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Consumption-Based Planning Strategy

A Game Changer in Moving Towards Inventory Optimization
By
Sean Elliffe

Increasingly in these competitive and uncertain times, inventory optimization has become a strategic and competitive imperative. For inventory planners to succeed in fulfilling organizational customer promises, they must consistently be right on top of making sure the right materials are at the right place at the right time.

That means effectively planning what products to produce, by when, and in what quantities to meet current and future demand fluctuations, all at the lowest cost possible. The good news is that SAP Material Forecast Planning (MFP) can help you ensure available inventory meets expected demand in a cost-controlled way to meet your inventory optimization goals.

To reach the goal of inventory optimization, you must first commit to using the toolset offered by the SAP system to its fullest capacity to create supply proposals that balance demand and supply. One method offered by the toolset is Consumption-Based Planning (CBP), which uses statistical procedures to draw values from past consumption to predict future inventory consumption. This forecast resides on the material master rather than in demand management. 

CBP disregards the component inventory requirements coming via the master production schedule. For a CBP forecast, the inventory levels must fall below a material forecast requirement, calculated from past consumption values used to predict future inventory consumption. The goal of CBP is to invoke simple procedures to enable the achievement of agreed targets, using the system to do the detailed, high volume reckoning in accordance with master data setting and planning elements.

The key dynamics that underpin the use of MFP are:

  • Consistency: the forecast is carried out on a regular basis
  • Adaptability: Requirements automatically determined in the forecast model, adapt to the most current consumption requirements
  • Non-Repetitiveness: Material withdrawal (consumption) reduces the forecast requirement to ensure the forecast quantity already produced is not included in the planning run a second time

Once you get the hang of Material Forecast Planning (MFP), the benefits—accurate inventory, better service levels, increased efficiency, optimized safety stocks and more—will quickly become apparent. Your inventory and inventory orders become more accurate, you achieve better service levels with less inventory, and you gain measurable increases in efficiency and productivity. This leads to a better organized and exception-oriented supply chain, a managed warehouse that offers time and money savings, and ultimately, satisfied customers that keep coming back for more.

In fact, those who commit to MFP can anticipate seeing inventory savings in the 25% to 30% range. With cost savings like that, it truly pays to become familiar with MFP and how it can shorten your critical path forward.

We offer more depth information in this white paper, Material Forecasting as a Consumption Based Planning Strategy.

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