Item Setup

Forecast setup
Setup Safety Stock

Run Reorder Point Report

Output is as Below

Calculations of re Order Quantity is as Shown Below

Notes to Understand Safety Stock

Notes of ROP

Reorder Point Planning

Reorder point planning uses demand forecasts to decide when to order a new quantity to avoid
dipping into safety stock. Reorder point planning suggests a new order for an item when the
available quantity--on-hand quantity plus planned receipts--drops below the item's safety stock
level plus forecast demand for the item during its replenishment lead time. The suggested order
quantity is an economic order quantity that minimizes the total cost of ordering and carrying
inventory. Oracle Inventory can automatically generate requisitions to inform your purchasing
department that a replenishment order is required to supply your organization.
reorder point = safety stock + forecast demand during lead time

Order lead time is the total of the item's processing, preprocessing, and postprocessing lead
times.

If the forecast is correct and the order arrives on time, the inventory level should be right at the
safety stock level at the time of receipt. In cases where the desired safety stock level changes
during the order lead time, Oracle Inventory uses the largest safety stock quantity during the lead
time.

When an order is triggered, the economic order quantity is the size of the triggered order.
Economic order quantity (EOQ) is a fixed order quantity calculated to minimize the combined
costs of acquiring and carrying inventory. The formula for EOQ is:

Oracle Inventory calculates annual demand as the current demand rate annualized by multiplying
the current period demand forecast by the number of periods per year (12 or 13).

Safety Stock Levels

Oracle Inventory can help calculate the safety stock levels required by reorder point planning by
providing the following two methods:

o percentage of forecast demand

o mean absolute deviation

You can always enter your own safety stock quantities if you have your own method. Or, if you
have Oracle Master Scheduling/MRP and Oracle Supply Chain Planning installed, you can use it
to calculate your safety stocks levels. See: Entering and Reloading Item Safety Stocks.

Safety Stock as a Percentage of Forecast Demand

To calculate safety stock as a percentage of forecast demand, enter a forecast name and safety
stock percent. Oracle Inventory calculates the safety stock quantity for each forecasting time
bucket by multiplying the two. For instance, if the forecast demand for a particular period is 120
units and you specify a 10% safety stock buffer, the safety stock level is set at 120 X 10% = 12
units.

Safety Stock Using Mean Absolute Deviation and Service Level

If there is sufficient demand and forecast history available, you can use the mean absolute
deviation method. This method compares the forecast to actual demand to determine forecast
accuracy and, therefore, how much safety stock is required to prevent stock-outs. If the forecast
has been very accurate in the past, only a small safety stock is required. The formula for safety
stock using this method is:
safety stock = Z X (1.25 X MAD)

MAD is the mean absolute deviation of the historic forecasts from the actual demand. Z is the
number from the normal distribution probabilities corresponding to the service level specified by
the user.

Planning Levels

You perform reorder point planning at the organization level. You place an item under reorder
point planning by specifying the inventory planning method (located in the General Planning
attribute group in the Items window) as Reorder point planning when you define the item. You
can also specify the item's processing, preprocessing, and postprocessing lead times, order cost,
and carrying cost percent in this form. See: General Planning Attribute Group.

Likewise, item safety stock levels may only be made at the organization level. Oracle Inventory
only calculates safety stock levels for non-MRP safety stock planned items. If you specified a
safety stock percent when defining the item, this value is used as a default when calculating
safety stock as a percentage of forecast demand. See: Entering and Reloading Item Safety
Stocks.

Reorder Point Planning Report

To run reorder point planning, use the Reorder Point Planning Report. One of the options when
you run this report is to create requisitions. If you request this option, Oracle Inventory runs the
report and places requisitions for items requiring replenishment. See: Requesting the Reorder
Point Planning Report.