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The Never-ending Challenge of Meeting Fulfillment Expectations

Tadipatri Sudarsan
Product Strategy Manager

Managing the procurement and correct stocking levels of inventory is always a challenge for most organizations. Demand for an Item is sometimes unpredictable due to circumstances that might be out of an organization’s control. Higher consumption of an Item either for the production line, internal consumption, or shipments to customers challenges  Inventory Managers to look at multiple and sometimes conflicting objectives for managing Inventory. They are asked to:

  • Reduce the cost of procurement
  • Maintain safety stock
  • Utilize multiple Suppliers for the same Item so there is no reliance on a single source
  • Adhere to material safety and storage requirements
  • Anticipate possible stock shortages and  have a fallback plan with suitable and cost-effective substitutes
  • And many more you’re probably mentally supplying as you read this list

In most organizations, Management’s expectations are high and continuous on the above objectives as managing spend is critical while providing product at the right price and the right time is of utmost importance. Enterprise applications have built both simple and complicated algorithms to handle various aspects of Inventory management. The focus of this blog is on the Item substitution process and how substitutes can be the “hero” for an Inventory Manager in the fulfillment process. The big question one may ask is “If our planning and replenishment algorithms are correct, why do we need to provide Item Substitutes or alternates for fulfilling the original demand”? The answer quite obviously could be “to deal with unplanned stock shortages”. Yes, unplanned stock shortages are a major headache for Inventory Managers. Perhaps the last shipment from your Supplier had a high rejection rate due to damage in transit, or the Items received were not the quality expected. So stock shortages can happen at any time, and a savvy Inventory Manager would have a back-up plan should that occur. Developing an Item substitution plan for high demand Items can keep the fulfillment process rolling, the production lines moving and the revenue stream flowing.  In addition to stock shortages, the substitute Items also serve other purposes such as:

  • No reliance on a single source of supply for  an Item
  • Reduce costs by providing a more cost-effective but appropriate  alternative
  • Identify Suppliers who may develop into key providers of the desired Items
  • Provide alternatives to address seasonal fluctuations

Some Purchasing groups consider the development of alternate Suppliers who may provide suitable alternates for an organization’s key Items as one of the Key Result Area (KRA) for their staff. With such importance being attributed to finding alternate Items and Suppliers, we’ll discuss how the recent enhancements delivered in PeopleSoft Inventory helps provide organizations with stronger substitution capabilities when needed.

Item substitution has been a part of delivered Inventory functionality many years. It has been structured to allow organizations to define Item substitutions and pick those substitutes when the original Item requested is not available. The previous functionality allowed picking of either the original Item requested or the substitute Item but not a combination of both.

The recent PeopleSoft Inventory Partial Item substitution enhancement improves the functionality in the following areas,

  1. It allows partial substitution of Items and multiple substitutions (if defined) are provided to fill the necessary demand of the original Item requested
  2. Item Reservation and Backorder Rules have been enhanced to support partial substitution  and lets organizations control whether or not backorders are created and when
  3. Allows picking from multiple Inventory locations for multiple substitute Items in order to fulfill the Original Quantity Requested
  4. Tracks the Original Quantity Requests as well as the Items and quantities actually provided in order to do analysis of substitution activity
  5. New Analytics has been introduced to analyze how substitute Items have been playing their part in of the  inventory fulfillment and stock management process

Here are Use cases we considered and heard from our customers on how organizations could leverage this functionality,

  1. Address the uncertainty of seasonal demands - During the flu season of Nov to Feb hospitals would first like to use the flu vaccine from their primary Supplier who provides their vaccines at a cost managed based on high volumes. As a back-up, the hospital has stocked a vaccine from an alternate Supplier they sometimes use, but it is not as cost effective as their primary Supplier’s supply.
    • Supplier A’s vaccine is the original Item and Supplier B’s vaccine is set up as the Priority #1 substitution with  the effective date period as 11-01-2018 to 02-28-2019.

Due to high demand due to social media and television news coverage of an anticipated potent strain of flu, the public is demanding flu vaccines in a higher than normal rate.  A stock shortage could occur and once in place the Inventory system automatically allows issuing of the alternate Supplier’s vaccine without the nursing staff creating another stock request for more vaccine. The demand is fulfilled with both the original Item request from Supplier A, with the balance provided by the Substitution from Supplier B.

  1. Provide the ability to phase out one Item as a new or  better replacement is made available – “Ace Textile Inc “has been using a specific machine part as a spare for repairs and it is  issued consistently at a moderate frequency. They have discovered an alternative spare repair part which is new in the market and tests show it is far superior to their legacy part and the organization and wishes to switch to the newer model. There are 5 of the old Item in stock and the new part is in stock with a quantity of only 3. Over the next few months the organization would expect the old stock would be completely consumed and at that point they would make the transition to the new and improved Item. By setting the Backorder Rule to “Cancel Backorder”, the system could make this transition possible without the manual intervention of the inventory staff.

To accomplish this, the setup is simple. The stock for the old Item has a substitute of the new Item ID with a Backorder Rule that specifies no backorder for the old Item Id should be created. In this way, the system would issue the new replacement Item when the old Item’s stock is depleted and no new backorder demand back order is created for the old Item.

Of course, the warehouse Manager would then make the old Item ID’s status as  ”Inactive” and no longer has to be worried about new demand created for the old model!

We have enhanced the legacy Pick Confirmation to provide the ability to have both the Original Item Demand and the Potential Substitute Item(s) displayed and available for use on the same pick line at the same time.

In FSCM Image PI-31, PeopleSoft Inventory enhanced the Partial Item Substitution feature by providing the option to create Item substitution analytics reports leveraging the Simplified Analytic functionality. This capability allows organizations to model analysis reports specific to their needs leveraging an out-of-the-box Query.

The Item Substitute Analytics tile can be accessed from the Procurement Operations Home page and reports help the organization to:

  • Analyze the substitute Items that are being used in significant quantities to fulfill an original demand.
  • Identify the top 10 substituted Items and their quantities over a user-defined period of time.
  • Perform a cost comparison report of requested Item and substitute Items.
  • User can filter the data or sort the data to focus on any particular Item line
  • The Simplified Analytics framework allows you to create and design the reports as per your requirements. It allows multiple display options
  • The reports could be created for analysis based Inventory Item Substitution and Item Substitution Rate.

The scenarios are numerous where improved Item Substitution capabilities can “save the day” when demand fulfillment is of utmost importance in providing the best service.  With improved substitution functionality, Inventory Managers could make the system work for them in managing fulfillment and the service levels customers have come to expect. It is also key in providing intelligence to the Procurement group as to what they may need to change in their procurement practices.

To learn more please view this VFO

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