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 Calculation of Savings per Prevented Loss

Purpose

The system uses this process to calculate the savings that can arise from the prevention by stock transfer during inventory balancing of a potential loss. The savings per prevented loss, that is, the early fulfillment of backorders, is a part of the benefit during cost-benefit analysis.

There can only be savings per prevented loss if the inventory balancing service is triggered by a shortage. A shortage can occur due to increased demand during the freeze horizon or due to demand at a child location during the replenishment lead time that pull deployment cannot cover.

Note Note

For location products planned in reorder-point-based planning mode , the savings per prevented loss is always zero.

End of the note.

Process

  1. The system checks if it can eliminate the shortage normally. To do so the system checks if a firm or a planned goods receipt is in prospect at the parent location. If so, the system calculates the time needed to transport the goods from the parent location to the corresponding child location. If there is no goods receipt in prospect at the parent location, or if the goods receipt at the parent location does not fully cover the demand, the system calculates the total delivery time from the corresponding child location to the entry location plus the delivery time of the supplier.

  2. The system calculates the number of order items expected during the total delivery time calculated in step one. To do so it multiplies this delivery time by the number of expected order items of the corresponding location product per day.

  3. The system calculates the number of available order items. The number of available order items is the available stock divided by the average demand size per order item of the corresponding location.

  4. The system calculates the number of order items that it cannot fill on time. To do so it subtracts the number of available order items from the number of expected order items during the replenishment lead time.

  5. The system calculates the number of order items that it can fill by stock transfer. To do so it divides the inventory balancing quantity by the average demand size per order item of the shortage location.

  6. The system calculates the number of order items for which it can prevent a loss. These order items are the minimum number of orders that the system cannot fulfill on time and the number of order items that it can fulfill by stock transfer.

  7. The system calculates the savings per prevented loss. To do so it multiplies the number of order items for which it can prevent a loss with the parameter Savings per Prevented Loss . You can specify this parameter in the location product master data on the SPP Inv. Balancing/Surplus tab page in the Saving/Prev. Loss field.