Theory of Constraints Handbook - James Cox Iii [201]
Production lead time—Simplified Drum-Buffer-Rope14 should be implemented and the priority of the manufactured parts should be tied to the actual buffer stock level at the PWH (this topic is discussed later). The PWH inventory buffer decouples production from distribution. S-DBR significantly reduces production lead time because of Buffer Management (BM) and the use of stock buffers on the shop floor to respond rapidly to the next demands not covered by finished stock in the PWH buffer.
Transportation lead time—try to look for faster alternatives for transportation; for example, reduce the shipping interval by using trains or ships daily instead of weekly or using air shipments for some parts. Finding closer suppliers for raw materials (RMs) or purchased parts is also a possibility in many cases. Usually, this is the part of the RLT that one can do the least about, so every possibility needs to be checked. A simple test should be conducted, comparing on the one hand the extra cost of operating by faster means of transportation and on the other hand the cost saved by keeping less inventory and the extra T generated by not having shortages. In some industries (such as the fashion industry), such a simple calculation shows it is very beneficial to gain T by using an expedited means of transportation. For example, Item A is a fashion item that is sold at a T of 80 percent from the selling price. Totally variable costs15 (TVCs) are 15 percent for RMs and 5 percent for transportation by sea. Shipping by sea has a lead time of three months. Shipping by air has a lead time of two weeks; air costs double that of sea shipment. Therefore, the T for air shipment is 75 percent. In the example, it is quite clear that shipping by air is preferable—losing a sale of one unit because of a shortage compensates for selling 15 items for a lower margin, not even counting higher inventory investment and carrying costs which are much higher when using sea shipment.
Increase the Frequency of Replenishment
When applying the TOC distribution/replenishment solution, some factors are relevant when determining the frequency of delivery. The traditional purchasing practice for managing within a supply chain encourages purchasing in large quantities. The main reasons are as follows:
1. Time and effort are required in listing all available inventories and issuing frequent orders even for a small quantity. Economies of scale exist in processing a large order versus several small ones for the buyer. However, the extra cost of managing small quantities is usually quite small and involves, at a maximum, hiring some low-salary staff to help. Sometimes a pick, pack, and ship area is required to respond to small-quantity orders.
2. Some items can only be shipped in bulk because of transportation issues: fragile items sometimes can be better protected if shipped in a whole container; small items are stacked in boxes; and for sea and semi-trailer shipments, the minimum transportation volume is by container, making it economically beneficial to fill the container. Economies of scale exist in shipping a large order versus several small ones. New packaging might be required for the shipped items; instead of shipping a case of 48 of the same item, a mixed case of 6 units of 8 different items might be more useful. Sometimes, it is possible to use half-size containers instead of the full-size containers, so these problems can be dealt with as well.
3. Frequently, a volume discount is offered to purchase a large quantity of the same item. Additionally, a discount is given to a purchase order above a certain dollar