prophet 21 erp inventory

Prophet 21 ERP: Replenishment Methods Explained

The Epicor Prophet 21 ERP system has a fairly complex set of controls for purchasing.  One of the key decisions to make for any item/location combination is the replenishment method.   This setting determines how Prophet 21 ERP will calculate the suggested quantity to purchase in PO Requirements/Generation, or PORG for short.  Today, we are going to review the basic options for item replenishment.

Prophet 21 ERP Replenishment Methods

Up To

Up To is a replenishment method is based on the principle of bringing the inventory to a specific quantity, based on a number of factors that are moving all of the time.  The primary factors in the calculation are the item’s lead time, the supplier review cycle, and the item’s safety stock setting.  There are also what I call secondary factors, which are all multipliers that are applied to the primary factors.  Each of these is set at the time PORG is run to either increase or decrease the effect of the each primary factor.

prophet 21 erp up to

Up To Calculation

Essentially, what Up To does is implement a Lead Time Horizon type of calculation to determine the appropriate stock level for the item.  This quantity is deducted from the net available inventory to determine the recommended quantity to purchase.  In order for the Up To method to function reasonably well, consistent usage history is needed.  A good starting point is that the item needs to have usage in 8 out of the previous 12 months.  Up To is not a good fit for sporadically moving items in Prophet 21 ERP, those that sell in 7 or fewer months out of 12.  The reason for this is that no forecasting formula can consistently predict a usage pattern below 8 out of 12 months.

EOQ

EOQ stands for economic order quantity.  This method has been around for many years and is designed to achieve the lowest overall inventory cost, based on the carrying cost and ordering cost of an item.  There is a deep dive article on EOQ here if you want to understand all of the details of EOQ.

The key point in in Prophet 21 ERP is that EOQ is implemented as a spin-off of Up To.  The first set of calculations in EOQ are exactly the same as Up To, then the EOQ formula is applied to determine the quantity that provides the lowest overall cost.  This means that EOQ, like Up To, should only be used on items that sell in 8 out of 12 months.  The reasons are the same; forecasting formulas are not reliable if the item sells in fewer than 8 months out of the previous 12.

what is prophet 21 erp EOQ

EOQ Calculation

The second part of the decision to use EOQ should be based on your company’s inventory strategy being based on cash flow management versus lowest total cost.   For lowest total cost, which will drive you toward more inventory dollars in most cases, use EOQ.  The other use case is for items that have a very low unit cost.  In this case, you do not want to order them over and over again.

Min/Max

This is a static replenishment method.  What I mean is that there is no accounting for lead time, usage, or any other dynamic variables.  The calculation for Min/Max can be summed up as: “When the net available inventory drops below the Min, order enough to get back up to the Max.”

Since the usage of an item is almost always moving up or down over time, making extensive use of min/max for your items will require a lot of maintenance.  Having these factors set too low can lead to stock outs.  If the settings are too high, excess inventory will be a common occurrence.

The primary uses for a min/max in Prophet 21 ERP are as follows:

  1. You want to fix the inventory levels, regardless of actual usage. You may have a contractual obligation or something similar.
  2. The item is new, and you need to peg a starting inventory range until you get some usage history built up.
  3. The item is sporadic, and doesn’t sell often enough to warrant setting it to Up To.

Order Point/Order Quantity

This is another static replenishment method in Prophet 21 ERP, similar to Min/Max.  In this case, the calculation works as follows: “When the net available inventory falls to a certain level, purchase the Order Quantity”.  The use cases for OP/OQ are similar to those for Min/Max.  There also may be a use case for dealing with odd vendor minimum purchase quantities.  For consistency and ease of user comprehension, it is probably best to stick with either Min/Max or OP/OQ.  I would not recommend mixing the two methods too much.

Summary of Prophet 21 ERP Replenishment Methods

There are several choices when deciding on the right replenishment method for your item in Prophet 21 ERP.  The quick version is:

  1. Up To: Use for regular sellers (usage in 8 or more out of 12 months).  It’s based on lead time, review cycle, and safety stock.
  2. EOQ: Use for the same items as Up To, or for very low unit price items. The difference is that EOQ accounts for order and carry cost.  Use when you want lowest total cost of inventory.
  3. Min/Max: “When net inventory falls below the min, buy back up to the max”. Use for new or sporadic usage items.
  4. Order Point/Order Quantity: “When the net inventory falls below the Order Point, buy the Order Quantity.  Use for the same types of items as Min/Max, or if you have a strange vendor minimum order requirement.

Thanks for reading this article on Prophet 21 ERP replenishment methods.  For more P21 knowledge base articles, check out our main P21 page here.

Posted in Inventory Management, Prophet 21.