- Large production batches
- Long lead-times
- Large orders
- Large shipments
- Large inventories, especially near the point of consumption
Our agenda
- 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
Recommended reading
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.
- 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
Getting there
The new competition
- 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
Common UDEs in the supply chain
- Our inventories are too high!!!
- Our inventories are too low!!!
Dynamic
Buffer Management
for Inventory and the Supply Chain
What's your situation?
- 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?
Our
misdirected
thinking
Wow! We sure sold out of those items quickly!
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!
True costs of lost sales are unknowable
What about the cost of lost customers?
Marketing and selling costs increase in order to replace lost customers or retain existing customers in the wake of poor customer service.
Unknown costs are frequently ignored
A big fat ZERO!
- Almost always on your most popular items (models, styles, colors, etc.)
- Your most intentional customers are disappointed
Typical "push" supply chain
Costs of carrying inventory are NOT unknown
Financial incentives
- Sales managers chalk-up sales
- CFO get to "book" revenues
... even if end-user has not made a purchase!
But they are hard to calculate accurately
Supply chain leaders
Replenishment Frequency versus Cost of Replenishment
Wal-Mart
Best Buy
Others
Fewer out-of-stocks allow for dramatically increased sales and reductions in sales and marketing expenses
How?
- Reduced replenishment time
- Reduced inventories
- Fewer out-of-stocks
- Increased customer satisfaction
- Increased market share
- Lower marketing costs
- Reduced selling expense
Reduced replenishment time
The Lean Supply Chain
- 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)
Increased customer satisfaction
Inherent simplicity
Initial Buffer Size Calculations
Initial Buffer Size
=
ToC Replenishment Days
times
Average Daily Usage
times
Variability Factor
times
Paranoia Factor
Once initial buffer sizes are calculated and set...
Approximately right...
Not precisely wrong.
- 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"
40% increase in revenues
50% reduction in investment
Typical results from ToC implementations
Improve inventory turns by a factor of 2.8
Cooling-Off Period
Number of days to allow a buffer to stabilize after a change in the buffer size
Set priorities by
Buffer Penetration
"Pull" SDCs
- Seasons of the year
- Holidays
- Other events
"Push" SDCs
- Special promotions
- Price increases or decreases
- "Policies" (e.g., quarter-end, month-end)
Sudden Demand Changes (SDCs)