Companies can operate with one or more locations. The majority of smaller firms involve single-site operations. The terms location, site, warehouse, and plant are considered synonyms and will be used interchangeably. A location typically represents a physical site for inventory purposes such as a distribution center or manufacturing plant. It can also represent a logical site, such as a location for reserved material or material placed on hold. The location window defines information about a location, such as address information and several warehouse management policies that will be covered in Chapter 7. Each location can have one or more bins , and the combination of location and bin uniquely identifies the whereabouts of an item s inventory.
Several aspects of item master information are location specific, such as planning data concerning inventory replenishment at a location. The location-specific information can only be maintained for an item s authorized locations, and an item can have one or more authorized locations.
 Information about a location includes a warehouse management policy that determines whether bins can be defined for the location. Almost all manufacturing and distribution firms require bins for tracking inventory whereabouts, whereas some firms using Microsoft Navision have simpler environments that do not require bins. Navision provides a simpler solution for these firms, where a suggested shelf can be identified for each item, but this only provides reference information about where the item s inventory might be found.
In addition to the solution that avoids use of bins, a simpler solution for singlesite operations avoids the use of locations. This is termed the null location approach. However, a null location cannot have bins, so that most single-site companies involved in manufacturing and distribution define one location code to enable use of bins.
The combination of item number and authorized location is termed a stockkeeping unit (or SKU for short), and each SKU defines location-specific information. For example, a purchased item stocked in two locations (and therefore identified by two SKU numbers ) might have different vendors and min-max replenishment logic for each location. Alternatively, one location may purchase the material while the second location gets replenished from the first via transfer orders.
Defining an authorized location for an item involves a process termed create stockkeeping unit ( or the create SKU process for short ). The creation of an item s SKUs involves an extra step after defining the item. Using the create SKU process, the item s SKUs can be created for all locations or for designated locations. The location-specific information initially reflects default values defined for the item. After creating SKUs, the location-specific information can be replaced at any time with new default values from the item (using the create SKU process with the option to just replace SKU information).
A comparison of an item s company-wide information and location-specific information is shown in Figure 2.2. The location-specific information consists of planning, cost, and warehouse stocking data.
Creation of a purchase order for material typically stems from planning calculations that suggest a new purchase. It can also reflect manual planning or a system-generated suggestion related to a sales order for a drop-shipment or special order. The planning calculations suggest a new purchase based on SKU planning data about the item s primary source of supply, lead-time , and reordering policy, as described below. The suggested purchases can be organized by buyer responsibility.
 The concept of an authorized location only affects the ability to have location-specific information such as planning data. It does not affect the ability to use any location for stocking an item s inventory, taking sales orders for shipment from a location, or creating purchase orders for delivery to a location.
Buyer Responsibility The concept of buyer responsibility provides an organizing focus for communicating the need to synchronize supplies with demands. By assigning buyer responsibility to items and purchase orders, suggested action messages can be directed to the responsible buyer. Two approaches to indicate buyer responsibility are illustrated below.
General Product Posting Group Field . Using this field to indicate buyer responsibility, suggested actions about new purchases and existing purchase order line items can be directed to the buyer. It can be optionally overridden on a line item to indicate a change in buyer responsibility. It also provides a means to track and analyze purchase price variances by buyer through general ledger entries.
Product Group Code Field . Using this field to indicate buyer responsibility achieves the same results as above, but does not support the purchase variances by buyer.
Chapter 6 provides further explanation of suggested action messages about purchase orders.
Primary Source of Supply A purchased SKU s primary source of supply is identified by a make/buy code (termed the replenishment system ) and a default vendor. Additional company-wide information can be defined about an item s approved vendors, with information about the vendor item numbers and lead-times. The suggested action message for a new purchase initially identifies the SKU s default vendor, but the approved vendors can be viewed and selected prior to taking further action.
Lead-Time Purchasing lead-time represents the typical notification period to place and receive a purchase order, identified as the start date and planned receipt date for a suggested purchase. Purchasing lead-time can be specified in three places ”for the vendor item, the vendor, and/or the item ”which the system uses in descending order of preference. For example, suggestions for a new purchase initially reflect the vendor item s lead-time (if specified) for the default vendor. Selection of a different approved vendor (and vendor item) can result in a different purchasing lead-time. The item lead-time provides a simple model of purchasing lead-time, whereas the vendor or vendor item lead-time allows differentiation of lead-time based on the source.
Capable-to-promise (CTP) logic provides one approach to making sales order delivery promises for an out-of-stock item. CTP logic calculates a purchased item s earliest ship date based on the item s purchasing lead-time, where this lead-time depends on whether it has been defined for the vendor item, the vendor, or the item as described above.
