In today’s manufacturing landscape, accurately predicting demand for finished goods can be a challenging endeavor, especially when dealing with highly configurable products. When numerous components are interchangeable, the potential permutations of finished products can skyrocket, making it nearly impossible to forecast demand for each individual SKU. Traditional Material Requirements Planning (MRP) systems would require forecasting for every single product variation, which is both impractical and inefficient. Many forward-thinking solutions have introduced the concept of the "Planning BOM," allowing organizations to work with forecasts at a higher level within the production process. In this article, we will explore how Epicor Kinetic implements Planning BOMs and how integrating them with Epicor Smart Inventory Planning and Optimization (Smart IP&O) can help you stay ahead in managing complex demand scenarios.

Why Use a Planning BOM?

Traditionally, each finished product has a fixed Bill of Materials (BOM). If a company stocks these products and plans based on forecasted demand, the system forecasts demand for each product individually, feeding this information into MRP to allocate resources accordingly. However, in industries offering highly customizable products, the situation becomes more complicated. Consider purchasing a smartphone; you choose the brand and model, but then you’re presented with a variety of options—screen size, storage capacity, and color. To ensure these phones are available for timely shipment, a manufacturer must forecast demand for each combination of these variables. For some manufacturers, this can result in thousands of potential SKUs, making accurate forecasting a daunting task.

In cases where there are countless customization possibilities, demand at the finished product level may be too unpredictable to manage conventionally. Even if a particular model sells thousands of units annually, the demand for each specific combination of features might be minimal and sporadic. As a result, companies often resort to setting reorder points and safety stock levels primarily at the component level, reacting to firm demand at the finished good level through MRP. While this approach works, it lacks a systematic way to factor in anticipated trends, such as seasonal spikes, promotional events, or new project launches. Forecasting at the fully customized level is virtually impossible, and attempting to integrate forecast assumptions at the component level is equally impractical.

This is where Planning BOMs come into play. Let’s say a sales team is working on a significant B2B opportunity for a specific model, or there’s a planned promotion tied to a major holiday like Black Friday. While forecasting every single combination of features for every model is unrealistic, it’s entirely feasible—and beneficial—to forecast at the model level.

A Planning BOM can take a high-level forecast and distribute demand across its various components according to predetermined ratios. For instance, a smartphone manufacturer might find that most buyers opt for 128GB of storage, with fewer opting for upgrades to 256GB or 512GB. With a Planning BOM, the company could allocate 60% of the forecasted demand to the 128GB option, 30% to 256GB, and 10% to 512GB. The same logic could apply to screen sizes, colors, or other customizable features. By focusing the forecast at the model level, the Planning BOM determines the appropriate component mix, simplifying the forecasting process significantly.

Defining these ratios does require careful consideration, but Planning BOMs provide a powerful tool for addressing what would otherwise be unforecastable demand. This capability allows businesses to adapt their strategies dynamically and prepare for future opportunities.

The Significance of a Robust Forecast

Of course, having a solid forecast is crucial before feeding data into Epicor Kinetic. While Epicor Kinetic can import forecasts, it rarely generates them independently, and when it does, the process often involves complex configurations that aren’t frequently revisited, leading to inaccuracies. Therefore, businesses must develop their own forecasts, often manually created in spreadsheets. Manual forecasting comes with several challenges, such as:

• Inability to detect recurring patterns like seasonality or trends.
• Over-reliance on customer or sales forecasts.
• Lack of mechanisms to track accuracy or performance.

No matter how well-configured the MRP system is with Planning BOMs, a poor forecast results in unreliable MRP outputs and diminished trust in the system—garbage in, garbage out. Using the "smartphone company" analogy, if key demand patterns or domain expertise aren't systematically captured in the forecast, MRP will overlook them entirely.

 

Smart IP&O: A Comprehensive Solution

Smart IP&O offers comprehensive support for planning across all levels of your BOM structure, with MRP handling the "blowout" process within Epicor Kinetic. Here’s how we implement this solution for our Epicor Kinetic clients, ensuring simplicity and effectiveness:

• Smart Demand Planner: The platform includes a specialized forecasting application called Smart Demand Planner, which you’ll use to predict demand for your manufactured products (typically finished goods). It generates statistical forecasts, allows planners to adjust predictions, and integrates external forecasts (like sales or customer forecasts). It also tracks forecast accuracy. The output of this tool feeds directly into Epicor Kinetic’s forecast entry module, where MRP picks it up. MRP then uses demand at the finished good level and distributes it throughout the BOM, recognizing demand at lower levels as well.
• Smart Inventory Optimization: Concurrently, you’ll utilize Smart Inventory Optimization to establish minimum, maximum, and safety stock levels for any finished goods you produce for inventory (if applicable; some of our clients operate strictly on a made-to-order basis based on firm demand). At the raw material level, Smart leverages job usage demand, supplier lead times, and other factors to optimize these parameters. At the same time, it incorporates sales orders/shipments as demand indicators for finished goods. Smart gracefully handles multiple input sources of demand through its bidirectional integration with Epicor Kinetic.

When MRP runs, it balances supply and demand (including raw material demand derived from the finished good forecast) against the established min/max/safety levels, suggesting purchase order and job recommendations.

Enhancing Epicor Kinetic with Smart IP&O

Smart IP&O is designed to augment your Epicor Kinetic system with advanced demand planning and inventory optimization tools. For instance, it can automatically generate statistical forecasts for large numbers of items, facilitate intuitive forecast adjustments, monitor forecast accuracy, and ultimately enable the creation of consensus-based forecasts that better align with customer expectations.

With its highly flexible product hierarchies, Smart IP&O excels at forecasting at the Planning BOM level, allowing you to capture critical patterns and incorporate business knowledge where it matters most. Additionally, you can analyze and set optimal safety stock levels at any point in your BOM hierarchy.

By combining Epicor Kinetic’s Planning BOM capabilities with Smart IP&O’s advanced forecasting and inventory optimization features, you can meet demand more efficiently and accurately, regardless of the complexity of your product configurations. This synergy not only improves forecast accuracy but also boosts overall operational efficiency, helping you stay competitive in a rapidly evolving market.