is a table table for each activity indicator (fast, (fast, medium and slow) within each each Matrix. The Matrix provides the ability to assign a Min-Type to each part that falls within the the boundaries of each Matrix. This then allows those parts with like Min-Types to have ha ve different ordering parameters applied and also allows the system to provide KPI reporting by Min-Type. See, Min-Type Store Statistics, Min-Types and KPI. Order Point Matrix – Call Range Category: A from/to call category used for the grouping of parts for the purpose of identifying Min Type and Minimum calculation methods. The call category represents annual calls. There are four categories per matrix. These categories identify points on the the horizontal axis of an Order Point Matrix. The vertical axis of an Order Point Matrix identifies the maximum cost values. values. This can be either an average cost per call or dealer-net. dealer-net. Order Point Matrix parameters are maintained via the Parts Ordering Parameters and are used in the Stock Replenishment process to determine a part’s Min-Type, and Minimum. See, Annual Demand, Test For Increasing Demand, Order Point Matrix-Dollar Range and Order Point Matrix. Order Point Matrix - Dollar Range Range Category: A maximum cost value used for for the grouping of parts for the purpose of identifying Min Type and Minimum calculation methods. The cost value represents the the average cost per call or the unit cost of the part (depending upon the value in the “Use Unit Cost instead of Average Cost per Call” indicator. There are five categories categories per matrix. These categories identify identify points on the vertical axis of an Order Point Matrix. The horizontal axis of an Order Point Matrix is identified as Call Ranges. Ranges. Order Point Matrix parameters are maintained via the Parts Ordering Parameters and are used in the Stock Replenishment process to determine a part’s Min-Type, and Minimum. See, Use Unit Cost Instead of Average Cost Per Call, Unit Cost, Order Point Matrix-Call Range and Order Point Matrix. Order Qty: The quantity of a part as calculated by the Stock Replenishment process to be placed on order. See Store Record. Ordering Parameters: DBS parameters are available by store within a source-of-supply. When utilized, the stock replenishment process should should become more automated. automated. The parameters should reflect the dealer’s parts strategy.


194

Glossary Package Quantity (PKQ): It is a quantity greater than than one of a part in a package. For Caterpillar parts the package quantity quantity items typically represent Caterpillar’s faster moving items with the value of the package not to exceed $45 dealer-net. When purchased from Cat the dealer must must always buy the first package. package. In the DBS system the dealer only buys the second package, etc. if the “yet to purchase” quantity is half or more more of the package quantity. Check with other vendors about their purchasing rules. See Master Record. Part Number: A value assigned to a part within within a source of supply. At Caterpillar, the over 650,000 active parts (as of July, 2003) are categorized categorized into the standard warehouse formats of A, B, C and D. The A parts represent approximately 2.4% of the total (i.e. less than 16,000) and each part has 350 or more annual calls worldwide. worldwide. The A parts are defined as Fast Moving. The B and C parts represent approximately 19.4% of the total and have from 15 - 349 annual calls worldwide. The B and C parts are defined as Medium Moving. The remaining 78.2%, the D parts, parts, have less than 15 annual calls worldwide and are defined as Slow Moving. See, Master Record, Activity Indicator and Caterpillar Emergency Service Charge. Permanent Frozen Minimum: One of the three manually controlled order points associated with a Record-Type of “S,” Stock parts. See, Store Record, Frozen Min/Max Indicator, and Min-Type. PK/MOQ: The acronym for the data field field Package and/or Minimum Order Quantity. See Master Record. If a "Q" is printed under the "PK" portion of this field, the quantity shown under MOQ is a minimum order quantity. Otherwise, if the area under "PK" is spaces, spaces, then the quantity shown shown is a package quantity. See, Package Quantity and Minimum Order Quantity. Poisson Distribution: In statistics and probability theory, the “Poisson Distribution” describes a discrete probability distribution. Simeon Denis Poisson (1781-1840), a French mathematician, developed the Poisson distribution table. It is often called the law of small numbers because it describes the probable distribution of the number of occurrences of an event that happens rarely but has h as very many opportunities to happen. It was Ladislaus Josephovich Bortkiewicz (1868-1931), a mathematician and author who was immortalized for having successfully used Simeon Poisson’s mathematical distribution model to predict the number of soldiers in i n the Prussian Cavalry that would be killed by horse-kicks each year during the Prussian War. Poisson Formula: One of the three DBS systems order point formulas used to determine a parts minimum or order point. See, Poisson Distribution, Lead Time, Store Record, Order Point Matrix, Safety-Stock, and Min-Types. Poisson / Order Point Matrix: A set of parameters structured structured to help control a part’s depth of inventory during its Stocked portion of its life cycle. The parameters are established by Min-Type within Activity level level (fast, medium, slow) at the SOS/Store level and are maintained maintained in the Parts Ordering Parameters. The parameters control the establishment of a parts Minimum during the Stock Replenishment process. See, Life Cycle , Store Record and Order Point Matrix 1 and 2.


