Replenishment methods and calculations

You can use three replenishment methods to identify when to reorder inventory items and how much to reorder from each potential supplier. To help you decide which replenishment method to use and how to set up your items, this topic describes the calculations Sage Intacct uses for the methods and shows examples of how each method works.

Replenishment methods

Sage Intacct supports three replenishment methods—Demand forecast by single value, Demand forecast by fluctuating values, and Reorder point.

The two demand forecast methods are designed to keep enough inventory on hand to meet what you expect to sell. So, the forecasted demand of an item during supplier lead time is a key piece of identifying when items need to be replenished. What differs between the two demand forecast methods is how the forecasted demand during supplier lead time is determined:

• Demand forecast by single value—for each supplier you purchase the item from, you enter a single value in the item that represents the demand during the supplier's lead time. This method is useful when demand for items is stable during the year.
• Demand forecast by fluctuating values—you define a fluctuating forecast for the item and enter the expected quantities needed on each given date regardless of supplier. For each supplier, the sum of the forecast quantities in the fluctuating forecast for the item with effective dates during the time period between the As of date plus the supplier's lead time represents the demand during that supplier's lead time. This method is useful when demand for items fluctuates greatly during the year, such as for highly seasonal items.

The reorder point method is designed to keep inventory from falling below minimum stocking levels:

• Reorder point—you enter a reorder point and a specific quantity to reorder in the item. The values you enter are used as the starting point to determine when the item needs to be replenished.

Reorder point is the easiest replenishment method to set up, followed by Demand forecast by single value and then Demand forecast by fluctuating values. With reorder point, you enter the reorder point and the quantity to reorder. With the two demand forecast replenishment methods, you need to do more analysis to determine the demand forecast per supplier or the demand forecast per given time period. Both methods require entering and maintaining more information, and if you do not sell as much as you forecast, you end up with more inventory in your warehouses than anticipated.

The replenishment process is flexible. You can mix and match the replenishment methods for your inventory items by item and by warehouse by item.

Replenishment calculation overview

For each replenishment method, a mathematical calculation determines if an item is triggered for reordering and how much to reorder. The calculations for the replenishment methods suggest the most economical quantity to purchase—the quantity that minimizes both the total holding costs and total ordering costs. This quantity is displayed in the Quantity to purchase field in the supplier's unit of measure (UOM) in the Replenish Inventory page, and it can be overridden.

The calculations for the replenishment methods start with the As of date specified in the Replenish Inventory page. The As of date determines:

• The date the system starts to assess which items need reordering
• The period of time for determining the demand forecast during the supplier lead time (As of date + Lead time days) for the demand forecast methods (by single value and by fluctuating values)
• The date for calculating the current net inventory (On Hand + On Order - On Hold)
• The period of time for calculating the net activity for future-dated purchasing, order entry, and inventory transactions (As of date + Lead time days) for the demand forecast methods (by single value and by fluctuating values)

The replenishment method and the values in the replenishment fields in the item record then drive the rest of the calculation. The Economic order quantity field has a particularly heavy influence on what Sage Intacct suggests as the quantity to purchase.

For each replenishment method, when an item needs reordering, Intacct first calculates the quantity of the item that needs to be purchased (Need to purchase) in the base unit of the item's unit of measure (UOM) group. Then, Intacct adjusts the Need to purchase to arrive at the Quantity to purchase, which is always a multiple of the economic order quantity and in the unit of measure in which the supplier sells.

Replenishment calculation for the demand forecast methods

The calculation to determine when an item with a demand forecast method of by single value or by fluctuating values needs reordering is the same. In a nutshell, for each warehouse, the system suggests the quantity to purchase from each potential supplier by:

• Determining the demand of the item during the supplier's lead time
• Subtracting the current net inventory and the future activity during the supplier's lead time to arrive at what's needed
• Adjusting what's needed into a recommended quantity to purchase that's based on additional factors, such as the maximum order quantity, the supplier minimum order quantity, the economic order quantity, and the UOM in which the supplier sells

Let's walk through the calculation:

1. Inventory need. The inventory needed is the demand forecast for the item for the warehouse during the supplier's lead time (As of date plus lead time days) plus the safety stock. The demand forecast is determined based on the replenishment method:
   • For demand forecast by single value, the Demand forecast during lead time column in the Supplier entries table in the item or item-warehouse combination contains the demand forecast values for thesupplier.
   • For demand forecast by fluctuating values, the sum of the forecast quantities in the fluctuating forecast for the item with dates during the supplier's lead time (As of date plus lead time days) is the demand forecast. Learn about How a fluctuating demand forecast works.
   What's the unit of measure for the calculation?

