IBM MRO Inventory Optimisation - 'E R0' Exception for slow moving items

Resolving The Problem

This error comes up in two scenarios.  The first being a divide by 0 error. That is usually a result of the holding cost being set to 0%. As the holding cost is in the divisor of the calculation to determine the optimal order quantity, if this value is 0 we get the E R0 error occurring.   

User needs to check holding cost value.

The next and most common scenario is when there is a calculation issue with slow moving items due to the interaction of two values the Mean Time Between Demands (MTBD) and the lead time.

The MTBD is a calculation to determine the expected mean time between demands in years. It is based on the issue size and total usage of the months of data we have in history (up to 5 years).  It is affected by such things as the issue size and total usage of the historical data. If the MTBD is low, in this case less than 0.25, we are suggesting that there is a demand at least every quarter. This is not what user would typically expect with a slow moving item that would use MTBD as a forecasting method. This might indicate an issue with the data be it only a few months of data, high usage but in small lots, a change in usage pattern and so on.  

The MTBD is then used along with the lead time in calculating the probability of needing 0, 1 or 2. If the sum of these 3 probabilities is less than 95%, then the calculation fails. This is so we can say with confidence the answer given is within a 95% confidence interval of being correct.

Thus, the issue is reduced to:  If (Total Lead time / MTBD) is greater than 295, we get the error of ‘E’ and ‘RO’.   

If this error occurs, we can do one, or more of 3 things to correct it:

1. Lower the lead time,
2. Raise the MTBD
3. Change the usage periods to reflect the slow moving time for the item