Blanket purchasing is a traditional planning method used by many small businesses to align future supply with projected demand. Blanket purchasing is a forecast type planning method that is incompatible with just in time manufacturing and should be replaced with supply pipeline planning.
Blanket purchasing is a forecast type planning method
Blanket purchasing is a forecast type planning method. The basic problem with all forecasting methods is that forecast supply always differs from actual demand because no one can predict the future with pinpoint precision.
Forecasting is prone to shortages and over-stocking
When forecast supply for an item is less than actual demand, a shortage occurs. When forecast supply is greater than actual demand, over-stocking occurs and continues propagating unless scheduled quantities are reduced in coordination with suppliers. Inventory easily gets out of control.
Blanket purchase orders require constant adjustment
Blanket purchase orders require constant monitoring and adjustment to synchronize supply with actual demand so that shortages and over-stocking are avoided. If scheduled deliveries are less than actual demand, quantities must be increased or delivery dates expedited to avoid shortages. If future quantities are greater than actual demand, they must be adjusted downward or else over-stocking will occur and continue propagating.
Blanket purchasing is inefficient for both parties
Managing blanket purchase orders not only requires constant monitoring by the manufacturer, it also requires close coordination and communication with the supplier. Both parties are aware that blanket purchase orders are tentative and subject to changes. It is easy for the left hand to not know what the right hand is doing and for mistakes to occur, sometimes with extremely costly consequences.
Time to Shipment MRP does not include forecast planning
Time to Shipment MRP does not include forecast planning because it is counter-productive and incompatible with just in time manufacturing. Instead, stock replenishment planning is used to generate supply pipelines that are self-adjusting to actual demand.
Supply pipeline planning triggers POs at demand-driven intervals
Instead of trying to synchronize supply and demand with blanket purchase orders, Time to Shipment MRP uses supply pipeline planning to ensure that stocking order policy items trigger purchase orders at demand-driven intervals without shortages and over-stocking.
Stock replenishment is triggered by actual demand at regular intervals using dynamic Reorder Points and Min Order quantities. A monthly Usage rate and Safety Factor buffer are incorporated into the Reorder Point and a Supply Days interval is incorporated into the Min Order quantity.
For low-value items, a fixed monthly Safety Factor buffer can be used without a monthly Usage rate to provide a “set it and forget it” setting that can be left indefinitely as is without need for periodic review.
A supply pipeline is self-adjusting
Unlike blanket purchase orders, a supply pipeline is self-adjusting in response to actual demand. When actual demand for an item is greater than the monthly usage rate and safety buffer, the next purchase order is triggered earlier than the supply days interval, which minimizes the duration of any shortage that may occur. When demand is less than the monthly usage rate and safety buffer, the next purchase order is delayed until it is needed, which automatically caps stock on hand and prevents over-stocking.
All purchase orders are firmly set
Unlike blanket purchase orders, demand-driven purchase orders are firmly set without any need for date or quantity changes. Replenishment purchase orders are much more efficient for the manufacturer because they are self-adjusting to actual demand, and much more efficient for the supplier because they are fully actionable without being subject to changes or requiring confirmation.