   The calculation is in the base unit of the item's UOM group. The Units of measure default in the Supplier history tab of the item determines the UOM for the Safety stock field. The Units of measure for each supplier in the Supplier entries table for the item or item-warehouse combination determines the UOM for the Demand forecast during lead time field. If these UOMs aren't the same as the base unit of the item's UOM group, Sage Intacct converts the values in these fields into the base unit of the item's UOM group.

   Example of conversion

   Assume the base unit of the item is Each, the Units of measure default is Each, and the replenishment method is Demand forecast by single value.

   • If the Safety stock is 25, the value doesn't need to be converted because its UOM matches the base unit of the item (Each).
   • If the Demand forecast is 10 for Supplier A and the supplier's UOM is Dozen, the system converts 10 to 120 (conversion is: 12 units in a dozen x 10 = 120).

   The inventory need would be shown as 145 (25 + 120) in the UOM of Each.

   You might actually need more or less inventory depending on the existing inventory of the item and the inventory activity from future-dated purchasing, order entry, and inventory transactions during the supplier lead time.

2. Current net inventory. Intacct then calculates the net inventory of the item (On Hand + On Order - On Hold) on the As of date and subtracts that value from the Inventory Need.
   What's the unit of measure for the calculation?

   The calculation is in the base unit of the item's UOM group.

   The transaction definitions for your purchase orders and sales orders need to be specifically configured to affect the On Order and On Hold quantities.
3. Future transaction activity. Intacct then calculates the net inventory activity for future-dated purchasing, order entry, and inventory control transactions during supplier lead time (As of date plus lead time days) and subtracts that value to arrive at the Need to purchase. If the item is a component of any standard kits, the future activity of the standard kits is also included.
   What's the calculation and the unit of measure for the calculation?

   The calculation is in the base unit of the item's UOM group.

   Purchasing transactions (On Hand + On Order - On Hold) + Order Entry transactions (On Hand + On Order - On Hold) + Inventory Control transactions (On Hand + On Order - On Hold)

4. Need to purchase. Intacct adjusts the Need to Purchase quantity to arrive at the suggested Quantity to purchase, based on the maximum order quantity, the supplier minimum order quantity, the economic order quantity, and the UOM in which the supplier sells.
   For each replenishment method, Intacct uses the same calculations to adjust the Need to purchase into the Quantity to purchase. See how the Need to purchase is adjusted into Quantity to purchase.

Replenishment calculation for the reorder point method

For the reorder point replenishment method, the reorder point and the safety stock trigger when an item needs to be replenished for each warehouse. If the current inventory for an item is less than the inventory needed to maintain a minimum stocking level, the item needs to be reordered: 

Let's walk through the calculation:

1. Inventory need. The inventory needed on the As of date is the reorder point plus the safety stock. The inventory needed represents the minimum stocking level desired for the item.
   What's the unit of measure for the calculation?

   The calculation is in the base unit of the item's UOM group. The Units of measure default in the Supplier history tab of an item determines the units of measure (UOM) for the Reorder point and Safety stock fields. If this UOM is not the same as the base unit of item's UOM group, the quantity of the reorder point and the safety stock are converted into the base unit of the item.

   Example of conversion

   Assume the base unit of the item is Each and the Units of measure default is Dozen. If the reorder point is 5, the system converts the quantity to 60 (conversion is: 12 units in a dozen x 5 = 60). If the safety stock is 2, the system converts the quantity to 24, using the same conversion logic. Thus, the inventory needed would be would be shown as 84 (60 + 24) in the UOM of Each.

2. Current net inventory. Intacct then calculates the net inventory of the item on the As of date (On Hand + On Order - On Hold) and subtracts that value from Inventory need to arrive at the Need to purchase.
   What's the unit of measure for the calculation?

   The calculation is in the base unit of the item's UOM group.

   The transaction definitions for your purchase orders and sales orders need to be specifically configured to affect the On Order and On Hold quantities.
3. Need to purchase. If the calculated need to purchase is greater than 0, the item is triggered for reorder because the inventory of the item has fallen below the minimum stocking level. Sage Intacct then uses the greater of these two values as the Need to purchase:
   • The Quantity to reorder, which is defined in the item
   • The calculated Need to purchase

Like for the other replenishment method, the Need to purchase is adjusted to arrive suggested Quantity to purchase, based on the maximum order quantity, the supplier minimum order quantity, the economic order quantity, and the UOM in which the supplier sells.

See how the Need to purchase is adjusted into the Quantity to purchase.

