Goldratt's Blog

Theory of Constraints Golden Nugget
#4 – Inventory target, Asymmetric time constants

(MTA; Production)

When experiencing a decline or increase of consumption for an SKU, the inventory target should be changed accordingly. But many times a change in consumption is merely a statistical fluctuation and not a trend, and therefore should not trigger an inventory target change. Trouble is, when experiencing a lower or higher consumption, we cannot foretell if it signifies a long term change that requires action (changing inventory target), or whether it is just a fluctuation.

We want to react quickly to real changes, but not to noise: If we react too fast, many noises will be treated as real changes, and we will cause undesirable oscillations in the system – frequent changes of the inventory target, back and forth. On the other hand, if the reaction will be delayed, the system will meanwhile suffer from either too high or too low inventory levels. Obviously, we need to decide on a suitable time constant for responding to change – determining for how long should the buffer stay red\green before we react by changing the inventory target.

Up to this point we… Click here to continue reading.

Watch Dr. Goldratt’s presentation on the TOC solution to adjust inventory levels according to systematic changes in the inventory consumption rate. The robust mechanism called Buffer Management ensures relatively low levels of inventory while having high availability. Specifics of the concept are described and explained in Goldratt’s TOC Golden Nugget #4.

Keeping correct inventory levels – Buffer Management Dr. Eliyahu M. Goldratt Related Info Share this video In this extract from the Goldratt’s Strategy and Tactics for MTS to MTA Goldratt presents and explains the concepts behind Buffer Management as the robust mechanism to adjust inventory targets, ensuring relatively low levels of inventory coupled with high availability. 17 min, English, Spanish