195

Glossary Previous Record-Type: The DBS system automatically automatically retains and controls the part’s previous record-type. This helps validate the KPI reporting that is associated associated with the stores part part record-type. See, Store Record and Record-Type. Protected Stock: One of the three manually controlled order points associated with Record-Type “S,” Stock p arts. See, Store Record, Frozen Min/Max Indicator and Min-Type. Report-To-Store: See Territorial Report-To-Store. RETURN ON ASSETS (ROA): A measure of profit per dollar of assets. assets. It can be defined in several ways but the most common is (Net income / Total assets). Returnable D/N Limit: One of the parameters associated associated with Base D/N Dollar Limits. Limits. It determines for a returnable part what the dealer considers a low versus versus high dealer-net value. Normally a dealer will have a different strategy based on the part’s value and status. This parameter is maintained in the Parts Ordering Parameters. The parameter is used in the Parts Stock Replenishment process. See LifeCycle Parameters. Safety-Stock: A value expressed in days used only in the Poisson Formula when minimum is calculated. It represents an additional margin of stock as this value is added to the lead-time value. The days are specified by Min-Type within within the Order Point Matrix 1 and 2. Order Point Matrix parameters are SOS/Store level parameters that are maintained in the Parts Ordering Parameters. The parameters are used in the Stock Replenishment process to determine Min-Types and Minimums. See, LeadTime and Total Lead-Time. Sale-Type: An indicator utilized in the Order Entry process. process. It allows default transaction transaction codes to automatically be assigned to a part based on the type of document sale, return etc., etc., being created. Refer to the appendix for appendix for valid values. Service Charges: See Caterpillar Emergency Service Charges. Service Charges As Percent Of Purchases: A KPI ratio calculated by dividing a dealer’s total emergency charges as applied by Cat by cut total part purchases purchases from Cat. See KPI. Service Charges As Percent Of Sales: A KPI ratio calculated by dividing a dealer’s total emergency charges as applied by Cat by total part sales at dealer net to its customers. See KPI. SIMULATOR NUMBER OF MONTHS PARAMETER: Number of months of transaction data to be used when running the simulator update. SOS: See Source-of-Supply.


196

Glossary SOS Name: A descriptive name assigned to a Source-of-Supply. This is a Source-of-Supply level parameter maintained in the Parts Ordering Parameters. See Source-of-Supply. Stock: One of the six DBS Record-Types Record-Types associated with the Life Cycle of a part. This record-type identifies parts at a store that the system will automatically order and maintain according to the established ordering parameters. Parts with a Record-Type of “S” are the only ones that are considered for inclusion in the regular stock stock orders created for submission to the vendors. See, Store Record, Record-Types, and Life Cycle Parameters. Stock Service Percent: Stock Service Percent is the number of line items totally filled at point-of-sale divided by the total number of stock line items processed. It measures a dealer store’s off-the-shelf off-the-shelf performance for stocked items. See KPI. Stock Transfer: An order entry sale-type used to stock stock order transfer parts from from one store to another. See Transaction Code. Stock Transfer Search Sequence: The Stock Transfer Search Sequence provides the capability to specify the sequence for filling stock order needs via the transfer transfer of parts. Up to 50 different store store numbers can be specified for for each store. The “transfer from” from” stores must be entered entered in the desired search sequence. These are SOS/Store level parameters that are are maintained in the Parts Ordering Ordering Parameters. The Stock Replenishment process searches the “transfer to” stores parameter for stores with surplus inventory that can fill any portion of the ordering stores’ replenishment need. Stocked Part: See Record-Type. Store: See Store Number. Store Record: File where data relating to an individual store for a part is maintained. Store Name: Description used to identify a Store Number. This is a store level parameter that is maintained in the Parts Ordering Parameters. See Store Number. Store Number: An assigned value (alpha, numeric or combination) combination) used to identify a dealer store/s. Store “**” is the system default value used only in the Ordering Parameters. See Store Name. Suggest Order/Transfer: Term applied during the stock replenishment process to those parts at order point that fail to meet or exceed all the DBS stock order parameters established to qualify a part to order. Those parts at order point that do meet or exceed the parameters will be Automatic Order/Transfer.


197

Glossary Surplus Base Months: An Ordering Parameter used to determine the surplus surplus quantity of record-type “S,” Stock Stock parts. The parameter specifies the number of months to be used for annual demand (pieces) (p ieces) based on Activity Indicator and Returnable/Non-Returnable Returnable/Non-Returnable Dollar Value. This surplus quantity is considered available internally for stock order transfer transfer to another store at order point store. This parameter is used in the the Stock Replenishment process. See, Annual Demand Pieces and Test For Increasing Demand. Surplus Value: The extended cost value of a surplus part. Surplus Value is equal to Surplus Quantity times DealerNet. See, Surplus Quantity and Master Record. Surplus Return: A term associated with a Caterpillar sponsored program that allows a dealer to submit regular requests to return qualified parts to Caterpillar. Surplus Quantity: On Hand quantity of a part that is in excess of annual demand pieces or maximum. See, Annual Demand Pieces, Demand Base Months and the Test For Increasing Demand. Synchronization: A Life Cycle process that if utilized takes the Life Cycle Cycle elements Base Dealer-Net Limits, Limits, Demand Base Months and Add-To-Stock Calls and sets the Life Cycle Parameters in a pattern that helps automate a parts progression through its life cycle. See Life Cycle Parameters. T: In the Stock Replenishment reporting process “T” is used to indicate that Territorial History or other stores appropriate history is included included in that store’s history fields fields for a part. Values are: Blank = No Territorial history included. T: Store/s history is to be included. See Store Record. Temporary Frozen: One of the three manually controlled minimum and or maximum order points associated with a Record-Type of “S, Stock part. See, Store Record, Frozen Min/Max Indicator, and Min-Type. Temporary-Stock: One of the six DBS record-types. Temporary-Stock is the name for a part’s store record that has has a Record-Type of “T.” A Temporary Stock part was originally sold to the customer customer as a Non-Stock item. Subsequently the item was returned by the customer to the dealer and is now part of the dealer’s total inventory. In DBS these parts are considered to be surplus inventory at that store, store, but not necessarily surplus to the dealer. See, Record-Type and Surplus Return. TEPS: See Truck Engine Product Support. Territorial Hierarchy:


