By: Scott Hamilton
The inventory lead time for a manufactured item can serve one or more purposes for modeling supply chain activities. It typically represents the fixed lead time for the item’s production orders, but the significance of this fixed lead time depends on whether routing data has been defined for the item. Other purposes of this fixed lead time are related to the item’s safety stock requirements, if applicable. However, these variations in the significance of the Inventory Lead Time are often the source of some confusion.
This article describes the significance of the Inventory Lead Time in various scenarios and provides several illustrative case studies. The explanation applies to the current version of Microsoft Dynamics 365 Finance and Operations, Enterprise edition (termed D365FOE for short) and to previous versions of Dynamics AX because the functionality has not changed across the different versions.[1] To illustrate this point, the screenshots within the article reflect the user interface in Dynamics AX 2009 as well the D365FOE user interface.
The article consists of the following sections.
- Summarizing the Significance of Inventory Lead Time
- Fixed Lead Time for a Production Order
- Due Date of a Safety Stock Requirement
- Calculate a Safety Stock Quantity
- Example of Defining the Inventory Lead Time for an Item
To simplify the explanation and screenshot examples, it is assumed the item identifier consists of just the item number, and coverage planning applies to the site/warehouse. This represents a dominant business model for many AX/D365FOE implementations. However, the same concepts apply when the item identifier and coverage planning include other dimensions such as color, size and/or configuration.
1. Summarizing the Significance of Inventory Lead Time
An item’s Inventory Lead Time represents the average elapsed time for a production order under typical conditions. It can be expressed as working days or calendar days, and defined as a companywide or site-specific value. However, its significance as the production order lead time depends on the scenario, especially whether routing data has been defined for the manufactured item and its production orders. In addition, regardless of the use of routing data, it can be used as the basis for safety stock due dates or for calculating safety stock requirements for the item. These variations in the significance of Inventory Lead Time are summarized in Figure 1 and described in subsequent sections.
Figure 1. Significance of Inventory Lead Time for a Manufactured Item
In scenarios without routing data, an item’s inventory lead time acts as the fixed lead time for planned and actual production orders.
In scenarios with routing data, it is ignored by Operations Scheduling logic (and Job Scheduling logic) for actual production orders since the production order lead time is calculated. It is also ignored by Master Scheduling logic for planned production orders within the Capacity Time Fence, although it is considered for planned orders after the time fence.
2. Fixed Lead Time for a Production Order
As noted in the previous section, the “fixed” lead time for a manufactured item represents the average elapsed time for a production order under typical conditions, and its significance depends on whether the scenario includes routing data. In scenarios without routing data, it acts as the fixed lead time for planned and actual production orders.
Its significance in scenarios with routing data varies slightly based on its usage, as described in the following points.
- Used by Operations Scheduling logic (or Job Scheduling logic) for scheduling actual production orders. The production order lead time is calculated based on routing data and capacity considerations, and the fixed lead time is ignored. A previous article described these two scheduling methods for production orders.
- Used by Master Scheduling logic for planned orders. The significance of the fixed lead time depends on the number of days defined for the Capacity Time Fence. This time fence can be specified as a companywide policy (based on the value specified for the Master Plan) or as an item-specific policy (based on the value specified for the Coverage Group assigned to the item). The fixed lead time is ignored by Master Scheduling logic for planned production orders within the Capacity Time Fence, although it is considered for planned orders after the time fence.
- Used by Capable-to-Promise logic for planned orders. Capable-to-promise (CTP) logic typically applies to a make-to-order product so that a projected availability date can be calculated when entering a sales order line for the product. You typically assign a Delivery Date Control policy of “Capable to Promise” to the product, as described in a previous articles about sales order delivery promises and S&OP approaches for make-to-order products. These calculations generate planned production orders just like master scheduling logic, and the same considerations described in the previous point apply to the planned orders.
