Theory of Constraints Handbook - James Cox Iii [204]
FIGURE 11-6 Virtual buffer concept applied to a shop item and in-transit shipments to this shop.
The warehouse manager at the stock location (shop manager in Fig. 11-6) can see clearly that the priority of this SKU is red at 75 percent buffer penetration. The buffer size is 100 units and 25 units reside at the shop, meaning 75 are missing. The shop needs to find out how to get more stock for this SKU as soon as possible.
The transportation manager can get the priority of the shipments, for example, what shipments need to be expedited. In this case, the shipment of 25 units of this SKU needs to be expedited based on a 75 percent buffer penetration (this is the same VBP as the plant warehouse manager sees). The virtual buffer for the PWH/CWH manager is computed as the shop buffer plus the transportation shipments. If the virtual buffer status was red, then the transportation manager should investigate to determine when the order will arrive at the shop. If there is some delay, he should expedite it.
The PWH/CWH manager can get the replenishment priority of this SKU. This virtual buffer takes into account all stocks on the way and at the shop for this SKU. In this case, he needs to replenish 50 percent of the buffer size of this item in the PWH/CWH (50 units) and the priority of this replenishment shipment is yellow based on a 50 percent buffer penetration (the buffer size is 100 units while 25 reside on the site and 25 are on their way to the site, meaning 50 are missing).
Use Dynamic Buffer Management
TOC aims at very simple, straightforward methods so that understanding and use come easily. The concepts of stock buffer size, buffer sizing, and buffer penetration replace the need for an understanding and use of sophisticated forecasting techniques. Variations exist in reality. Therefore, Dr. Goldratt provided a mechanism to manage buffers in a dynamic environment, thus eliminating the need for these complex forecasting models. The TOC logic dynamically measures the actual usage of the stocks and readjusts the stock buffer sizes (maximum target for replenishment) accordingly. This method is referred to in TOC literature as Dynamic Buffer Management (DBM).
By monitoring the SKU buffer penetration (i.e., item at each stock location for each product), we can identify whether the buffer size that we set for this SKU is about right. The essence of the idea is to monitor the combined impact of both the supply flowing in and the demand flowing out of the stocking point, where forecasting looks just on the demand side. The DBM approach argues that by monitoring and adjusting the buffer sizes, one can easily come to the “real” stock buffer level one needs to keep at the site in order to cover for the demand, taking into consideration the supply side (how fast one can deliver to the stock location).
The DBM mechanism is designed to alert the manager with two different warnings—one is when the buffer size is too large and the other is when the buffer size is too small.
When trying to measure whether the buffer size is too high, the indication is when actual stock of the relevant SKU compared to the target is too high for too long (e.g., staying in the green region for three consecutive replenishment periods). In other words, the stock buffer limit for that SKU should be adjusted downward, when the buffer penetration of the SKU has remained in the green zone for too long. This condition is designated as Too Much Green (TMG). This means that the stock buffer