Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

12.1.1 Allocated Quantities, and the Projected Available Inventory

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Physical inventory is the actual inventory quantity determined by physical counting (cf. [ASCM22]).[note 1201].
Physical inventory is often also called stock on hand or on-hand balance.[note 1202].

Precise physical inventories on their own are not enough to allow efficient inventory management, as the following example shows:

  • “A customer orders a certain quantity of a product for delivery in one week’s time. A check of the inventory shows that there is sufficient stock, and the order is confir­med. One week later, how­ever, it emerges that the product cannot be delivered, because in the meantime the stock has been delivered to another customer.”

Solving the problem requires taking future demand into consideration.

An allocated quantity is a quantity of items assigned to a specific customer or production order. It is also known as reserved quantity.

  • A quantity ordered in a new customer order is thus not only compared against the physical inventory. It must also be compared against the physical inventory minus the sum of all reserved quantities. The customer requirements in question may only be confirmed if the result is sufficiently large.

On the other hand, it is also necessary to take quantities ordered through current procurement orders or production orders into account.

An open order is either a released order or an unfilled customer order.
An open order quantity is the quantity of an open order that has not yet been delivered or received.
A scheduled receipt is the open order quantity of an open production or procurement order with an assigned completion date.

  • The customer demand in question can thus be confirmed on the date of the next scheduled receipt, provided that this date is sufficiently reliable and the expected quantity is sufficiently large.

This example gives us a definition for projected available inventory.

Projected available inventory or projected available balance is defined in Figure 12.1.1.1 for every future transaction or event that changes stock levels. The calculation also includes
- planned demand, i.e., the requirement for planned customer or production orders, and
- planned receipts, i.e., (anticipated) receipts associated with production or procurement orders that have not yet been released.

Fig. 12.1.1.1       Projected available inventory.

Projected available inventory is thus neither a scalar value nor an individu­ally and directly manageable attribute. It changes with every planning-related event. Figure 12.1.1.2 shows the various planning processes or planning-related events or transactions that may change the values of the four totals and also the physical inventory (see also Figure 11.1.2.1):

Fig. 12.1.1.2     Planning-related events and their effect on available inventory

  1. Increase in production plan: Every forecast is a planned demand.
  2. Receipt of a customer order: Every item ordered results in an allocated quantity.
  3. Delivery of a customer order: Stock quantity is reduced. Reserved quantity and, if necessary, a forecast quantity are also reduced (see also Section 12.2.2).
  4. Creation of a planned production or procurement order: The planned receipts total is increased.
  5. Creation of (dependent) demand for each component of a planned production order: The total of planned demand is increased (see also Section 12.3.3).
  6. Release of a production or procurement order: The scheduled receipts total is increased. If the order already exists as a planned order, then the planned receipts quantity is reduced.
  7. Allocation of a components requirement: Planned demand in planned production orders is translated into allocated quantities.
  8. Issuance of an allocated quantity from stock: The stock quantity and the allocated quantities total are reduced when an allocated quantity is issued from stock.
  9. Unplanned returns or issues: Such transactions occur during distri­bution and procu­rement, as well as during production. They may relate to equipment overheads for offices and workshops or to items for R&D, or may be sent as samples, and so on.
  10. Scrapping during production: Quality control determines the scrap quantity, which reduces scheduled receipts.
  11. Checking of goods received: Physical receipts into stock raise the stock quantity and reduce the scheduled receipts total.
  12. Physical inventory alters the stock quantity in both directions.

It is important that available inventory be changed by only one of the trans­actions listed above. For this reason, the physical inventory or the four summed quantities are never simply corrected. This conforms to the principles of financial accounting, which in turn adhere to the legal requirements.

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Course section 12.1: Subsections and their intended learning outcomes

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