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Dynamic Buffer Management (DBM) for Inventory and the Supply Chain

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Richard Cushing

on 16 August 2012

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Transcript of Dynamic Buffer Management (DBM) for Inventory and the Supply Chain

Buffer Management
for Inventory and the Supply Chain Getting there Not between products
Not even enterprises
The new competition is between supply chains and their demonstrated abilities to serve (or fail to serve) their customers

Our view of success should begin internally but extend to our supply chain Low inventory turn-over rates?
Too much money tied up in inventory?
Stock-outs leading to lost sales? lost customer?
Excess inventories on other items--leading to obsolescence and other write-downs?
Diminished profits as liquidations cannibalize markets for new products?
Lack of responsiveness to markets and customers? The new competition Common UDEs in the supply chain What's your situation? Our
thinking Too bad! I'll bet we lost
600 sales and a dozen
customers because we
were out-of-stock on
more than a dozen
big-sellers last month! Wow! We sure sold out of those items quickly! Almost always on your most popular items (models, styles, colors, etc.)
Your most intentional customers are disappointed True costs of lost sales are unknowable Marketing and selling costs increase in order to replace lost customers or retain existing customers in the wake of poor customer service. What about the cost of lost customers? A big fat ZERO! Unknown costs are frequently ignored But they are hard to calculate accurately Costs of carrying inventory are NOT unknown Large production batches
Long lead-times
Large orders
Large shipments
Large inventories, especially near the point of consumption Typical "push" supply chain Sales managers chalk-up sales

CFO get to "book" revenues

... even if end-user has not made a purchase! Financial incentives Wal-Mart

Best Buy

Others Supply chain leaders Replenishment Frequency versus Cost of Replenishment Fewer out-of-stocks allow for dramatically increased sales and reductions in sales and marketing expenses Reduced replenishment time
Reduced inventories
Fewer out-of-stocks
Increased customer satisfaction
Increased market share
Lower marketing costs
Reduced selling expense How? Start with the customer
Deliver based on real demand at the consumer level
Produce what is sold
Supply what is consumed
Balance the flow (not capacity) The Lean Supply Chain Reduced replenishment time Reduced inventories Fewer out-of-stocks Increased customer satisfaction Increased market share Initial Buffer Size
ToC Replenishment Days
Average Daily Usage
Variability Factor
Paranoia Factor Initial Buffer Size Calculations Our inventories are too low!!! Our inventories are too high!!! Too Much RED
(TMR) Too Much Green
(TMG) Number of days to allow a buffer to stabilize after a change in the buffer size Cooling-Off Period Sudden Demand Changes (SDCs) "Push" SDCs
Special promotions
Price increases or decreases
"Policies" (e.g., quarter-end, month-end) "Pull" SDCs
Seasons of the year
Other events 40% increase in revenues Typical results from ToC implementations 50% reduction in investment Improve inventory turns by a factor of 2.8 Develop "systems thinking" skills
Adopt a Throughput world perspective
Begin designing products and processes with a view to fulfilling customer needs
Build a competitive operations strategy
Form strategic partnerships
Streamline your value stream
Focus on synchronizing the flow throughout your supply chain How to... Goldratt, E.M. 2009. The Choice. Great Barrington, MA: North River Press.
Schragenheim, E., Dettmer, H.W., and Patterson, J.W. 2009. Supply Chain Management at Warp Speed. Boca Raton, FL: CRC Press.
Schragenheim, A. 2010. "Supply Chain Management". In J.F. Cox III and J.G. Schleier Jr., Theory of Constraints Handbook. McGraw-Hill. Recommended reading Sold Out! Inherent simplicity Approximately right...
Not precisely wrong. The present state of inventory and supply chain management today (focus on SMEs)
What's holding SMEs back?
Traditional (APICS) view of inventory quantities
"Buffers" and how they work
Key performance metrics applied
Getting started with DBM Our agenda Replenishment frequency should be made as short as possible
Replenishment orders should be placed regularly--even if shipments are on a different schedule
Replenishment should be calculated in the same mode as "Max Stock Level" Once initial buffer sizes are calculated and set... Set priorities by
Buffer Penetration
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