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Glossary A DBS parameter structure a dealer can implement by source-of-supply to accomplish an overall parts strategy. strategy. A hierarchy can be from one to four levels deep. See Territorial Stocking. Territorial Stocking: A dealership stocking strategy that is implemented to complement an individual individual store’s stocking strategy. It provides the ability to make add-to-stock decisions based on combining combining individual stores “non-stock” demand at a store (territorial center) that is higher in the territorial hierarchy. See, Territorial Hierarchy, Territorial Level and Add-To-Stock Parameters. Territorial Level: A hierarchical tree structure up to to 4 levels deep may be maintained. This parameter is required if the Territorial Level for the specified specified store is not Level 4. Valid values are 1, 2, 3, and 4; with level 4 being the highest level and it is also also the default level. In essence each store is its its own territory (Level-4). This parameter is specified at the store level and is maintained in the Parts Ordering Parameters. Territory Store Reporting parameters provide for the establishment of a hierarchical hierarchical stocking relationship between inventory stores. The Territorial Level identifies the hierarchical hierarchical level that has been specified for the purpose of accumulating one or more store’s Non-Stock demand for a part during the stock replenishment process. See Territorial Report-To-Store. Territorial Report-To-Store: Identifies the store at the next higher level to which the specified store’s Non-Stock history is to be accumulated. For all stores that are not a level-4, a Report-To-Store must be specified specified which indicates to which store non-stock non-stock demand is to be reported to. The store’s Non-Stock demand will continue to roll up to the next highest level until a stocked store is encountered or the Report-ToStore qualifies to become a stocked store or the level-4 store is encountered. encountered. The demand is always recorded at the store that encounters the demand. However, the Parts Stock Replenishment process uses the accumulated territorial demand in making stocking, ordering and un-stocking decisions. See Territorial Level. Territorial Service Percent: Territorial Service Percent is the number of line items totally filled at point-of-sale (i.e. off-the-shelf) plus the emergency fills from other dealer store inventories divided by the total number of line items (stock and non-stock) processed. processed. It measures a dealer’s performance from his own distribution network from point-of-sale to where where he must go beyond his network to to Cat. See KPI. Test For Increasing Demand: The “Test For Increasing Demand” is simply a formula used in every Life Cycle phase of a part. There is a continued test test made for increasing demand whenever a part is activated. activated. Simply stated the test compares that store’s calls in the current month to the calls in the last month specified by the appropriate cycle parameters number of months and includes the one with the greater number of calls. If calls are the same (current versus last month specified), the the current months calls and pieces will be included in the annual demand calculation. For example, in the Add-To-Stock life cycle phase it supports supports the need to be more aggressive. aggressive. In increasing demand situations that could cause a new item to become a part of the dealer’s available inventory. See, Life Cycle Parameters and Add-To-Stock. In the Control-Of-Stock phase it accommodates the need to be more aggressive in an increasing demand situation that could could cause an increase in a parts minimum or in its inventory depth. See, Life Cycle Parameters and Control-Of-Stock. In the Remove-From-Stock phase phase it continues to validate validate a part should remain a stocked stocked part. See, Life Cycle Parameters and Remove-From-Stock.


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Glossary Total Available Quantity: In DBS, total available is the sum of SOS/Store parts On-Hand plus On-Order plus In Process On Order plus In Process Return. This calculated value is used in the Stock Replenishment process to determine if the part is at or below its minimum or order point. See Order Points. Total Lead-Time: It is the sum of lead-time plus the min-type safety-stock safety-stock days. Both are expressed in days of leadtime. Total lead-time is a key component in the calculation of a Poisson minimum. See, LeadTime, Safety-Stock and Poisson Formula. Total Service Percent: Total Service Percent is the number of line items totally filled at point-of-sale poi nt-of-sale divided by the total number of line items (stock and non-stock) processed. It measures a dealer store’s off-the-shelf performance as it considers both stock stock and non-stock items. See KPI. Transaction Code (TRCD): DBS is a transaction transaction driven system. system. It assigns a code to each activity for auditing purposes. See DBS Parts documentation for listing of codes and their value. Transaction Quantity (TRQTY): Transaction quantity refers to the original quantity requested during an order entry sale or return process. Truck Engine Product Support (TEPS): The TEPS program is structured to make the Caterpillar dealer a distributor to the on-highway truck manufacturer dealers. (e.g. (e.g. peterbilt, capitalize kenworth, capitalize freightliner, etc.) The purpose of the TEPS program is to ensure customer satisfaction by developing a strong and responsive network that promotes Caterpillar engines and provides quality product support services. Unit Cost: Indicates unit dealer net or the dealer’s standard cost per part. See Master Record. Use Unit Cost Instead of Average Cost per Call: Controls whether the Max Cost fields in Order Point Matrix 1 and 2 represents a unit cost or the average cost per call. See Poisson Order Point Matrix Parameters, Order Point Matrix 1 and 2 and Max Cost. Unit List: Indicates Unit Consumers list list per part or the standard recommended recommended selling price. See Master Record. Velocity: As an inventory control term velocity velocity refers to any parameter that can impact the depth of inventory. Depth of inventory is impacted impacted by the relationship of parameter settings. settings. See, Total Lead-Time, Lead-Time, Safety-Stock, EOQ, K-Factor, High Limit of EOQ, Low Limit of EOQ, Poisson Order Formula and Demand Based Months.


