VMI - How To Determine Alarm Levels

© ORBIT Logistics Americas, LLC. Dipl.-Ing. Klaus-Peter Jovi 2007

ORBIT LogisticsVMI - Vendor Managed InventorySCM - Supply Chain Management

How to Determine Alarm Levels

Given Values


● Step 1: collect the following data

►Storage capacity (Note: nearly all tanks/silos can only used up to 90% or 95%)

►Average consumption of your customer

►Your lead time (The time you need to deliver product from point of order entry to product ready to use in tank)

►Replenishment amount (how much is one truckload)


● Step 2: You should now have a list like this:

► Storage capacity: xxx lb

► Average consumption: xxx lb/day

► Lead time xxx day

► Replenishment amount xxx lb

Considering Values

Alarm levels

ORBIT Logistics allows you to set up 3

different alarms:

● Minimum Inventory

● Replenishment Order Point

● Replenishment Plan Point

These Points can be calculated as follows:


Calculating levels

● Step 3: Minimum Inventory

● You and your customer should agree upon a levelthat should not be under-run. If so you should beable to deliver before your customer have to stopproduction.

● Calculate the level as follows:

► Minimum Inventory = Average consumption * Lead time

● If you need more security add amount X.


● Step 4: Replenishment Order Point

● As you assured to your customer not to under-runthe Minimum Inventory this point can be calculatedas follows:

► Replenishment Order Point = Average consumption *

Lead time + Minimum Inventory

● If you need more security add amount X

Calculating levels



● Step 5: Replenishment Plan Point

● This Alarm can be used as a pre Alarm for the Order Point or e.g. if your customers silo is very large, set this point where a full truckload would fit in the silo.

► Replenishment Plan Point = Storage Capacity –truckload

Calculating levels


Example 1

● You collected following data (only example!)

► Storage capacity: 200,000 lb

► Average consumption: 8,000 lb/day

► Lead time 5 day

► Replenishment amount 45,000 lb


Example 1




► Replenishment Plan Point = Storage Capacity –

truckload

● Minimum Inventory = 8,000 lb/day * 5 day

= 40,000 lb

● Add additional security amount 10,000 lb

● 40,000 lb + 10,000 lb = 50,000 lb


Example 1





truckload


= 8,000 lb/day * 5 day + 50,000 lb

= 90,000 lb


● 90,000 lb + 5,000 lb = 95,000 lb


Example 1





truckload

● Repl. Plan P. = 200,000 lb - 45,000 lb

= 155,000 lb


Example 1

200,000 lb

Inventory

Time

RLT*

Order 1

100,000 lb

150,000 lb

50,000 lb

5 days 10 days 15 days

RLT*

Order 2 Order 3

TransportBatch Size

RLT*…replenishment lead time


Example 1

You can see that in this example the

replenishment is only a little bit more than the

amount your customer consumes, but you

never hit the Minimum Inventory.

This means you have a secured replenishment

process at a minimum possible stock level.


Example 2

● Imagine now you serve the same customer

like in Example 1 however this customer now

consumes a lot more.

► Storage capacity: 200,000 lb

► Average consumption: 12,000 lb/day

► Lead time 5 day

► Replenishment amount 45,000 lb


Example 2





truckload

● Minimum Inventory = 12,000 lb/day * 5 day

= 60,000 lb


● 60,000 lb + 10,000 lb = 70,000 lb


Example 2





truckload


= 12,000 lb/day * 5 day + 70,000 lb

= 130,000 lb


● 130,000 lb + 5,000 lb = 135,000 lb


Example 2





truckload

● Replenishment Plan Point

= 200,000 lb - 45,000 lb

= 155,000 lb


Example 2

200,000 lb

100,000 lb

150,000 lb

50,000 lb

RLT*

RLT*

Order 1 Order 2

Time5 days 10 days 15 days

Inventory

Transport Batch Size



Exemplo 2

In this Example the customer consumed a lot

more than you replenished.

If your customer consumes more

than you can replenish in that timeAverage consumption * RLT > Replenishment amount

You have to place additional orders

or increase the Minimum Inventory Level.


Example 2

RLT*


Order 1

Time5 days 10 days 15 days

Inventory

RLT*

Order 2


200,000 lb

100,000 lb

150,000 lb

50,000 lb



Example 2

Time

Inventory

RLT*

Order 1

RLT*

Order 2

RLT* RLT* RLT*

Order 4

Order 3 Order 5

Order 6

5 days 10 days 15 days

200,000 lb

100,000 lb

150,000 lb

50,000 lb



Example 2

You see the process needs a few orders to

stabilize, once this has happened you can

lower the alarm levels, however be sure

keeping the distance between Minimum Level

and Order Point close enough to let the system

create orders at both levels.

Contacts and Addresses Americas

ORBIT Logistics Americas, LLC.

2620 Chandler Grove Dr. NE

Buford, GA 30519

Managing Director

Dr. Silvio StephanDr. Silvio Stephan

phone: +1-678-608-3362

cell: +1-404-216-0588

Skype: silvio_stephan_orbit

E-mail: [email protected]

Vice President Operations:

Dipl.Dipl.--Ing. Klaus Peter JoviIng. Klaus Peter Jovi

phone: +1-678-608-3196

cell: +1-770-539-4757


Service / Technology:

Helmut BornHelmut Born


phone: +49 2171 360 - 361

ORBIT LOGISTICS Europa GmbHMaybachstraße 27

D-51381 Leverkusen

phone: +49 / 2171 360 - 0

cell: +49 / 2171 360 - 500

International Business Development:

Dr. Silvio StephanDr. Silvio Stephan phone: +49 2171 360-170cell: +49 151 1215 7317

Managing Director / Technology

Dipl.Dipl.--Ing. Joachim KlasenIng. Joachim Klasen


phone.: +49 2171 360 - 110

cell: +49 171 486 0839

Managing Director / Sales & Marketing

Dipl.Dipl.--Ing. HansIng. Hans--Joachim RudolfJoachim Rudolf


phone: +49 2171 360 - 140

cell: +49 171 486 3516

Contacts and Addresses Europe

Date post:	13-Jun-2015
Category:	Self Improvement
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VMI - How To Determine Alarm Levels

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