15
Jun
2010
Theory of Constraints Golden Nugget
#9 – Color Psychology
(Supply Chain)
A company that had started Viable Vision implementation about a year ago had made satisfactory progress. Nevertheless, there was a point that troubled them as well as us: the level of inventory in their regional warehouses did not significantly decrease. It was months after the establishment of a central warehouse, coupled with the activation of daily replenishment according to actual consumption throughout the supply chain. Thanks to having a good level of availability at the central warehouse (99%), the replenishment time to the regional warehouses was cut to a mere fraction of what it originally was. Setting the inventory targets in the regional warehouse in accordance with the shortened replenishment time should have reduced the original high inventory levels there to less than half, even when taking into consideration the additional inventory that was needed for raising the DDP of the regional warehouses from the original performance – below 50% – to the current delightful level of 99%. More than enough time had passed to enable the mountains of excess inventory to be flushed out. So, how come the inventories in the regional warehouses were lowered by just 10%?… Click here to continue reading.
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8
Feb
2010
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. | ||||
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