Theory of Constraints Handbook - James Cox Iii [190]
In order to manage such an item in MTA, there is a need to hold a very large target level and in a substantial amount of the time the on-hand would be in green, which also means that DBM should not handle very well such an item. While the clients might wish to include such items for immediate availability any time they need it, the characteristics of the item are such that everybody else would have difficulty to make it available at all times. Thus, if a relatively short response is offered to the clients they would, most of the time, accept it.
The same is also true for managing common components to availability; the criterion depends on the shape of the consumption curve and the size of the spread.
FIGURE 10-3 Sporadic demand that should be better managed as MTO.
Chapter 11 is dedicated to the way TOC handles distribution, Amir Schragenheim offers a way to consider the return on investment (ROI) in carrying stock of an item. When applied to manufacturing, the same parameters still apply, and the spread of consumption is reflected in the target level necessary to maintain availability. This is a somewhat more detailed approach for consideration.
Vendor-Managed Inventory (VMI)
The whole point of MTA is to offer new business opportunities due to the extra value given to the clients, which competitors would find hard to imitate. A more particular opportunity is to ask a relatively large business client to take responsibility for the level of stock of the manufacturer’s items, at the client site. This kind of business relationship is known as vendor-management inventory (VMI).14
VMI is not the invention of TOC. It is well known because some ultra-large organizations force it on their small- to medium-size vendors. Thus, it is justifiably a win–lose kind of relationship. The vendor has to comply with whatever the big guy tells him to.
Understanding how to run MTA effectively raises the business opportunity where a vendor could offer to a client a desirable alternative that is typically forced on clients. We won’t detail here the business relationship and how such a deal could be win-win for both the vendor and the client. From the logistical part, we need to make the distinction between standard items that are sold to many clients and items that are dedicated to the particular client for whom the offer is given.
Items that are sold to many clients should be managed according to MTA up to the plant warehouse, and thereafter by the distribution solution.
When the items are dedicated to one client for whom VMI is already in place, then there is no point in maintaining stock of these items at the plant warehouse. It could be the case that between the production and the actual shipment there is a practical need to store the items for a day or two. However, the real storage and the focus of BM should be on the client’s site.
The replenishment time for VMI should include the transportation time. The characteristics of the transportation could be important because it is difficult to expedite a shipment once it has been sent. VMI is much more effective when the transportation time is much shorter than the manufacturing time. This seems to be true in the majority of cases.
Mixed (MTA and MTO) Environments
As it was already mentioned, not all items should be managed to availability, with the alternative of offering short delivery time to selected items (as MTO). It is clear that in many cases a mixed environment is advised.
There could be two different meanings to the term mixed environments of MTA and MTO. The first is that there are items that are strictly produced to availability and others that are strictly produced to order. The other possible meaning is that several items have demand both for immediate delivery and (usually for large quantities) for future delivery at specific dates.
The generic problem is how to manage an environment with two different types of buffers: time and stock. There are several sophisticated ways to do it, but we want the simple