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APPENDIX

Chapter

Calendar:

Simulator Processing Day Calendar Month 01

Month 02

Month 03

1

2

3

4

5

6

7

35

36 36

37

38

39

40 40

41

63

64

65

66

67

68

69

8

9

10

11

12

13

14

42

43

44

45

46

47

48

70

71

72

73

74

75

76

15

16

17

18

19

20

21

49

50

51

52

53

54

55

77

78

79

80

81

82

83

22

23

24

25

26

27

28

56

57

58

59

60

61

62

84

85

86

87

88

89

90

29

30

31

32

33

34

M.E

M.E

M.E

Month 04

Sur plus R Retur n

Month 05

91

92

93

94

95

96

98

99

10

101

102

105 105

10

10

108 108

112 112

11

11

115 115

Month 06

97

119

120 120

121

122

123

124

125

147

148

149

150

151

152

153

103

104

126

127 127

128

129

130

131 131

132

154

155 155

156

157

158

159

160

109 109

110 110

111 111

133 133

134 134

135 135

136 136

137 137

138 138

139 139

161 161

162 162

163 163

164 164

165 165

166 166

167 167

116 116

117 117

118 118

140 140

141 141

142 142

143 143

144 144

145 145

146 146

168 168

169 169

170 170

171 171

172 172

173 173

174 174

M.E

M.E

M.E

Month 07

Surplus Return

Month 08

Month 09

175 175

17

17

178 178

179 179

180 180

181 181

203 203

204 204

205 205

206 206

207 207

208 208

209 209

235 235

236 236

237 237

238 238

239 239

240 240

241 241

182 182

18

18

185 185

186 186

187 187

188 188

210 210

211 211

212 212

213 213

214 214

215 215

216 216

242 242

243 243

244 244

245 245

246 246

247 247

248 248

189 189

19

19

192 192

193 193

194 194

195 195

217 217

218 218

219 219

220 220

221 221

222 222

223 223

249 249

250 250

251 251

252 252

253 253

254 254

255 255

196 196

19

19

199 199

200 200

201 201

202 202

224 224

225 225

226 226

227 227

228 228

229 229

230 230

256 256

257 257

258 258

259 259

260 260

261 261

262 262

231

232

233

234

M.E

M.E Month 10

M.E

Surplus Return

Month 11

Month 12

263 263

26

26

266 266

267 267

268 268

269 269

298 298

299 299

300 300

301 301

302 302

303 303

304 304

326 326

327 327

328 328

329 329

330 330

331 331

332 332

270 270

27

27

273 273

274 274

275 275

276 276

305 305

306 306

307 307

308 308

309 309

310 310

311 311

333 333

334 334

335 335

336 336

337 337

338 338

339 339

277 277

27

27

280 280

281 281

282 282

283 283

312 312

313 313

314 314

315 315

316 316

317 317

318 318

340 340

341 341

342 342

343 343

344 344

345 345

346 346

284 284

28

28

287 287

288 288

289 289

290 290

319 319

320 320

321 321

322 322

323 323

324 324

325 325

347 347

348 348

349 349

350 350

351 351

352 352

353 353

291

29 2

29 3

294

295

296

297

M.E

M.E

M.E

Surplus Return

Finished FINI


201

Appendix Commodity Code: A table or matrix used by Caterpillar to to assign two position codes to a group of like parts for marketing and pricing purposes. See Business Economic Code. `

A

1 UNDER CARRIAGE PARTS Track Group S&L

B

Track Group Sealed

C

Link Assembly S&L

D

Link Assembly Sealed Pin Bushing Group

E

F

Track Shoes

G

Other Track Group Components S&L Other Track Group Components S&L Equalizer Parts

H

I

J

Roller Groups Assemblies

K

Roller Components

L

Carrier Roller Groups Assemblies Carrier Roller Groups

M

N

Sprockets

P

Sprocket Components

2 ENGINE PARTS Pistons Rods Liners Related Parts Cylinder Head Assembly Groups Cylinder Head Value

3 GROUND ENGAGING TOOLS Bulldozer End Bits

5 DRIVE TRAIN PARTS Final Drive Parts

HYDRAULIC PARTS Pumps, Motors Except Water

Motor Grader End Bits

Universal Joints Drive Shaft

Hydraulic Cylinders Components

Scraper Router Bit

Transmission. Torque Divider Transfer Gears Clutch Flywheel Parts Axle Differential Parts