How the Need to purchase is adjusted into the Quantity to purchase

Sage Intacct adjusts the Need to purchase to arrive at the Quantity to purchase, based on the maximum order quantity, the supplier minimum order quantity, the economic order quantity, and the UOM in which the supplier sells.

1. If the Need to purchase > Maximum order quantity (in the item's base unit), the Maximum order quantity (in the item's base unit) is used as the Need to purchase.
2. If the Need to purchase < Supplier minimum order quantity (in the item's base unit), the Supplier minimum order quantity (in the item's base unit) is used as the Need to purchase.
3. If the Need to purchase is not a multiple of the Economic order quantity (EOQ), the system converts it into a multiple of the EOQ:
   • Supplier UOM is the same as the item's base unit. The Need to purchase is divided by the EOQ and the result is rounded up to the next whole number. The EOQ is multiplied by the round up number.
   • Supplier UOM is different than the item's base unit. The Need to purchase is divided by the EOQ (as expressed in the item's base unit) and the result is rounded up to the next whole number. The whole number is then multiplied by the EOQ (expressed in the item's base unit) and then divided by the number of base units in the supplier's UOM.

The following table provides some examples of how the Need to purchase is adjusted to derive the Quantity to purchase. Here are the assumptions:

• The item's base unit is Each (from Item header).
• The item's UOM default for replenishment is Each (from the header in the Supplier history tab for the item) and applies to the unit of measure for Maximum order quantity. If the UOM default is different from the item's base unit, the Maximum order quantity would first need to be converted into the base unit of the item.

Example	Need to purchase	Max order qty	Supplier min order qty	Supplier UOM	EOQ	EOQ for calculation*	Quantity to purchase
1	100	200	1	Each	12	12	108
2	100	80	1	Each	12	12	84
3	100	200	1	Dozen	2	24	10
4	100	80	200	Each	1	1	200
*Note: EOQ for calculation is the EOQ converted from the supplier's UOM into the item's base unit.

Stockable kits

Stockable kits can be enabled for replenishment. However, they are not replenished directly. Instead, the component items of the kits are replenished based on the replenishment requirements specified for the parent stockable kits. For example, if Stockable Kit A needs 2 units of an item and 2 units of Stockable Kit A are needed, then the quantity of the item needed for Stockable Kit A is 4 (2 x 2 = 4).

The quantity of an item needed for stockable kits is included in the Need to Purchase.

If the replenishment method is Demand forecast by fluctuating values, the system determines the lead time that's needed to calculate the demand forecast and the future transaction activity (Purchasing, Order Entry, and Inventory transactions) by assessing all the component items in all the kits and all their suppliers and choosing the longest lead time that's found.

Units of measure

Sage Intacct automatically handles any units of measure conversions in the replenishment calculations. During the calculations, all the numbers are converted into the base unit of the item. The Quantity to purchase is then reflected in the supplier's unit of measure, and accordingly scaled for ordering at least the minimum quantity the supplier will sell and in multiples of the economic order quantity for the supplier.

These fields in an item drive the UOMs and conversions that are needed in the calculations:

• Base unit (in the item header in the General tab)—identifies the base unit of the item's UOM group. For example, if Count was selected as the unit of measure for the item, the base unit is Each.
• Units of measure default (in the Replenishment section in the Supplier history tab)—is the unit of measure for the following fields:
  • Safety stock
  • Maximum order quantity
  • Reorder point
  • Quantity to reorder
  • The quantities in the fluctuating demand forecast for the item
    
• Units of measure (in the Supplier entries table in the Supplier history tab or for a warehouse in the General tab)—is the unit of measure for the following fields in the table:
  • Demand forecast during lead time
  • Economic order quantity
  • Supplier minimum order quantity

Replenishment calculation examples

To keep the examples of walking through the replenishment calculations simple, we'll look at reordering just one item, which is not a component in any stockable kit. The item is purchased from only one supplier and for only one warehouse. For each example, we'll show the setup for the item in the Supplier history tab, where you:

• Select the replenishment method and enter values for the other replenishment fields in the header
• Enter values for the supplier in the Supplier entries table

Then we'll show how those values are factored into the calculation for the suggested Quantity to purchase.

Example 1 - Demand forecast by single value

Setup

In this example, the demand forecast is determined by the Demand forecast during lead time field for the supplier. The following table shows all the values entered in the fields in the Supplier history tab for the item:

Field	Value entered
Units of measure default	Each
Safety stock	4
Replenishment method	Forecast method by single value
Maximum order quantity	40
Supplier entries table	Supplier ID Lead time (days) Demand forecast during lead time Economic order qty Supplier min order qty Units of measure ACME Corp 5 6 4 8 Each

Results

The Replenish Inventory page would show these results, given these assumptions:

• The As of date is June 1.
• The current net inventory on the As of date is 5 (On Hand + On Order - On Hold).
• Future purchasing, sales, and inventory transactions within the 5-day lead time is -10. There's a future-dated sales transaction for 10 units on June 3.

