Vision enables you to create reorder point (ROP) models to specify settings for calculation of average monthly usage. For each ROP model, you can establish different ROP rules based on four ROP factors: manufacturer, product class, product type, and ABC code. Each set of ROP factors is associated with an average monthly usage calculation.
During End-of-Month processing and during on-demand ROP recalculations, the system recalculates average monthly usage. If a product meets a set of ROP factors in the ROP model assigned to the warehouse, the usage calculation associated with that set of factors is performed.
Four types of average monthly usage calculations are available:
Gordon Graham: This is the default option; it is based on the inventory management principles that Gordon Graham established for distributors. The Gordon Graham average monthly usage calculation is based on the quantity sold during the last three non-exempt months. If usage for a month is overridden, the override quantity is included in the calculation instead of the actual sales quantity for that month.
To calculate the average monthly usage, the most recent month's sales quantity is counted twice in order to weight its usage as most important. Then it is added to the usage quantities of the previous 2 months. The sum is then divided by 4.
The Gordon Graham option is typically selected if (1) the product line is very stable and it is not seasonal and (2) you do not need to control the number of months that the system uses to calculate the average monthly usage.
Straight Average: With this calculation type, the system calculates the average monthly usage based on quantity sold during a specified number of previous months. The maximum number of months is 24.
To calculate the average monthly usage, the system adds the sales quantities for the selected number of previous months and then divides the sum by the number of months.
The straight average option is typically used if (1) the product line is very stable and it is not seasonal and (2) you want to control the number of months that the system uses to calculate the average monthly usage.
Weighted Rolling Average: With this calculation type, you need to specify how many of the previous 24 months should be used in the calculation. Then you can assign a weight to the individual months so that certain months have a bigger impact on the average.
To calculate the average monthly usage, the system multiplies each weight by that month's sales quantity. Then the system adds each of the weighted sales quantities and divides by the number of months. The months are rolled each month so that the calculated average is based on quantities sold during the most recent month(s) — not on any specific month(s) of each year.
The weighted rolling average option is typically used if (1) the product line is seasonal and (2) you want to base the average monthly usage on a certain number of the previous 24 months.
Selected Months: For this calculation type, the new average monthly usage is based on the quantity sold during specific months of the past 24 months.
To calculate the average monthly usage, the system adds the sales quantities for the selected months and then divides the sum by the number of months.
The selected months option is typically used if the product line is seasonal.
Note: If a product's very first release date as a stock or temporary item in this warehouse falls within the designated usage period, then the usage for that product is based only on that first release date month and all months since then—not the full usage period. For example, let's say that you recently started stocking a new product in your warehouse and the first customer order was released in June. If the Gordon Graham calculation is used during the July End-of-Month processing to calculate the average monthly usage, then usage is calculated as follows: double the July sales quantity, add it to the June sales quantity, and divide it by 3. Now let's say that the straight average calculation is used instead, and the specified number of months is 6. In this case, the June and July sales quantities are added and the sum is divided by only 2 (not 6).
The ROP Model screen of the Purchasing tab is where you set up and maintain ROP models. You can also access the average monthly usage calculation information from this screen.
Note: An ROP model is not used for calculating average monthly usage and reorder points for products until the model is assigned to a warehouse. The System Configuration screen of the Vision Configuration tab is where you assign an ROP model to a warehouse. For more information, refer to Specify ROP settings for a warehouse.
Note: To access the ROP Model screen, you must have the proper security privileges. The ROP Maintenance job function needs to be assigned to one of your roles. Roles are assigned to users in the User Maintenance on the Security Maintenance screen of the Vision Configuration tab. For more information, refer to About roles and job functions.
On the ROP Model screen of the Purchasing tab, select the ROP model on which you would like to work. (For instructions on how to do this, refer to Modify an ROP model.)
Note: Before you can set up calculation data for an ROP rule, options must be selected for each of the rule's four ROP factors (manufacturer, product class, product type, and ABC code) in the ROP Rules area.
Right-click the gray box in the far left column of the rule whose average monthly usage calculations you would like to set up or modify, and then select Change Calculation Data on the shortcut menu. The Average Monthly Usage and Reorder Point Calculations dialog box appears, enabling you to set up and maintain the average monthly usage calculations.
In the Calculation Type area of the Average Monthly Usage Calculation area, select the appropriate kind of calculation that the system should use to calculate the average monthly usage. You have several options:
If the system should calculate the average usage based on Gordon Graham's calculation, select the Gordon Graham option. This is the default option.
If the system should calculate the average monthly usage based on the usage during a selected number of previous month, select the Straight Average option. The Straight Average Calculation Parameters area appears in the Average Monthly Usage Calculation area.
In the Number of Months field, specify how many of the previous months should be used in the average monthly usage calculation. The maximum number is 24.
If the system should calculate the average monthly usage based on weighted rolling calculations, select the Weighted Rolling Average option. The Weighted Rolling Average Calculation Parameters area appears in the Average Monthly Usage Calculation area.
In the Number of Months field, specify how many of the previous months should be used in the average monthly usage calculation. The maximum number is 24.
Then type a number (weight) in the appropriate month fields.
If the system should calculate the average monthly usage based on the usage during selected months of the past 24 months, select the Selected Months option. The Selected Months Calculation Parameters area appears in the Average Monthly Usage Calculation area.
In the Selected Months Calculation Parameters list, select the month(s) that should be used to calculate the average monthly usage.
Click the Accept button to save your average monthly usage calculation data. The Average Monthly Usage and Reorder Point Calculations dialog box closes.
Click the Accept button to save your ROP model.
During End-of-Month processing — and whenever the ROP/EOQ recalculation is run on demand — the system checks for changes made to the ROP models and updates average monthly usage quantities for every affected product.