Infor LN & Baan Tips & Tricks for OPERATIONS: What is Statistical Inventory Control (SIC) and How Does It Work?
Statistical Inventory Control (SIC) is an inventory-controlled order system designed to maintain stock levels based on predefined thresholds, rather than being demand-driven like EP (Enterprise Planning). Since SIC relies on inventory levels, it may lead to higher stock levels. To minimize financial risks, SIC is best suited for:
- Low-cost items.
- Items with predictable demand or short lead times.
Applications of SIC
- Low-Cost Items: Particularly effective for inexpensive goods.
- Predictable Demand or Short Lead Time: Suitable when demand patterns are stable or lead times are minimal.
- Warehouse-Specific Planning: Useful for planning by warehouse rather than across the supply chain.
- Trading Industries: Commonly employed in sectors like supermarkets.
- Immediate Demands: Effective for items required immediately by customers.
- Ease of Use: Simple to implement and manage.
Limitations of SIC
- Does not account for dependent demand from planned orders (e.g., MPS/MRP/INV).
- Does not generate distribution orders.
- Ignores time-phased planned orders.
- Lacks forecast consumption techniques.
- Uses both nettable and non-nettable warehouses.
How SIC Works
SIC operates based on the Reorder Point, Stock Levels, and Order Method.
Triggering SIC
When Economic Stocks (calculated as On-Hand Inventory + On-Order – Allocated Stocks) on the Horizon Date fall below the Reorder Point, SIC triggers the creation of:
- Planned Purchase Advice.
- Planned Production Advice.
Order Methods in SIC
The quantity for these advices is determined by the Order Method, which can be one of the following:
- Replenish to Maximum Stock
- Fixed Order Quantity
- Economic Order Quantity (EOQ)
- Lot-for-Lot
Example: SIC in a Supermarket
Scenario: Managing stock for Ice Cream (1 Kg Pack)
- Current Stock: 10 PCs
- Reorder Point: 5 PCs
- Safety Stock: 2 PCs
- Lead Time: 1 Day
- Order Method: Replenish to Maximum (Maximum Stock: 20 PCs)
- Maximum Anticipated Consumption: 3 PCs/Day
Process:
- Customer purchases reduce the stock.
- When stock reaches 5 PCs, SIC is triggered.
- A Purchase Advice is generated for 15 PCs to replenish stock to the maximum level (20 PCs).
- During the lead time (1 day), the remaining 3 PCs (excluding Safety Stock) meet customer demands.
- In emergencies, Safety Stock can also be utilized.
Statistical Inventory Control offers a practical approach for managing inventory levels, particularly in industries with predictable demand or fast-moving items. However, its limitations make it less ideal for complex or time-phased planning scenarios.