In today's dynamic manufacturing landscape, predicting finished goods demand can be a complex and challenging endeavor. The sheer number of potential finished products skyrockets when components are highly interchangeable. Traditional Material Requirements Planning (MRP) systems would require forecasting for each individual finished product, which can quickly become impractical or even unfeasible. Many leading solutions have introduced the concept of the "Planning Bill of Materials" (BOM), allowing for forecasts to be generated at a higher level within the manufacturing process. In this article, we will explore this functionality within Epicor Kinetic and how it can be leveraged with Epicor Smart Inventory Planning and Optimization (Smart IP&O) to enhance forecasting accuracy and streamline operations.

Why Do You Need a Planning BOM?

Traditionally, each finished product or SKU has been assigned a rigidly defined bill of materials. If you stock these products and aim to plan according to forecasted demand, you would typically forecast demand for each specific product and then push this forecast down through the BOM using MRP. However, many companies today offer highly customizable products where customers can select various options. Think about purchasing a smartphone. After selecting a brand and model, you might be presented with choices like screen size, storage capacity, and color. To ensure these phones are readily available for shipment, the company must forecast demand not just for the base model but for every possible combination of these options. For some manufacturers, this could result in hundreds or even thousands of potential finished product variations.

With so many customization possibilities, forecasting demand at the finished product level becomes nearly impossible. While thousands of phones may sell annually, demand for specific configurations might be extremely low and unpredictable, perhaps selling only once and never again. This often leads companies to rely on reorder points and safety stock levels at the component level, while reacting to firm demand at the finished good level through MRP. Although this approach works, it lacks a systematic way to incorporate anticipated trends, such as promotions or upcoming sales opportunities. Forecasting at the fully configured level is impractical, and integrating these assumptions at the component level is equally challenging.

This is where Planning BOMs come into play. Suppose the sales team is pursuing a significant B2B opportunity or there’s a planned promotion for a holiday event like Black Friday. While it’s unrealistic to factor in every possible configuration, doing so at the model level is entirely feasible and highly beneficial.

A Planning BOM uses a high-level forecast and distributes demand across its possible components based on predefined ratios. For instance, a smartphone manufacturer might know that most customers choose 128GB of storage, while fewer opt for 256GB or 512GB upgrades. With a Planning BOM, the organization could allocate 60% of the demand to the 128GB option, 30% to 256GB, and 10% to 512GB. Similarly, they could apply the same logic to screen sizes, colors, or other available customizations.

Now, the business can focus its forecasting efforts at the model level, letting the Planning BOM handle the component allocation. While determining these ratios requires careful consideration, Planning BOMs enable organizations to forecast what was previously unforecastable.

The Importance of Accurate Forecasts

Of course, generating a reliable forecast remains critical before loading data into Epicor Kinetic. As discussed in this article, Epicor Kinetic can import forecasts but often struggles to generate them independently. When it does attempt to generate forecasts, the configurations required tend to be cumbersome and infrequently updated, leading to inaccurate results. Consequently, it falls to businesses to develop their own forecasts, often manually created in Excel. Manually forecasting poses several challenges, including:

• Inability to detect demand patterns like seasonality or trends.
• Over-reliance on customer or sales forecasts.
• Lack of accuracy and performance tracking.

No matter how well-configured your MRP is with Planning BOMs, poor forecasts result in suboptimal MRP outputs and loss of trust in the system—"garbage in, garbage out." Returning to the smartphone example, without a systematic method to capture key demand patterns or integrate domain expertise into the forecast, MRP will fail to recognize these insights.

Smart IP&O: A Comprehensive Solution

Smart IP&O supports planning across all levels of your BOM, with the "blowing out" process managed by MRP within Epicor Kinetic. Here's how we implement this solution for our Epicor Kinetic clients, which is both straightforward and effective:

• Smart Demand Planner: The platform includes a dedicated forecasting tool called Smart Demand Planner, which you'll use to forecast demand for your manufactured products (typically finished goods). It generates statistical forecasts, allows planners to adjust them, and integrates external forecasts like sales or customer projections. The resulting forecast is then entered into Epicor Kinetic, where MRP picks it up. MRP uses the demand at the finished good level and propagates it down through the BOM, recognizing demand at lower levels as well.
• Smart Inventory Optimization: Simultaneously, you can use Smart Inventory Optimization to set minimum, maximum, and safety stock levels for both finished goods (if applicable; some of our clients operate purely on a make-to-order basis) and raw materials. At the raw material level, Smart leverages job usage demand, supplier lead times, and other factors to optimize these parameters, while at the same time incorporating sales orders/shipments as demand at the finished good level. Smart handles these diverse inputs seamlessly through its two-way integration with Epicor Kinetic.

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

Enhancing Epicor Kinetic with Smart IP&O

Smart IP&O is designed to extend your Epicor Kinetic system with integrated demand planning and inventory optimization solutions. For instance, it can automatically generate statistical forecasts for large numbers of items, allow intuitive forecast adjustments, track forecast accuracy, and ultimately produce consensus-based forecasts to better align with customer needs.

Thanks to its flexible product hierarchies, Smart IP&O excels at forecasting at the Planning BOM level, enabling businesses to capture critical patterns and integrate expert knowledge where it matters most. Additionally, you can analyze and deploy optimal safety stock levels at any level of your BOM.

Combining Epicor Kinetic's Planning BOM capabilities with Smart IP&O's advanced forecasting and inventory optimization features ensures you can meet demand efficiently and accurately, regardless of the complexity of your product configurations. This synergy improves forecast accuracy and strengthens overall operational efficiency, helping you stay competitive in today's fast-paced market.