Theory of Constraints Handbook - James Cox Iii [203]
Less than 33 percent buffer penetration: Green
Between 33 and 67 percent buffer penetration: Yellow
Between 67 and 100 percent buffer penetration: Red
100 percent buffer penetration (being stocked out): Black
The buffer penetration color gives an indication of the urgency of replenishing this stock.17
Green—the inventory at the consumption point is high, providing more than enough protection for now. Action required: ORDER a replenishment amount (in case of replenishing from a plant, prioritize depending on whether there is enough capacity to produce this order versus more urgent orders).
Yellow—the inventory at the consumption point is adequate. There is a need to order more units from the upstream supply chain. Action required: ORDER the replenishment amount (in the case of replenishing from a plant, order even if lacking in capacity as otherwise it might be too late. The capacity problem will be dealt with on the floor if it exists).
Red—the inventory at the consumption point is at risk of stocking out. Units in transport/manufacturing (depending on the entity that is in charge of replenishing that stock) should be considered for expediting efforts and an urgent replenishment order must be put to the supplying source if nothing is available on the way to the consumption point. Action required: INVESTIGATE, ORDER, AND POSSIBLY EXPEDITE.
Black—the stock has run out at the consumption point; every hour that passes at this stage means (potential) lost sales opportunities. This situation must be resolved as soon as possible because it represents real damage, especially at the most downstream links in the supply chain (for upstream links, it means the ability to respond to replenishment and to buffer changes is diminished). Action required: EXPEDITE AND ORDER IMMEDIATELY.
Figure 11-5 illustrates how the buffers are placed and how the region colors are used for prioritization. It shows the modeled network of a pull distribution system shown in Fig. 11-3. The same item has different buffers, one at each location. These buffers are managed separately. The buffer in the PWH/CWH is in the size of 600 units and is currently in a buffer penetration of 20 percent (it has 480 units out of the total 600). Therefore, the priority color of this buffer is green. Likewise, in shop 1, for example, this item has a buffer of 60, out of which there are currently only 24, making the buffer penetration for this buffer 60 percent and the priority color yellow. This is how the buffers are placed and how their replenishment is prioritized at the upstream link. However, this priority is not enough, as the same buffer can have some stock in the location and some on the way.
FIGURE 11-5 Item stock buffer sizes (limits) and buffer penetrations across the pull supply chain.
Several views of the same buffer are possible and of value. Inherent Simplicity18 developed the concept of the Virtual Buffer Penetration (VBP), which defines the priority at any stock point as the status of the stock at the downstream links in the supply chain. This concept is valid only until the next stocking point, meaning that the VBP for an SKU in the PWH/CWH will take into account only the physical stock at the PWH/CWH, while the VBP for a shipment will take into account the stock at previous shipments and the physical stock at the target. Figure 11-6 demonstrates this concept for managing across the supply chain.
In Fig. 11-6, the retailer stock buffer size for the SKU is 100 with 25 units currently available and a shipment of 25 units on the way from the PWH/CWH to the shop. The Virtual Buffer figures appear on top