Use Demand Class in Forecasting

Accurate demand forecasting is vital for holding optimal inventory.  The better you forecast your demand, the less residual inventory you will hold. Forecasting your demands is the key to plan your capacity, inventory & pricing. No forecasting method is 100% correct. Multiple forecast methods are used - based on judgement & based on data. I don't intend to write a long one on forecasting in this note; rather focus on "demand class" concept used in forecasting in Oracle Planning suite.

Business might have requirements to forecast its demand in multiple dimensions to help analyze the trend in actual sales order demands that consume the forecasts. As business, you would want to forecast your demand for certain regions and analyze how your actual sales demands were. While analyzing the regional forecasts consumption, you also might want to forecast on the customer segment you receive orders from - like automotive, energy, pharma or FMCG based on your product.

Attach the demand class to the forecasts you define and mark the sales order demands with relevant demand class. In the above example, you can opt to attach a "region" demand class to order types defined for each region. You can use the demand class ATP functionality to check the availability for certain demand class. Demand class can be optionally attached to your Inventory organization definition. If demand class is not attached to the forecast, Planning engine takes the demand class from the organization to which the demand belongs. 

Remember the thumb rule, consumption takes place only if the demand class of the sales order and forecast match.

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Average cost variance

In average costing, each receipt of material to inventory updates the unit cost of the item received. Issues from inventory use the current average cost as the unit cost. 

Perpetual Inventory value = Avg unit cost X Quantity

In Oracle Inventory, Inventory balances can be driven negative if the Allow Negative Balances parameter is
set in the Organization Parameters. Inventory calculates the costs differently in case we have negative inventory balances.   

Lets say, we have an on-hand quantity of -40 and we are performing a receipt of 50 quantity that would drive the quantity positive 10. This transaction would be split in two parts as below

a. Quantity required to drive on-hand from negative to zero 

In our example, this quantity would be "40". Inventory receives this quantity of "40" with current average cost and does not use the transaction cost

b. Remaining Quantity

Remaining quantity of "10" (50 minus 40) is received at the transaction cost and hence a new average unit cost is re-calculated

Difference between total receipt cost and the cost debited to inventory is average cost variance

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Measure Supply Chain Performance

Given the increased attention and scrutiny your investors are applying to the supply chain’s impact on a company’s financial performance, you need a yardstick to clearly measure your Supply Chain performance. One of the most followed and detailed performance metrics are encompassed in the Supply Chain Operations Reference (SCOR) model. The SCOR model provides an industry-standard approach to analyze, design, and implement changes to improve performance throughout five integrated supply chain processes — plan, source, make, deliver and return

Plan

Assess supply resources; aggregate and prioritize demand requirements; plan inventory for Distribution, production, and material requirements; and plan rough-cut capacity

Source

Receive, inspect, store, hold, issue, and authorize payment for raw materials and purchased finished goods

Make

Request and receive material; manufacture and test product

Deliver

Execute order management processes; generate quotations; configure product; create and maintain a customer database; maintain a product/price database; manage accounts receivable, credits, collections, and invoicing; execute warehouse processes, including pick, pack, and configure; create customer-specific packaging/labeling; consolidate orders; ship products; manage transportation processes and import/export

Return

Process defective, warranty, and excess returns, including authorization, scheduling, inspection, transfer, warranty administration, receiving and verifying defective products, disposition, and replacement

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Crossdocking in Oracle WMS

It has become vital for every business that has to deal with necessary evil of inventory management to maximize inventory turns and have less of stock to manage. Crossdocking functionality in Oracle WMS allows warehouses to improve its operational efficiency by transferring material as soon as it's received to outbound location. In the process, it avoids the inventory holding function thereby reducing the cost of inventory management

Businesses also want to ship products as soon as its manufactured to avoid managing finished goods stock at their warehouses and invoice the customers earlier (i.e. ship early, Invoice early). This also can be achieved using Crossdocking & you can call it "Direct shipping with Cross docking" If we have back-ordered Sales Order demand line and the WIP Job gets completed to a LPN, task would created to deliver the products to the staging to ship it "directly". 

On similar lines, Oracle WMS routes products directly from the receiving dock to a staging lane without placing product into a put away location.  Before choosing a warehouse put away location, Oracle WMS attempts to supply any sales order demand from the staged receiving supply.  As a result, unnecessary material handling and movement are reduced, which, in turn, helps reduce operational costs and streamline the order fulfillment process.

Remember, Cross docking must be enabled in the organization

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Using Forecasting in Oracle Applications

Forecasting is predicting the future using some proven methods. There is no single right forecasting method to use. Selection of a method should be based on your objectives and your conditions. To understand how Forecasting functionality works in Oracle, we need to be aware of few terms as below:

In Oracle, Forecasts are defined within a three-level hierarchical structure. It goes from the most specific to most general - forecast entries, forecasts and forecast sets. 

Forecast entry is for a specific item number, quantity and date

Forecast may be defined for a specific customer, customer site, customer type etc. You can have user defined classification using demand class. In summary, related forecast entries are grouped into Forecast

If we group Forecasts that are some way related, its called Forecast set. 

Oracle provides 3 different methods to load the Forecast data. 

1. Forecast entry form

2. Open Forecast interface

3. System generated forecast based on historical data

Forecast entry form and Open Forecast interface are used when forecast data is created externally (not in Oracle). Sufficient history needs to be available in Oracle to use 3rd option of system generating the forecast.

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Handling standard wastage (Shrinkage rate) in Oracle

Lets say we have a requirement where in every manufacturing job of 100 quantity ends up producing 80 quantity. You can define a shrinkage rate to describe expected scrap or other loss. Using this factor, the planning process creates additional demand for shrinkage requirements for the item to compensate for the loss and maintain supply.

For example, if you have a demand for 100 quantity and a discrete job of 40 quantity, the planning engine would suggest a planned order of 60 quantity. This would happen when there is no value populated in the "Shrinkage rate" field on Item Master (MPS/MRP planning tab)

Now going back to the business requirement mentioned above where every manufacturing job of 100 quantity ends up producing 80 quantity. If a shrinkage rate of 0.2 is entered in Item master, planning engine assumes that you lose 20% of any current discrete jobs and 20% of any suggested planned orders. 

Demand quantity  = 100

a. Discrete Job = 40

    Shrinkage = 20% of 40 = 8 quantity

    Net supply from Discrete Job = 40 minus 8 = 32 quantity

b. Net requirement balance: Demand qty - Net Supply = 100 minus 32 = 68

    Planning engine suggests a planned order = 68 divided by 0.2 = 85

    

Total Demand = 100 (original demand) + 8 (discrete job shrinkage) + 17 (planned order shrinkage) = 125

Total Supply = 40 (discrete job) + 85 (planned order suggested by planning engine) = 125

Shrinkage is the wastage that happens while manufacturing finished goods.

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