Learn about Inventory Positioning in Microsoft Dynamics 365 Supply Chain Management

Posted on: February 15, 2023 | By: Guy Logan | Microsoft Dynamics AX/365, Microsoft Dynamics Manufacturing

This section provides an example that shows how to make inventory positioning decisions if you manufacture a typical pillow product. The pillow has a multi-level bill of materials (BOM), as shown in the following illustration.

When you’re choosing where to put your decoupling points, consider all the following aspects of each item in the BOM as criteria:

• External variability
• Inventory leverage and flexibility
• Critical operation protection
• Customer tolerance time
• Sales order visibility horizon
• Market potential lead time

In the pillow example, you might put your first decoupling point at the foam billets for the following reasons:

• It’s difficult to source the materials that are used to make the foam billets, and availability is volatile. Therefore, the external variability criterion is met.
• The foam billets can be cut into many different shapes and sizes to create foam inserts for other products that you manufacture, in addition to the pillow. Therefore, the inventory leverage and flexibility criterion is met.

You might then put your next decoupling point at the fabric kit, which is pre-cut pillow fabric. You might choose this point because you have only one fabric cutting machine. Therefore, the critical operation protection criterion is met.

Finally, you might put your last decoupling point at the finished good pillow item. You might choose this point because you have a very low customer tolerance time on sales, and because your sales order visibility horizon is fairly short. Therefore, you want to ensure that you have the on-hand inventory to meet incoming orders. You can also set a higher price by keeping the lead time this short, which is what the market potential lead time criterion refers to.

Based on this analysis, the following illustration shows what the pillow BOM will look like. Yellow inventory symbols highlight the decoupling points.

This section shows how to calculate your new lead times after you’ve introduced decoupling points.

In the following illustration for the pillow example that was started in the previous section, lead times are shown in gray boxes at the upper left of each BOM component. Boxes that have a red outline indicate items that drive the cumulative lead time (the sum of the longest lead times at each level of the BOM). This lead time is 21 days when you start from scratch.

However, if you apply the decoupling points that you previously chose, the decoupled items will always be in stock. Therefore, they will have a lead time of 0 (zero). The new lead time for the pillow is now just five days: two days to purchase the thread and three days to produce the pillow. This lead time is known as the decoupled lead time.

Because retailers stock only finished products, BOMs aren’t an issue. However, retailers can still use DDMRP by setting strategic inventory positioning and buffer levels based on storage locations in the distribution network.

The following illustration shows an example of a company that has a distribution center in Seattle, and stores in Boston, Atlanta, and Portland.

You might decide that the transfer time to move a blanket product between the distribution center and the stores violates your customer tolerance time, because your customers expect the blanket to be in stock when they visit. In this case, you will set up a decoupling point for the blanket item at each of the three stores. Each store will have different buffer levels, based on its lead times, demand patterns, and so on.

Next Steps

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