Reordering Policy A reordering policy and related planning data represent a model of the buyer s decision-making logic concerning purchase quantity and reorder cycle. The purchase quantity often reflects considerations of order modifiers. Order modifiers include a quantity minimum or multiple, or a maximum quantity that may result in multiple purchase orders for a fixed quantity to cover requirements. Reordering policies can be categorized by their underlying logic, such as time-phased order point logic, MRP logic, order-driven, and manual.
There are five reordering policies, as shown in Figure 2.3 and summarized below. Each reordering policy can be characterized by its primary planning parameters, order modifiers, and inventory plan approach.
Fixed Reorder Quantity (also known as Reorder Point). When an item s projected inventory falls below its reorder point , the system suggests a reorder quantity subject to order modifiers and forward scheduled from the date.
Maximum Quantity (also known as Min-Max or Order-Up-To). When an item s projected inventory falls below its reorder point , the system suggests an order quantity that achieves the item s maximum quantity subject to order modifiers and forward scheduled from the date.
Lot-for-Lot (also known as Period Lot Size ). When an item s projected inventory reaches zero (or its safety stock quantity), the system suggests an order quantity that covers demands over the reorder cycle , subject to order modifiers. A reorder cycle reflects the frequency of replenishment. The system backward schedules the proposed order from the due date.
The lot-for-lot policy provides an option for including or excluding inventory in MRP logic; MRP logic still considers scheduled receipts regardless of the choice. As a general guideline, inventory should always be considered unless there are compelling reasons for ignoring existing stock.
Order. The system suggests an order quantity that covers each individual demand, with the proposed order backward scheduled from the due date. It ignores order modifiers, but does consider safety lead-time.
Manual. The system does not suggest orders, but does calculate projected inventory based on demands and supplies.
Several suggestions apply to these replenishment methods. For stocked material in a distribution environment, the simplest replenishment methods are based on time-phased order point or MRP logic. The time-phased order point methods are easy to understand and administer, especially with reasonably stable and independent demands. They do not require a sales forecast, but do recognize future demands in suggestions for future orders. They utilize order modifiers to model buyers decision-making logic. However, changing demand patterns require updates to the planning parameters. An MRP-based method generally requires visibility of projected demand, expressed as future sales orders, sales forecast, and/or transfer order requirements. Using the frequency of replenishment defined by reorder cycle, the system automatically adjusts suggested order quantities to cover increasing or decreasing demands. Order modifiers can produce a dampening effect.
An inventory plan for stocked material can be expressed in several different-ways. With order point methods, suggested order quantities can represent an implicit inventory plan when inflated by order modifiers, or when the reorder quantity exceeds typical demand over the reorder cycle. The order modifiers and reorder cycle provide a similar implicit inventory plan for MRP logic. An explicit inventory plan can be identified as an item s safety stock quantity or safety lead-time. The safety lead-time represents a buffer against delayed receipts, and also represents a demand-sensitive inventory plan.
The item s standard costs and overhead factors are used in cost roll-up calculations for a standard cost item. Overhead factors represent company-wide information. The item s standard cost and last direct cost act as a default for location-specific costs, but the values can be manually overridden for an SKU. Each item s inventory posting group defines location-specific information for G/L account numbers such as inventory. Average costs are automatically calculated for either items or SKUs according to an inventory setup policy.
Within each authorized location for an item, the SKU can have one or more authorized bins (termed fixed bins) and one default bin. The default bin provides a basic approach for suggesting where to put incoming inventory and where to find inventory for picking purposes. The default bin can be manually or automatically designated. Manual designation of the default bin indicates a static assignment. To support dynamic assignment, the system can automatically update the default bin based on the last put-away transaction. An item may be placed in any bin.
Each SKU can have a counting frequency for cycle counting purposes, such as six times per year. The counting frequency typically reflects an ABC analysis of item usage and value, but it can be based on other factors.
A majority of smaller companies operate as a single location. Therefore only one location (and its bins) needs to be defined, and each item will have a single SKU. Using default values throughout the system minimizes the impact of identifying the location in transactions, as described below.
Item Information. The item information provides default values for the SKU cost, planning, and warehouse stocking data. Performing the create SKU function can automatically update the SKU data with new default values.
Customer Information . Specify the single location as the preferred ship-from location for each customer (and customer ship-to address) so that it acts as a default on all sales documents.
Vendor Information. Specify the single location as the preferred ship-to location for each vendor (and vendor ship-from address) so that it acts as a default on all purchase documents.
Forecasts. Forecasts must be specified for the single location, and planning calculations will suggest replenishment for the location.
A company with a single physical location often defines additional logical locations, such as a location for material placed on hold or reserved for sales orders.