Many trading and production companies face the challenges of the complex supply chain management process. And it's important to use various approaches and corresponding tools for demand optimization.
They’re primarily concerned with the number of goods sold and on-time delivery.

Trading  companies have two steps in their overall process: they buy and sell.  Production companies, however, have one more step in between: they buy  materials, produce goods and sell them to end customers. It’s crucial to follow established time frames for both types of companies. In 1C:Drive, all documents contain dates to monitor if the work is done on time. Production companies, in addition, can set the exact time for all necessary processes to be completed.

The more raw  materials production companies need, the more vendors they have to  collaborate with. Small businesses usually have well-established  relationships with one or two vendors. It’s not the case for every  company, though. For instance, if you need to buy 1000 items that can be  procured from 10-500 suppliers, just multiply one by another and try  not to go insane. Therefore, it’s important to use various approaches  and corresponding 1C:Drive tools for demand optimization. Let’s consider  them.

Demand planning based on the current needs

It  involves manufacturing or subcontractor purchase orders that are based  on the company’s needs regarding sales, production and assembly. Demand  planning is the process of calculating the product quantity the company  needs to procure or produce to keep up with the current demand.

If  a company uses a production approach called ‘Make to Order” (or MTO),  1C:Drive demand planning tool is recommended. The tool considers a sales  order, if there are no materials for production and the date for the  order to be ready is present, it checks whether the materials are in  stock. If not, it creates a purchase order for specified vendors by  default that can be changed for this very purchase depending on  preferences.

Overall, demand planning calculation collects data from the following sources:

1. Stock on hand;

2. Replenishment period;

3. Outbound documents, which add to the demand:

• Production orders with the Assembly process type (components),
  
• Sales orders,
  
• Work orders,
  
• Work in progress (components);
  

4. Inbound documents, which add to the supply:

• Production orders (finished products),
  
• Purchase orders;
  

5. Optional: Reorder point settings.

We can view all the necessary information in just one window:

Another  option is to use the ‘Inventory Reservation method’: you can set up an  automatic reservation for future materials from vendors for certain  customers. Thus, it’d be impossible to allocate materials from the  remainder of the stock.

‘Min/Max Inventory’ approach

This  technique can be used in addition to procurement planning. The method  helps to keep on-hand inventory within a specified range. Users set a  minimum stocking level in the system and when it reaches this number,  they reorder goods so that it becomes a maximum one. If we consider it  as a chart, it looks like a saw: the level drops, we replenish it, then  it again drops and the cycle repeats.

If a user wants the Demand planning tool to take into account the minimum and maximum inventory levels, he or she has to set up Reorder point settings in the product card. The product quantity is specified as the minimum and maximum inventory levels in the Reorder point settings.

If the reorder point settings are specified and the Closing balance (the product quantity on hand by the end of the date) is less than or equal to the Reorder point, the shortage is calculated by the formula:

Shortage = Max level – Closing balance

We  can open all orders that are placed according to their min/max value.  For example, now we have 50 items. When the number drops to 10, we  purchase new ones. You can assign the minimum value to 10, spend items  and ask the program to analyze the current state after some time. The  system will show what is necessary to procure. Indicate the maximum  value and the order will be made according to that number. The number we  need to reorder is calculated based on the average turnover in the  system.

This method is more suitable for trading  companies that purchase goods not for every customer’s order, but on the  basis of inventory turnover and the minimum inventory left in stock.  Production companies can utilize this tool for raw materials as well if  they’re not listed in the bill of materials (BOM) but instead are  replenished according to the minimum and maximum levels of inventory in  stock.

1C:Drive for demand optimization

1C:Drive  is a flexible yet comprehensive ERP solution for controlling and  managing key processes (including inventory management) in small and  medium-sized companies.

A Single Window for Decision-Making

The  main advantage is that decisions can be made right here — in a single  window. If the system has data about vendors, procurement prices, dates  and others, it finds and uses all connections. Click ‘OK’ and you’ll see  a purchase order, which is connected to this sales order. And again, to  make decisions, you don’t need to open additional tabs to find  correlations.

Time Mismatch

When we create a  purchase order for vendors, we also have dates. The issue arises when  the time for a customer’s order doesn’t match the time a vendor is ready  to supply materials. For example, a customer wants to get an order  tomorrow, while a vendor will provide us with materials only in 5 days.  In this case, the order can’t be completed. Therefore, you have to  analyze the dates in advance or ask to delay the delivery. Then you can  change the date in the Sales Order tab or find another vendor.

Statuses

All  documents related to production, subcontractors’, customers’  vendors’  orders have not only dates but also statuses, if there is a production  stage in between. It allows working on only confirmed orders.

If  there is more than one employee working in production, initially, a  user creates a draft (sets status ‘Open’), matches dates and turn the  status to ‘In progress’. If all the work is done properly, he or she can  then make the task completed.

The bottom line is that the  more workers are in the system, the more efficiently and conveniently we  can monitor every step: dates, statuses and so on.

Challenges

When  documents are created from scratch, it all seems to work perfectly.  However, practice shows that it doesn’t always go as planned in  purchasing, production and selling.

Bad things  happen, when we have already created documents, analyzed them with the  help of demand planning, ordered materials from vendors, what’s even  worse, started producing goods, and, all of a sudden, something changed.  For example, the initial quantity of products ordered by the customer,  the desired date of the order, the standards of the products and so on.

Bottom Line

The  combination of various techniques for inventory management optimization  and proper ERP solution like 1C:Drive will help trading and production  companies to achieve greater results by more efficient planning and  monitoring of procurement,  production, and delivering stages.

1C:Drive  is powered by 1C:Enterprise – a low-code development platform  well-known for its flexibility, scalability and ease of implementation.