Hydraulic Valves Parts

Brake Parts

Misc. Hose Not Hydraulic Cat-Mfg Hydraulic Hose Fittings

Cooling System

Cutting Edge Motor Grader

Air Intake Exhaust Systems

Cutting Edge Dozer

Fuel Systems

Cutting Edge Scraper Cutting Edge Bucket

Steering Clutch Parts

Gaskets

Shanks Ripper Scarfier

Transmission Gaskets

Block Flywheel Components Crankshaft Camshaft Related Components Turbocharger

Grader Bit System Motor Grader Scarfier Teeth Ripper Tips

Marine Gears Clutch Parts

Modulok Components

Steering Mechanism Parts

Lubrication Systems

Bucket Tip Adapters

Starting Motor Parts

Major G.E.T. Components

Batteries Relate Products Electrical

6


Sleeve Bearings (Except Engine)

Electrical Components (Except Engines)

Misc. Hose Fittings

Tubes Pipes

Antifriction Bearings

Expansion Products (Hydraulic)

9 ALL OTHERS PARTS Cabs, Canopies Components Safety Equipment OSHA Required Safety Equipment

Motor Grader Implements Comfort Equipment

Bulldozer Parts Frames

Hardware

Gauges

Gaskets Shims (Except Engines) Dealer Tools

Engine Enclosure Parts

Levers

Flanges

Buckets

8 GENERAL USUAGE PARTS

Bucket Lift Arms, Sticks, Booms Chemical Products Pins

Other Chassis Parts Service Meters Parts

Plates, Brackets, Related Parts Scraper, Truck Wagon Parts Lift Truck Load Handling Parts

202

Appendix Q

Sprocket Rims Segments

Engine Bearings

Expansion Products (G.E.T.)

R

Idler

Filters

Compactor Tips

S

Idler Component

T

Track Roller Guards

Air Compressors

U

Bushing Seal Group S & L

Replacement Engines Short Blocks

V

Roller Frame Components Track Hardware

One Cylinder Test Engines Attachments

Reman Parts Track Rubber Belted

Reman Parts Lift Truck Engines Parts

Misc. Parts

Misc. Parts

W

X Y

Z

Tires Components Beadless Tires Components

Fittings

Retainers

Elbows

Rods

Seals

Shafts

Landfill Compactor GET

G.E.T. Hardware

Misc. Parts

Expansion Products (Not GET Hydraulic) Turbine Engine Parts

Retainer Lock Rings

Cable Control Winch Parts Reman Parts Friction Material

Filter Parts (Except Engine) Reman Parts Misc. Groups

Misc. Parts

Misc. Parts

Metal Seal Wear Rings

Misc Casting (Except Housing) Misc Forgings Misc Housings

Reman Parts

Reman Parts Parts Distribution NonRevenue Misc. Parts

Misc. Parts

Frozen Min/Max Indicator: This store record indicator is used to establish various types of manual control for a part’s Minimum and/or Maximum. It allows the standard stocking calculations of Minimum and/or Maximum to be overridden during the Stock Replenishment process. Valid values are: 0 = Not Frozen. A part’s Minimum and/or Maximum and Min-Type will be the result of standard parameter calculations. remain frozen until until control is 1 = Permanently Frozen Minimum. Min-Type is “PF.” Min will remain manually removed. Maximum will be the the result of standard calculations. 2 = Permanently Frozen Maximum. Min-Type is “PF.” Max will remain frozen until control is manually removed. Maximum. Min-Type is “PF.” Min/Max will remain frozen 3 = Permanently Frozen Minimum and Maximum. until control is manually removed. removed. However, if permanently frozen and for a specified number of months, see Months Remaining, Min/Max will release automatically after the months have been exhausted. Control can be manually removed removed prior to the months exhausting. Min-Type is “PS” rather than “PF” when the months remaining field is utilized at the same time. remain frozen until 4 = Temporary Frozen Minimum and Maximum. Min-Type is “TF.” Min/Max will remain history supports a calculation that that is equal to or greater than the frozen frozen value/s. At that time the indicator value is automatically changed changed to zero or not frozen. However, if temporary frozen for for a specified number of months, see Months Remaining, Min/Max will release automatically after the months have been exhausted. Control can be manually removed prior to the the months exhausting. Min-Type will still be “TF” whether months remaining, is or is not utilized. If Min Protect Qty > zero (0) a value of five (5) is added to actual indicator value . The MinProtect field value is used in the min/max calculation and will force the actual order quantity to be max less total available plus Min-Protect quantity. The valid frozen min/max values are:


203

Appendix 5 = Not Frozen. Min-Type is based on the standard calculation. Minimum/maximum will be the result of standard calculations. “S” will precede the Min-Type which indicates indicates Min-Protect quantity value is greater than zero. remain frozen until until control is 6 = Permanently Frozen Minimum. Min-Type is “PF.” Min will remain manually removed. “S” will precede the Min-Type which indicates indicates Min-Protect quantity value value is greater than zero. with Min Protect Qty > zero. Min-Type is “PF.” “PF.” Max will remain 7 = Permanently Frozen Maximum with frozen until control is manually removed. “S” will precede the Min-Type which indicates Min-Protect quantity value is greater than zero. 8 = Permanently Frozen Minimum and Maximum. Maximum. Min-Type is “PF.” Min/Max will remain frozen until control is manually removed. removed. However, if permanently frozen and for a specified number of months, see Months Remaining, Min/Max will release automatically after the months have been exhausted. Control can be manually removed removed prior to the months exhausting. Min-Type is “PS” rather than “PF” when months remaining, is utilized. “S” will precede the Min-Type which indicates Min-Protect quantity value is greater than zero. remain frozen until 9 = Temporary Frozen Minimum and Maximum. Min-Type is “TF.” Min/Max will remain history supports a calculation that that is equal to or greater than the frozen frozen value/s. At that time the indicator value is automatically changed changed to zero or not frozen. However, if temporary frozen for for a specified number of months, see Months Remaining, Min/Max will release automatically after the months have been exhausted. Control can be manually removed prior to the the months exhausting. Min-Type will still be “TF” whether months remaining, is or is not utilized. “S” will precede the MinType which indicates Min-Protect quantity value is greater than zero.


