The following data is a simplistic example to help illustrate some key principles of the DBA demand driven stocking.
Sample Item MRP Settings:
Order Policy = Stocking Demand
Monthly Demand = 30
Replenish Time = 30
Reorder Point = 30
Supply Days = 30
DBA Reorder Point is not a Stocking Level
A common mistake is for DBA users to think that the Reorder Point is a stocking level and that their carrying cost is the Reorder Point x Inventory Cost. The reorder point is a dynamic trigger for action (Job/PO creation) in response to actual sales and job demand. The actual quantity on hand trends well below the reorder point and trends toward zero at the back end of the replenishment planning period.
This chart above focuses on your stock on hand. In our example, the reorder point is 30 and the replenishment time for this item is 30 days. When projected supply falls below the reorder point a new Job or PO is created by MRP. For a Job or PO in progress it will take 30 days before it is replenished and the quantity is receipted into inventory. While the Job is in production (or PO is in transit), sales and Job issues are occurring and you can see that you are drawing your quantity on hand inventory down closer to zero toward the back end of the item’s replenishment planning period. You can also see that DBA is not using a static stocking level, but is dynamically matching actual demand with your ability to replenish the item. The time phased nature of manufacturing cannot be handled by most manual planning methods and is ignored by most of the software industry.
The benefits you will receive by having this item readily available with increased shop throughput, reduced time to shipment, and increased cash flow will likely far outstrip the carrying costs of the inventory quantity on hand involved.