In today’s dynamic manufacturing landscape, accurately forecasting finished goods can pose a significant challenge. When numerous components are interchangeable, the number of potential finished products skyrockets, making it difficult to manage. A conventional Material Requirements Planning (MRP) system would necessitate forecasting for every single finished product, which is often impractical or unfeasible. Many modern solutions have introduced the concept of "Planning BOMs," allowing businesses to utilize forecasts at a higher level within the production process. In this article, we’ll explore this functionality within Epicor Kinetic and explain how leveraging it with Epicor Smart Inventory Planning and Optimization (Smart IP&O) can help you stay ahead of demand, even in complex environments.

Why Do You Need a Planning BOM?

Traditionally, each finished product or SKU had a rigidly defined Bill of Materials (BOM). If a company stocks these products and plans production based on forecasted demand, they would forecast demand for each product individually and pass this information down to its components via the BOM.

However, many companies offer highly customizable products where customers can choose various options. For instance, think about purchasing a smartphone. You might choose a brand and model, but then you’re often given options: what screen size do you prefer? How much storage capacity do you need? What color do you want? For a business aiming to keep these phones readily available, they aren’t just predicting demand for the model—they must also predict demand for every screen size, storage capacity, and color combination. For some manufacturers, these options can result in hundreds or even thousands of potential finished product permutations.

With so many possible configurations, forecasting demand at the finished product level becomes nearly impossible. Even if thousands of units sell annually, demand for each specific configuration may be very low and unpredictable—some combinations might sell once and never again.

This often leads companies to rely heavily on reorder points and safety stock levels at the component level, while reacting to firm demand at the finished good level via MRP. Although this approach works, it lacks a systematic way to incorporate forecasts that could account for anticipated activities like promotions, upcoming projects, or sales opportunities. Forecasting at the configured level is practically impossible, and trying to weave in these assumptions at the component level isn’t practical either.

This is where Planning BOMs come into play. Suppose the sales team is pursuing a major B2B opportunity for a particular model, or there's a planned promotion for Black Friday. While factoring in these assumptions for every single configuration isn't realistic, doing so at the model level is entirely feasible—and highly beneficial.

A Planning BOM can use a forecast at a higher level and allocate demand proportionally across its potential components. For instance, a smartphone manufacturer might realize that most buyers opt for 128GB of storage, while fewer choose upgrades to 256GB or 512GB. With a Planning BOM, the organization can allocate 60% of the demand to the 128GB option, 30% to the 256GB option, and 10% to the 512GB option. The same logic can apply to screen sizes, colors, or other customizable features.

By focusing their forecast efforts at the model level, businesses allow the Planning BOM to determine the component mix. Defining these proportions requires careful consideration, but Planning BOMs essentially enable businesses to forecast what would otherwise be unforecastable.

The Importance of a Solid Forecast

Of course, having a reliable forecast is crucial before loading it into Epicor Kinetic. As discussed in this article, Epicor Kinetic can import forecasts, but it rarely generates them on its own. When it does, it often demands intricate configurations that are rarely revisited, resulting in inaccurate forecasts. Therefore, it falls to the business to create its own forecasts, often manually crafted in Excel. Manually creating forecasts typically presents several challenges, including:

• The inability to identify recurring patterns like seasonality or trends.
• An over-reliance on customer or sales forecasts.
• Lack of accuracy and performance tracking.

No matter how well-configured the MRP system is with your thoughtful Planning BOMs, a poor forecast will yield subpar MRP outputs and erode trust in the system—garbage in, garbage out. Using the "smartphone company" analogy, without a systematic way to capture key demand patterns and domain expertise in the forecast, MRP can never recognize these factors.

Smart IP&O: A Comprehensive Solution

Smart IP&O supports planning across all levels of your BOM, with the "blowing out" process handled by MRP within Epicor Kinetic. Here's the method we employ 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 that you'll use to forecast demand for your manufactured products (typically finished goods). It generates statistical forecasts, enables planners to adjust forecasts or incorporate other projections (like sales or customer forecasts), and tracks accuracy. The output is a forecast that gets entered into Epicor Kinetic's forecast module, where MRP picks it up. MRP then uses demand at the finished good level and allocates it through the BOM, recognizing demand at lower levels as well.
• Smart Inventory Optimization: Simultaneously, you use Smart Inventory Optimization to set minimum, maximum, and safety stock levels for both finished goods (if applicable; some of our clients operate purely make-to-order based on firm demand) and raw materials. The key here is that at the raw material level, Smart leverages job usage demand, supplier lead times, etc., to optimize these parameters, while also using sales orders/shipments as demand at the finished good level. Smart elegantly manages these multiple inputs via the bidirectional integration with Epicor Kinetic.

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

Enhancing Epicor Kinetic with Smart IP&O

Smart IP&O is designed to enhance your Epicor Kinetic system with comprehensive demand planning and inventory optimization solutions. For example, it can automatically generate statistical forecasts for large numbers of items, facilitate intuitive forecast adjustments, track forecast accuracy, and ultimately help you create consensus-based forecasts to better anticipate customer needs.

Thanks to its highly flexible product hierarchies, Smart IP&O is perfectly suited for forecasting at the Planning BOM level, enabling you to capture key patterns and incorporate business knowledge at the most relevant levels. Additionally, you can analyze and deploy optimal safety stock levels at any level of your BOM.

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