VRO loop calculation

Definition of a VRO loop is simple but its calculation can be a nightmare because all the required information are usually scattered in different information systems:

• Enterprise Resource Planning
• Transportation Management System

but also in simple files (generally spreadsheets):

• Consumption Profile
• Receiving times
• Production constraints
• ...

So it is sometimes necessary to use simplified calculation methods. Your choice has to be based on the production environment and data available.

The VRO loop is calculated based on:

• Gross Demand during the period covering the ordering cycle;
• Ordering and Deliveries Schedules during this period;
• Delivery Safety Time (DST);
• Procurement and Production constraints (Minimum Order Quantity, packaging size, batch size).

The period covering the VRO ordering cycle:

• starts at the beginning of the count;
• runs till the delivery of the order associated to this count;
• continues until the following scheduled delivery;
• then ends after adding the Delivery Safety Time (DST).

The VRO Loop is the maximum quantity between:

• the cumulated gross Demand during this period;
• the minimum quantity to order (MOQ), it could be the packaging quantity;
• the minimum quantity to be consummed during a production using this component (if this production does not last more than the time between 2 deliveries). This quantity can be linked to production or scheduling constrainsts (batch size, customer orders...).

This value can be eventually increased by the Demand Safety Stock (DSS) and then, it has to be rounded-up to the next multiple quantity to order (quantity of the standard packaging for example).

In the VRO loop we use the Delivery Safety Time and not the whole value of the Transportation Safety Time. Indeed, if our Transportation Safety Time is only based on a Safety Transit Time, the truck will be always on time: no need to be protected for a truck delay.

As you can see, the VRO loop calculation is based on MRP principles. But its calculation uses dates and eventually hours, not time buckets like MRP. This point gives to the ordered quantity a more relevant value.

VRO loop calculation depends on the component environment planning:

• In Make To Stock (MTS), MPS plans end items then MRP calculates components gross demand. This output will be used to calculate the loop. The loop calculation will be performed at the same frequency as the MPS / MRP processes for all ordering occurences happening till the next MPS run.
• In Make To Order (MTP) or Assemble To Order (ATO), it depends on the situation of the component in the process. If it is part of the Final Assembly Schedule (FAS), gross demand is directly related to customer orders. The calculation of the loop should be made ​​based on forecasts consumed by the FAS or directly based on requirements of firm customer orders. This last mode is called Dynamic VRO. In this environment, the loop is calculated just before the ordering time. If the component is used outside the FAS, it is managed by the MPS. The loop is then calculated based on MRP gross demand.

In all cases, the loop VRO is based on the gross demand and not net demand because the VRO formula takes already in account the inventory.

This is the daily demand, the count and delivery schedules of a part number. To simplify, counts and deliveries occur at the beginning of a period.

We have the following constraints:

• Delivery Safety Time = 1 day
• Minimum Order Quantity = 40 pieces
• Packaging quantity = 20 pieces
• Batch size = 300 pieces

To calculate the loop of the order sent the first Monday, we have to cumulate the demand from the first Monday to the second Monday included (the next delivery arrives at the beginning of Tuesday):

100+80+110+90+20+50+0+90 = 540

Then, we have to add the demand during the Delivery Safety Time (DST). The demand to be considered follows the delivery: it is the demand of the second Tuesday.

Total demand to be considered in the ordering cycle: 540 + 120 = 660

Now we have to take the maximum between this value, the MOQ, the packaging quantity and the batch size:

Monday order loop = Max(660;40;20;300) = 660

To calculate the loop of the order sent the first Wednesday, we have to cumulate the demand from the first Wednesday to the second Thursday included:

110+90+20+50+0+90+120+100+50 = 630

Like in the previous example we have to add the DST, demand of the second Friday: 80.

Total demand to be considered in the ordering cycle: 630 + 80 = 710

Now we have to take the maximum between this value, the MOQ, the packaging quantity and the batch size:

Wednesday order loop = Max(710;40;20;300) = 710

3 parameters have major impacts on the loop:

1. - Demand
With VRO, Demand has to be arbitrated for the period covered by the loop. Arbitration can be done at the same frequency than the ordering schedule.
The consequence is an easy arbitration (because it is short term oriented) and sometimes at a frequency higher than MPS arbitration (so, more accurate). The learning curve is obviously faster and the operation simple, based on tangible facts. Uncertainties can be reduced or even eliminated.

2. - Transportation
Transportation is a major part of the loop. For each transportation route and part number, a Delivery Safety Time has to be defined in order to protect the Production Schedule from transportation delays.

3. - Procurement/Production constraints
The Loop has to be increased if upstream or downstream processes need more material than the loop to be triggered. We have mentionned: batch sizes, packaging quantities but the Production cycle time may be also a factor which can modify the demand.

VRO sizing

Visual ReOrder sizing is based on gross demand, flows description and manufacturing constraints.

MIHI calculation

The calculation of MIHI helps to design a storage layout consistent with the demand and the VRO process.

Transportation Safety Time

Transportation Safety Time (TST) has to be known to insure a good sizing of the VRO loop.

No safety stock with VRO!

Inventory strategy has to be completlely reconsidered with VRO. Indeed your safety stocks have became useless with this system!

Loop optimization

Loops value can be optimized for some specific cases

VRO loop calculation tool

A simple worksheet to centralize all your Pick-Up Orders, maintain their loops and calculate Maximum In-House Inventory based on MPS data.

Multi-sourcing with VRO

You order the same part number to 2 suppliers and you have to respect procurement quotas for each of them.