At Optiply, we strive to fully automate the purchasing process. If 100% of automation is not possible, we aim to get as close as possible. Before we can reach this automation goal, Optiply must be set up properly. We need all data to be correct, settings to be reachable and processes to be clear. Engagement is our way to reach this goal. This article will explain the basics.
Goal
Engagement is measured via three parameters:
Purchase Automation:
How well is purchase advice followed? The percentage of unedited quantities per purchase order line.
On Time Purchasing:
How well is the agenda being followed? Are purchase orders actually placed when they should be placed according to Optiply?
Percentage of purchase order lines placed through Optiply:
What percentage of buy order lines is placed through Optiply? For all these parameters, we strive for a percentage between 90% and 100%. If these numbers are reached, you can trust that all settings and goals are set properly to reach the main goal: Automated purchasing.
How to recognise adjustments
As a customer, you notice that you often change purchasing quantities. This can be for certain products only, on the supplier level, or even in general. You have the feeling that Optiply advises quantities that are way too high or too low, and you do not trust Optiply to always be correct. There is a very big chance that Optiply misses data or is set up incorrectly.
How to reach full engagement
If one of the three described engagement parameters is not between 90% and 100%, there is often something ‘wrong’ or not set up properly. Optiply is a data-driven purchasing tool where data and settings are very important. These topics need to be reviewed periodically, since they are not static. Common issues are as follows:
Optiply generates purchase advice over a cycle to reach a desired service level per category. If the desired service level is not reachable due to, e.g. cashflow issues, purchase advice might be too high. It is important to keep track of your desired service levels and see if they still fit your current way of doing business.
Check if your goal: Revenue/ Margin/ Sell Order Lines is still applicable. If your goal is Margin or Revenue, make sure that prices (purchase or sales price) are correct.
It is important that the category sizes are relevant. The default setting is A/X: 75%, B/Y: 20% and C/Z: 5%. If you choose different category sizes, be aware of the reason why that change is made.
If you grow your assortment, only an ABC classification might not be sufficient. Applying the XYZ functionality gives you more control over your assortment by changing the number of service level categories from three to nine categories. This greatly increases inventory control and ensures a clean and healthy distribution of your inventory.
As explained earlier, Optiply generates a purchase advice over a cycle to reach a desired service level. For that reason, it is very important that the cycle is correct. An incorrect cycle will cause under- or overstock. The cycle consists of two values: the Reorder Period and the Lead Time.
The Reorder Period is chosen by the customer and will determine the frequency of purchasing orders in the agenda. It does not matter what period you choose, as long as you strictly follow the agenda. Purchasing too late can result in stockouts, so make sure that this period is chosen in a workable manner.
The Lead time is the interval between placing a purchase order and having the product back in stock and ready for sale. We often say from click to click and not just the delivery time, i.e. your inbound is also included in the lead time. At Optiply, we measure the average lead time to help customers keep track of the supplier's performance. There are three parameters that play a role: the customer set lead time, the average lead time and the lead time deviation. We use the customer set lead time in the cycle for the purchase advice. The average lead time can be used to adjust the customer set lead time. The average lead time is calculated on the purchase order line level and weighted over time, so more recent orders have a larger effect than older orders. The lead time deviation is used in the safety stock buffer; as a customer, there is no need to do anything with this. Please check your set lead time on a frequent basis and make sure it matches the Optiply calculated average lead time. Please also note that Optiply does not know if there were certain random issues at your supplier or if there is some other reason why the average lead time might differ. Always check the average lead time before adjusting your set lead time!
Missing data:
There are two important parameters that are often forgotten or not set: the MOQ and the Lot Size. If a product has either one or both of these constraints, make sure that Optiply knows this; it will save a lot of unnecessary adjustments. In the help site, you can check if we map these data fields from your source system. If this is not the case, it can be kept in Optiply via imports.
MOQ: Minimum Order Quantity. This is a constraint set by a supplier where there is a minimum order quantity.
Lot Size: Purchase in quantities of a certain lot/per box.
Optiply uses a product status called “phased out”. This status can be given to products where inventory driven purchasing is not desired, but where order driven purchasing is needed. Phasing out means: replenish to zero, so only on a backorder basis.
The algorithm setting, Yearly Seasonality, is often forgotten. Please check this setting and see if it is applicable to your assortment. The closer the value is to 0, the more Optiply checks recent sales data; the closer the value is to 1, the more Optiply checks seasonal patterns. The default setting is 0,4.
If you have irregular promotions, so outside of i.e. Christmas or Black Friday, the Promotion function offers a great way to fine tune the algorithm. The Promotion function ensures that more is purchased due to a future promotion, and it filters out excessive sales data when there was a promotion in the past.
Additional Workflows
If all settings are correct, Optiply can assist in developing specific workflows or business rules to further automate the purchasing process. Please contact our team to get in touch about workflows to see what can be done.