204

Appendix Market Segmentation: The Caterpillar FMRG requires dealers to report their marketing activities by “industry segments” which define or classify customers customers by the work they they do, not by the products they they use. There are 13 Caterpillar market segments defined at the top level. Eight apply to Machines and five are dedicated to Engine applications.

Machine Market Segments Ag Tractors Combines Skid Steer Loaders Backhoe Loaders All Other Cat Machines Skidders Forestry Excavators Wheel Loaders Knuckle Boom Loaders All Other Cat Machines General Construction Backhoe Loaders Small Wheel Loaders Small Hydraulic Excavators Small Track-Type Tractors/Track Loaders All Other Cat Machines Hydraulic Excavators Heavy Construction Motor Graders Track-Type Loaders Wheel Loaders All Other Cat Machines Backhoe Loaders Industrial Hydraulic Excavators Track-Type Tractors Wheel Loaders All Other Cat Machines Off-Highway Trucks Mining Large Track-Type Tractors Large Wheel Loaders All Other Cat Machines Off-Highway Trucks Quarry/Aggregate Medium Wheel Loaders Large Wheel Loaders Track-Type Tractors All Other Cat Machines Articulated Trucks Waste Agriculture

Landfill Compactors

Track Loaders Track-Type Tractors All Other Cat Machines


205

Appendix

Engine Market Segments EPG Industrial Engines Marine

Petroleum Truck

Cat Prime Power Engines Cat Standby Engines Other Engines Rental Engines OEM/Wholesale Pleasure Craft Engines Work boat Engines Fish boat Engines Other Drilling Gas Compressions Other New Cat Engines-Retail New Cat Truck Engines to OEM/Wholesale

Min-Type: Min-Type is a sub-set of Record-Type. The function of Min-Type is to categorize the store’s inventory according to its type type of order point control. This field reflects how on the shelf inventory items are identified and controlled in the Stock Stock Replenishment process. Some Record-Types also identify the parts Min-Type. “E,” Exhaust-Stock, “M,” Made-Stock, “T,” Temporary-Stock and “D,” Dead-Stock Record-Types directly define min-types. The Min-Types for “S,” Stock Stock records are assigned according to how the parameters are set in Order Point Matrix-1 and 2. The only exception to this rule is for the Manually Controlled Record-Type “S” Min-Type parts. Values include:

Blank = Not yet processed through the Stock Replenishment process to have a min-type assigned. Parts in the Add-To-Stock process: stocked item but is presently in the the made-stock MS = Made-Stock. Part qualified to become a stocked aging process. On-hand can be equal to or greater than zero. zero. Min/Max is 0/0. Stocked Parts - Considered Surplus: TS = Temporary-Stock. A part returned from the customer customer that when originally purchased was a record-type “N,” Non-Stock part. On-hand is greater greater than zero. Min/Max is 0/0. Exhaust-Replaced. A part replaced by another or multiple parts. parts. On-hand is greater greater than ER = Exhaust-Replaced. zero. Min/Max is 0/0. Exhaust-Stock. Declining demand caused this part to be considered surplus to the store. OnES = Exhaust-Stock. hand is greater greater than zero. zero. Min/Max is 0/0. Stocked Parts - Manually Controlled: set and maintained for some designated PS = Protected Stock. Min and/or Max will be manually set number of months. Protection will automatically release after set time period exhausts. exhausts. See Store Record and Months Remaining. PF = Permanent Permanent Frozen. Min and/or Max will be manually set. set. Protection will not automatically release. will be manually set. set. Protection will automatically TF = Temporary Frozen. Min and/or Max will release after set time period is exhausted, if originally set, or if the calculated Min due to annual demand is greater than the frozen Min, protection will be released immediately. See Store Record and Months Remaining. Stocked Parts - Regular Buy: will use the Buy-As-Sold Formula to set Min/Max because BAS = Buy-As-Sold. A stocked item that will


