order overplanning forecasting method to assist MTO manufacturers in dealing with intermittent demand. The method aims at fully exploiting early information that the prospective and regular customers generate during their purchasing process. It uses as forecasting unit each single customer order instead of the overall demand for the master production schedule (MPS) unit. So, the forecast unit is distinguished from the MPS planning unit. The expected requirements for a module (that belongs to a particular order) are overestimated. This is to take into account the sources of uncertainty within the planning horizon, namely order acquisition, actual due date, system configuration (number and types of apparatus), and apparatus configuration (modules) by implicitly incorporating in them the slack necessary to handle those uncertainties. This is done by introducing redundant configurations, so as to satisfy any request that may actually be received. The demand forecast for the MPS unit is obtained by adding up the requirements included in the individual forecast orders.
In order overplanning, forecasting is not the numerical result of an algorithm for analysing historical data but rather an organisational process, closely linked to the purchasing practices of the customer. In fact the method relies upon the capabilities of Sales to anticipate future requirements by continuously gathering information from customers and to exchange this subjective information with Manufacturing. The benefits associated with the use of this method can be realised only in an industrial MTO context, when (i) there is a certain amount of information available on customers' anticipated future requests and (ii) the information provided by the customers, during their purchasing process, has some predictive power.
Note 2.2 Cessation of Replenishment and Stock Write Off
The inventory decision of ceasing to replenish an item does not necessarily imply an immediate action from the accountancy department in terms of writing the item off the assets, which is needed for financial reporting. Rather, there will typically be some time elapsing between ceasing to replenish an item and (officially) writing the item off. Further, writing off an item does not necessarily imply an immediate disposal of any remaining stock for that item. Again, there may be some time elapsing between writing an item off and committing to the disposal of any remaining stock. Although the processes of writing an item off and disposing of any remaining stock are very important, any reference in the book to not stocking an item relates only to the inventory decision to cease replenishment.
Note 2.3 External and Internal Lead Times
An implicit assumption often made in inventory theory is that there is no time elapsing between receiving an order from the supplier(s) and making that order available for customers. The reality, though, is different as there are many situations when that time difference not only exists but is quite significant too. Unloading goods upon receipt, incoming goods inspection, moving the received items to their allocated space (especially in large warehouses), and updating the information system to reflect the receipts, are not necessarily trivial exercises, time‐wise, and this should be taken into account when calculating lead times.
In summary, lead times consist of two time components: (i) external supply lead time (time difference between placing an order and receiving it); (ii) internal lead time (time difference between receiving an order and making it available for customers). However, the latter is usually ignored and the terms ‘lead time’ and ‘supply lead time’ are (wrongly) used interchangeably.
Note 2.4 Renewal Processes
In continuous review inventory control, it is only necessary to consider making replenishment decisions just after a demand has occurred. This is true for Poisson and Bernoulli processes, where the time between demands is exponentially and geometrically distributed, respectively, and hence the demand process is memoryless (see Chapter 4). However, for renewal demand processes, including Erlang arrival processes that are not memoryless, this is no longer true in general (see Chapter 5). Rather, for these processes the passage of time itself may carry information about the demand process. Thus, it may be optimal that a certain time span should trigger a replenishment order, even if a demand has not occurred. Therefore, an order may not only be triggered by a change in the inventory position (defined in the usual way). Heuristically, and for practical purposes, replenishment orders may, of course, be allowed only at the time instances just after a demand has occurred (or at predetermined time intervals, as in a periodic review system). This issue has implications for the kind of information that is useful for inventory control purposes but is not discussed further in this book.
Note 2.5 Optimisation of (R,S) and (s,Q) Systems
For optimisation of control parameters, the results obtained for the
3 Service Level Measures
3.1 Introduction
In Chapter 2, we reviewed inventory rules that may be used to manage the stock of intermittent demand items, paying particular attention to the
The