Field	Value displayed	Explanation
Supplier name	ACME Corp
Lead time (days)	5
Inventory need	10	Demand forecast during lead time (6) + Safety stock (4) = 10
Current net inventory	5	On Hand + On Order - On Hold
Future activity	-10	There's a future-dated sales transaction for 10 units on June 3.
Need to purchase	15	Inventory need (10) - Current net inventory (5) - Future activity (-10) = 15
Round up	4	Need to purchase (15) / Economic order quantity (4) = 3.75 Keeps the suggested quantity to purchase in multiples of the economic order quantity.
Quantity to purchase	16	Round up (4) x the Economic order quantity (4) = 16

Example 2 - Demand forecast by fluctuating values

Setup

In this example, a fluctuating demand forecast determines the demand for the item. First, the following table shows all the values entered in the fields in the Supplier history tab for the item:

Field	Value entered
Units of measure default	Each
Safety stock	4
Replenishment method	Demand forecast by fluctuating values
Maximum order quantity	40
Supplier entries table	Supplier ID Lead time (days) Economic order qty Supplier min order qty Units of measure ACME Corp 5 4 8 Each

Next, the following table summarizes the entries in the fluctuating demand forecast. In this example, daily forecasts were entered for the item.

Effective date	Forecast quantity	Warehouse
June 7	2
June 6	0
June 5	2
June 4	4
June 3	6
June 2	6
June 1	10
May 31	20
May 30	20

Results

The Replenish Inventory page would show these results, given these assumptions:

• The As of date is June 1.
• The current net inventory on the As of date is 5 (On Hand + On Order - On Hold).
• Future purchasing, sales, and inventory transactions within the 5-day lead time is -10. There's a future-dated sales transaction for 10 units on June 3.

Field	Value displayed	Explanation
Supplier name	ACME Corp
Lead time (days)	5
Inventory need	32	Demand forecast (28) + Safety stock (4) = 32 The As of date is June 1 and the lead time is 5 days. So, the demand forecast period is from June 1 to June 5. The system calculates the demand forecast by adding up the forecast quantities in the entries for Jun-01, Jun-02, Jun-03, Jun-04, and Jun-05 (10 + 6 + 6 + 4 + 2 = 28). The table in the Setup section for this example shows a summary of the entries in the fluctuating forecast.
Current net inventory	5	On Hand + On Order - On Hold
Future activity	-10	There's a future-dated sales transaction for 10 units on June 3.
Need to purchase	37	Inventory need (32) - Current net inventory (5) - Future activity (-10) = 37
Round up	10	Need to purchase (37) / Economic order quantity (4) = 9.25 Keeps the suggested quantity to purchase in multiples of the economic order quantity.
Quantity to purchase	40	Round up (10) x the Economic order quantity (4) = 40

Example 3 - Reorder point

Setup

In this example, the item is set up for replenishment when the stocking level hits 11 (Reorder point + Safety stock). The following table shows all the values entered in the fields in the Supplier history tab for the item:

Field	Value entered
Units of measure default	Each
Safety stock	4
Replenishment method	Reorder point
Reorder point	7
Quantity to reorder	20
Maximum order quantity	40
Supplier entries table	Supplier ID Lead time (days) Economic order qty Supplier min order qty Units of measure ACME Corp 5 4 8 Each

Results

The Replenish Inventory page would show these results, assuming the current net inventory of the item on the As of date is 5. The item is suggested to be reordered because its current quantity of 5 is less than the minimum stocking level of 11.

Field	Value displayed	Explanation
Supplier name	ACME Corp
Lead time (days)	5
Inventory need	11	Reorder point (7) + Safety stock (4) = 11
Current net inventory	5	On Hand + On Order - On Hold
Future activity	0	Future activity is not applicable for the reorder point replenishment method.
Need to purchase	20	Inventory need (11) - Current net inventory (5) = 6 Reorder point (20) is greater than the calculated need to purchase (6) and becomes the need to purchase.
Round up	5	Need to purchase (20) / Economic order quantity (4) = 5 Keeps the suggested quantity to purchase in multiples of the economic order quantity.
Quantity to purchase	20	Round up (5) x Economic order quantity (4) = 20