206

Appendix annual calls do not allow it to determine its min-type based on OP Matrix1 or 2. record-type less than 1 year. NBS = New Buy-As-Sold. Has been a stock record-type MBS = Mature Buy-As-Sold. Has been a stock record-type record-type for one year or more. OP Matrix 1: An “S” Record-Type part that either uses the Buy-As-Sold, Days-Of-Supply or Poisson Order Formula to set Minimum. 1A - 5A = Call Range 'A,' Cost Categories 1 - 5. 1B - 5B = Call Range 'B,' Cost Categories 1 - 5. 1C - 5C = Call Range 'C,' Cost Categories 1 - 5. 1D - 5D = Call Range 'D,' Cost Categories 1 - 5. OP Matrix 2: An “S” Record-Type part that either uses uses the Buy-As-Sold, Days-Of-Supply Days-Of-Supply or Poisson Order Formula to set Minimum. 6A - 10A = Call Range 'A,' Cost Categories 6 - 10. 6B - 10B = Call Range 'B,' Cost Categories 6 - 10. 6C - 10C = Call Range 'C,' Cost Categories 6 - 10. 6D - 10D = Call Range 'D,' Cost Categories 6 - 10. See Buy-As-Sold Formula, Days-Of-Supply Formula, Poisson Formula, Store Record, Record-Type and OP Matrix 1 and 2. Record-Type: A SOS/Store part indicator used to identify identify a parts progression through its Life Cycle. Cycle. Values are: N = Non-Stock. Item not stocked but demand will be accumulated. replenishment. S = Stock. Item regularly carried in inventory and qualified for routine stock replenishment. T = Temporary-Stock. Item originally sold as a Non-Stock Non-Stock part however, it was returned returned by the customer and is now carried in stock. its Min-Type may be either: E = Exhaust. An item where its Exhaust-Replaced. Item that has been replaced. ER = Exhaust-Replaced. ES = Exhaust-Stock. Item previously Stocked but calls have fallen below its stocking stocking threshold. the add-to-stock threshold and is progressing through through its M = Made-Stock. Item that has met the made-stock aging time period. D = Dead-Stock. Item that would be Non-Stock, but has been replaced. See, Min-Type Store Statistic Report, Store Record and Life Cycle Parameters. Sale-Type: An indicator utilized in the Order Entry process. process. It allows default transaction transaction codes to automatically be assigned to a part based on the type type of document sale, return etc., being created. Values are: A = Abnormal Demand Demand Sale: 64 (Stock) and/or 65 (Non-Stock) Emergency Order Transfer: Transfer: 72 (Stock) B = Emergency C = Convenience Sale: 63 (Stock) and/or 62 (Non-Stock) E = Export / TEPS stock order sale: 66 (Stock) and 65 (None-Stock) I = Invoice Only: 67 (Sale) and/or 59 (Credit) L = Lost Sale: 60 (Stock) and/or (Non-Stock) R = Surplus Return Sale: 64 (Stock) S = Standard Sale or Return: Sale: 61 (Stock) and/or 62 (Non-stock), Return: 51 (Stock) and/or 52 (Non-stock) Stock Order Transfer: Transfer: 71 (Stock) T = Stock


207

Appendix STOCK BACKORDER REASONS Listed below below are reasons reasons for stocked backorders. backorders. (Please note: Stock backorders are defined as backorders occurring on S (Stock), M (Made-Stock), E (Exhaust Stock), and T (Temporary Stock) record type parts. Abnormal Demand (ADC, ADP, AND): Abnormal demand is usually the leading classification of stock backorders. Either the call frequency, the the number of pieces per call based based on past history was excessive/abnormal or it is a new stocking item. Factory Short (F/S): Backorders caused by Caterpillar’s inability to supply an item within the dealer’s normal cycle. Transfers (ETR or STR): Backorders caused by transferring the part to another store to fill their emergency or stocking requirement. This is a result of of the complexity of a multi-store operation. Ordered in Error (OEC or OES): A counter and/or service department customer ordered a part and returned returned it. It can be a symptom of order reference and/or service service diagnostic opportunities or simply a commitment to product support. Record Errors: Recognize Errors: Recognize that record errors and warehouse errors (primarily picking errors) are closely related. A significant percentage of record errors are indicative indicative of warehouse procedural problems. problems. Every record error previously previously involved an unreconciled unreconciled receiving, picking, return or other on hand adjustment. Stock on Floor (SOF): Backorders occurring during the stock receiving or customer return process. The parts are in the building. building. Sold Before Delivery (SB4): Backorders, occurring on items that are on order and are received only one day after the sale that caused the backorder. Delayed Stock Order (D/O): For some reason, a stock item was being carried in a zero condition. After reaching order point, it had not been reordered nor was it made exhaust exhaust or non-stock. Manual Control (FRZ): Backorders occurring on items permanently or temporarily frozen with a low order point or order quantity. Hose (Hose): Backorders occurring by not being able to provide a certain length of hose even though the quantity on hand is greater greater than the requested length. This is due when the quantity on hand accounts for hoses cut in pieces, which are shorter than the requested length. Counter (COU): A backorder occurs because a document was placed on hold. The part is then taken off the “hold” status by the original user after a backorder has occurred.


208

Appendix


209

Appendix

Carolina Cat Total Line Items and Activity Stock LineStock Items and Activity Local Parts KPI Cube Cube - J UL06

100% 90% 80% 70% 60% Stock Line Items Active Stock Lines Stock Lines Backordered

50% 40% 30% 20% 10% 0% Fa F ast

Medium

Slow

Carolina Cat Total Inventory Total Inventory Local Parts KPI Cube - JUL06

100% 90% 80% 70% Inventory Value Lines Stocked

60% 50%

Active Stock Lines Lines Backordered Stock Li nes

40% 30% 20% 10% 0% Surplus

Manual Control

Buy as S old

Poisson

Min Type Category


210

Appendix

Carolina Cat Total Inventory Value Total Inventory Value Local Parts KPI Cube - JUL06

$4,500,000 $4,000,000 $3,500,000 $3,000,000 Fast: 72.4% Medium: 24.3% Slow: 3.3%

$2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Surp Surplu lus: s: 18.6 18.6% %