The lead time for a production order – whether it reflects a fixed or calculated time or a planned or actual order – is used to determine the start date of the order and the due date for components needed at the start date.
Case 1: Use of the Capacity Time Fence for Master Scheduling Logic
One of the dominant S&OP approaches at a manufacturing company involved a 12-month rolling forecast for make-to-stock products, where the cumulative lead time for each product was typically 6-8 months. Each product had detailed routing information. In terms of coordinating day-to-day operations, this routing information provided the basis for capacity planning and production scheduling over the near-term horizon of 30 days, and a capacity time fence of 30 days was used by master scheduling logic for planned production orders. Planned production orders after this time fence reflected each item’s fixed lead time. This approach avoided the additional processing time to calculate capacity requirements beyond the 30-day horizon.
For long-range capacity planning purposes, they used a separate set of master plan data and a capacity time fence of 365 days or more.
Case 2: Scheduling Logic based on a Fixed Lead Time
A manufacturing company was attempting to initially implement the master scheduling capabilities as simply as possible. They decided to postpone the definition and use of routing data until a subsequent phase. They defined the site-specific Inventory Lead Time for each manufactured item, and this fixed lead time was used by master scheduling logic (for planned orders) and operations scheduling logic (for actual production orders).
3. Due Date of a Safety Stock Requirement
Safety stock requirements often represent a critical element in the Sales and Operations Planning (S&OP) game plans for make-to-stock products. For example, the safety stock quantity can be used to anticipate demand variations in S&OP games plans for end-items with demand forecasts and period lot-sizing logic, or it defines the minimum quantity when using Min/Max logic. It may also reflect an inventory buffer for key manufactured components. The safety stock due dates and quantities are reflected in the calculation of net requirements by master scheduling logic, and in the generation of planned orders and action messages.
The fixed lead time for a manufactured item can be used as the basis for determining the due date of safety stock requirements – regardless of the use of routing data. It requires a Fulfill Minimum option of “Today’s Date + Procurement Time”, as defined on the Item Coverage form for the item and warehouse. A previous article provides further explanation about master scheduling and the due dates of safety stock requirements.
Case 3: Safety Stock Requirements for a Make-to-Stock Manufactured Item
A manufacturer defined the demand forecasts and safety stock requirements for stocked end-items, and the associated routing data for each item. The lead time for each item’s production order was calculated based on the routing data. In addition, they specified the inventory lead time for each end-item (typically 3-7 days) so it could be used in determining the safety stock due date.
4. Calculate a Safety Stock Quantity
As noted in the previous point, safety stock requirements often represent a critical element in the Sales and Operations Planning (S&OP) game plans for make-to-stock products. The fixed lead time for a manufactured item can be used as part of the calculations for its safety stock quantity – regardless of the use of routing data. These calculations are performed using the Safety Stock Journal. For example, when Min/Max logic applies to the item, the minimum quantity can be calculated based on the average daily usage multiplied by the number of days in the fixed lead time. A previous article provides further explanation about the calculation of safety stock requirements.
5. Example of Defining the Inventory Lead Time for an Item
An item’s Inventory Lead Time can be expressed as working days or calendar days and defined as a companywide or site-specific value on the Default Order Settings form. Figure 2 provides an example for the item “Z_Product1”, and the assignment of a companywide inventory lead time of 7 working days. The screenshots reflect the user interface for AX 2009 and D365FOE.
Figure 2. Example of the Default Order Settings Form and the assignment of a companywide Inventory Lead Time
6. Summary
The inventory lead time for a manufactured item can serve one or more purposes for modeling supply chain activities. It typically represents the fixed lead time for the item’s production orders, but its significance depends on whether routing data has been defined for the item. Other purposes of this fixed lead time are related to the item’s safety stock requirements, if applicable. However, these variations in the significance of the Inventory Lead Time are often the source of some confusion. To avoid possible confusion, this article described the significance of the Inventory Lead Time in various scenarios and provided several illustrative case studies.