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is longer than the formal replenishment time. If that situation extends for a long time, there is real risk of losing control of the availability commitment. The suggested behavior of prioritizing the release leads to a dynamic batching mechanism, where at off-peak the batches are naturally small (equal to daily sales) while at peak periods larger batches are used because of delaying the release of certain replenishment requests. This provides a little relief to capacity. In the short-term, this institutes the right priorities for the system in a way that saves setups on the CCR.10 We still need to examine the longer-term impact of monitoring the level of capacity and taking the right measures on time because enlarging the batches has only limited impact on the capacity and it could be that a true need to increase capacity is emerging.

Monitoring the Target Level Size—Dynamic Buffer Management

While the immediate process of fast replenishment of sales and following the right priorities in the shop floor have been covered, the next step is getting the right feedback to the planning stage. The most obvious planning decision is the determination of the target levels. The first initial estimation might not be adequate or changes in either the demand or the supply may have made a certain target level no longer adequate. What should the signals be that a specific target level is too high or too low? It certainly must be shown in the behavior of the on-hand stock. The algorithms for recommending changing the target levels are based on certain behavior patterns of the finished-goods stock and are called Dynamic Buffer Management (DBM).

Too Much Green—the Target Is Too High

When we hold target levels of several items too high, there are obvious negative effects. The direct financial implications and the risk of losing on investment are probably not too prominent assuming the initial determination of the level is not vastly wrong. However, holding too high inventory means we replenish when there is no real need. Therefore, it has a direct capacity impact that at off-peak time might not be problematic, but at peak times could be critical.

The most obvious signal that a buffer is too large is that it is too often and too long “in the green zone.” Stock buffers are not supposed to be in the green for too long. It means that the relationship between supply and demand does not call for such a large buffer. We call the situation “too much green”—a signal that the buffer target is too high.

Let’s define a parameter called the “green check period” that whenever an item spends time continuously in the green it is recommended that the target level be decreased. The recommended default time for the green check period is twice the replenishment time. The point is to be reasonably conservative. It is not desired to reduce the buffer (the target level) and after a short time to increase it again. Frequently, holding a little too much inventory is preferred to holding too little.

Once the target level is reduced, it is natural for the current on-hand stock to be above the new target level. No checking and definitely no decision on further reduction of the target should be considered when the current on-hand stock is above the top of the green, which is equal to the target level.

Once it is decided to reduce the buffer, the next obvious question is by how much? Goldratt suggests (Strategy and Tactic tree MTS to MTA 2008, entry 5.112.1) to reduce the target level by 33 percent. The topic of by how much to increase or decrease buffers and when to refrain from doing so is a worthy topic for discussion. We’ll deal with it later in this chapter.

Too Much Red—the Target Is Too Low

“Too much green” is the signal that the buffer target is too high, and too much red points to a buffer target that is too low. That said, we would like to be a little more precise about increasing the buffer. Spending a lot of time near the top of the red looks bad, but may not be bad enough to propose increasing the buffer. In addition, it could