On the app, navigate to the left pane of your screen. Select the drop-down on Settings, and then select Policy Defaults.

On this screen, you will be able to set the RC and target fill rate for each bucket on the classification matrix. Think about the effects certain categories have on your working capital, admin requirements and space in the warehouse and you can set your replenishment cycle and target fill % accordingly.

Let’s look at the CH and AH categories in a bit more detail to take us through the thought process behind setting up these policies.

Expanding the data on the main Classification screen (via clicking the arrows on the matrix) reveals the below information. Turn your focus to the Demand row. This indicates that the average monthly demand is $11.6k for items in this bucket.

The current policy settings is RC: 90 days and target fill rate: 98%. If our planning resources are scarce and we would like to save the planners time wherever possible, we might want to order 120 days worth of stock and not 90 days, but we would first have to consider the financial impact of it. These items are items like chewing gum and straws, they are inexpensive and they move fast. Therefore, increasing our RC will mean bringing in $46.4k worth of stock every time an order is placed (instead of the 90 day RC where $34.8k worth of stock was ordered). It’s unlikely anyone will raise an eyebrow at that change in policy. Since the items in this bucket are quite cheap and customers expect to see it in store, we would also like to change the target fill rate from 98% to 99%. As you know, increasing the target fill rate will increase the required safety stock level. But again, these items are cheap so an increase in the safety stock level will not make a large financial impact with this bucket of items.

Let’s now expand the data for the AH bucket. The Demand row reveals an average monthly demand of $1.5m.

Our current RC is at 21 days and our target fill rate is set to 97%. If we were to apply the same thinking, to order 120 days worth of stock instead of 21 days, we would then be ordering $6m worth of inventory each time an order was placed. In this case, increasing our RC may not be a possible option because it is far too expensive. In fact, we may even want to reduce our RC from 21 days to 7 days for this expensive category. Ordering 7 days worth of stock in this category is a much better level of stock to carry to match our working capital (stock holding) targets. On that note, we might still need to save some money by reducing our safety stock level. We can do this by reducing our target fill rate on the AH bucket from 97% to 95%, which will in turn reduce our safety stock level.

There may be items that do not fit the mould of any of these categories. In that case, you can single them out and use “Policy overrides” to specify your preferred policy for those items.. Of course, that should be done by exception only. This might be for an AH item where the current policy is set to RC: 7 days and target fill rate: 95%. The item might be your “bread-an-butter” item and you want to ensure you always satisfy the customer orders, no matter the financial impact on safety stock. In that case, you may choose to set the RC to 21 days and the target fill rate to 99%. You cannot change the default setting to the entire AH category or that will have a great financial impact. Instead, you can change the policy for just that item by using Policy Overrides.

On the app, navigate to the left pane of your screen. Select the drop-down on Settings, and then select Policy Overrides. Refer to article Policy Overrides: What are they and how to use them? for more information on this.

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