Man Manual Contr Control ol:: 11.3%

Buy as Sold: 15.0%

Poisson: 54.6%

Carolina Carolina Cat Total Surplus Min Type Inventory

SurplusLocal Min Type Inventory Parts KPI Cube Cube - J UL06

80% 70% 60% 50% Fast: 31.2% 40%

Medium: 54.5% Slow: 14.3%

30% 20% 10% 0% Exhaust Replaced: $45,531

Exha Exhaus ustt Surplu Surplus: s: $471,760 $471,760

Tempo Temporar rary y: $813,924 $813,924


211

Appendix

00 Main Store All Warehouse Activity Sales

Ship Stk Xfer

Ship Em er er Xfer

Emer Receipts 8.9%

Returns

Inv Counts 6.2%

Stk Recei pts

Em er er Receipts

Inv Counts

L oc Ch g s

Loc Chgs 2.3% Sales 41.8%

Stk Receipts 22.2% Returns 2.7%


Ship Emer Xfer 14.8%

Ship Stk Xfer 1.0%

212

Appendix 00 Ma in S tore tore W areh ouse Activit Activity y Distr Distribution ibution All SOS

Maintenance 8.5%

Inbound 33.8%

Outbound 57.7%

O u tb o u n d

In b o u n d

M ai a in t e na na nc nc e

00 Mai n Store S tore Outbound Activity Activity Distribution Distribution All SOS

Ship Emer Xfer 25.7%

Ship Stk Xfer 1.8% Sales 72.5%

Sale s

Ship Stk Xf Xfe r

Ship Em er er Xf Xfer


213

Appendix

00 Main Store Inbound Activity Distribution All SOS

Returns 8.1%

Emer Receipts 26.2%

Stk Receipts 65.7%

Re tu tur n ns s


Stk Re Re ce ce ip ipts

Em er er Re Re ce ce ip ipts

214

FORMULAS

Chapter

Lead Time = Time between placing an order and receiving an order Reorder Point = average demand during lead time + safety stock Safety Stock (SS) = an inventory quantity planned to be on-hand at all times to allow for deviations in demand and supply. Service Level = Desired service level expressed as a percentage. Inventory Turnover = Cost of Goods Sold Inventory End of Year Return on Assets = Net Income Total Assets System Generated Order Points

Days of Supply = Days of Supply (DOS) * Annual Demand (in pieces) 365

Buy-as-Sold order point 1. Compute Annual Demand Demand in calls and pieces (see Demand Base Months). 2. Compute the Average Number of Pieces Per Call (annual pieces divided by annual calls). calls). 3. Set Maximum at the Average Number of Pieces per Call. 4. Set Minimum at one less than the Average Number of Pieces per Call. Poisson 1. From the Part Master record, record, determine the part’s Activity Indicator (F-M-S), Unit Dealer/Net, and Returnable/Non-Returnable status. 2. From the Ordering Parameters , determine the demand base months considering activity indicator, returnable/non-returnable status, and unit dealer net, and territorial hierarchy. 3. From the Store Record , consolidate Call/Demand activity considering territorial hierarchy, record type, and demand base months. Compute annual demand in calls and pieces considering demand base months months and the test for increasing demand. Using annual demand, compute average pieces per call. Using average pieces per call, calculate average dealer net value per call. 4. From the Ordering Parameters , select the appropriate Order Point Matrix considering the activity indicator. Note the base lead-time for the order point matrix. Using annual calls calls and average dealer net value per call, determine the min-type, minimum control logic (MCL), and safety stock (SS) days. 5. Compute Estimated Demand During Lead-Time Lead-Time (EXDLT). Estimated Demand During LeadTime is the number of calls expected within the base lead-time plus safety stock days and is a key element in determining a Poisson minimum. The EXDLT formula is shown below.


215

Formulas Estimated Demand During Lead Time EXDLT = Calls * Base Lead Time + Safety Stock Days 365

6. Determine Order Point in Calls. Using the Poisson Order Point in Calls table, table, take the EXDLT number down the Desired Service Percent column to the value equal to or greater than EXDLT. The number in the Calls column to the far right or far left is the Order Point in Calls. Multiply the Order Point in Calls times the Average Pieces per Call to determine determine the final minimum for the part. Poisson Order Points In Calls Calls 0 1 2 3 4 5

90% 0.11 0.53 1.10 1.74 2.43 3.15

91% 0.09 0.50 1.05 1.68 2.35 3.06

92% 0.08 0.47 1.00 1.61 2.27 2.96

93% 0.07 0.43 0.94 1.53 2.18 2.85

94% 0.06 0.39 0.88 1.45 2.08 2.74

95% 0.05 0.36 0.82 1.37 1.97 2.61

96% 0.04 0.31 0.75 1.27 1.85 2.47

97% 0.03 0.27 0.66 1.16 1.71 2.30

98% 0.02 0.21 0.57 1.02 1.53 2.09

99% 0.01 0.15 0.44 0.82 1.28 1.79

Calls 0 1 2 3 4 5

Economic Order Quantity 2 * ( AcquisitionCost ) * ( AnnualDemand )

EOQ =

K=

(CarryingCo st ) * (UnitDealer sNet Pr ice)

2 * ( Acquisitio nCost ) (CarryingCo st )

EOQ= K *


Days of Supply Order Point = Days of Supply * Annual Demand (pieces) 365


216

CAT Parts Inv Ctl Seminar IC Manual 0708

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