Theory of Constraints Handbook - James Cox Iii [205]
The demand rate has decreased (demand has gone down).
The supply responsiveness has increased (the supply side has improved).
The initial buffer size was too high.
Demand fluctuates severely and is currently low. This is usually quite a rare statistical fluctuation. In these cases, accepting the recommendation for a stock buffer limit decrease will not reflect the reality, and therefore, soon the DBM algorithm will suggest increasing the buffer again. This condition can be caused by a downstream link offering volume discounts on a specific item or downstream links using traditional ordering models (ROP/EOQ and min-max).
The default recommendation for remaining in the green zone too long is to decrease the buffer size. The basic guideline is to decrease the buffer size by 33 percent, but this depends on several factors:
The speed desired to lower inventories.
The risk/importance placed on this SKU.
The risk/importance of this stock location.
A very similar mechanism is used for determining whether the buffer size is set too low. Determine whether this SKU inventory, after replenishment, stays in the red zone. This condition is called Too Much Red (TMR). In other words, based on the stock buffer size the actual stock amount remains after sequential replenishments in the red zone. These algorithm parameters are different from TMG, as here the risk we are trying to avoid is a stockout, while in the TMG we are trying to avoid overstocking. The basic algorithm for the TMR condition is to determine whether an SKU is in the red for several days (usually using the replenishment time as the parameter of the number of days). The more advanced algorithms also take into consideration how deep into the red the inventory at the site dropped.
The reasons for being in the TMR condition are:
The demand rate has increased (demand has gone up).
The supply rate has decreased (the supply side has deteriorated).
The initial buffer size was too low.
Demand fluctuates severely.
The guideline for relieving the TMR condition is to increase the buffer level by 33 percent. Both the definition of too long in a zone and the definitions of how much to decrease or increase the stock buffer level for each SKU are dependent on location, item, etc., and may differ across SKUs. These parameters are just good rules of thumb to establish the system.
After adjusting the buffer, the SKU needs to go through a “cooling period” in which no buffer changes are suggested until the system adjusts to the revised buffer size. This cooling period should be long enough to let the adjustment take place (the new quantities ordered should arrive at the stock location), yet short enough so that a sudden real change in the market demand will not occur without someone noticing. For the TMR, the cooling period is usually a full replenishment time, and for the TMG, the cooling period is usually letting the inventory at the location cross-over to the green from above (since lowering the buffer size probably caused the current inventory at the site to be above the buffer size level).
Set Manufacturing Priorities According to Urgency in the PWH Stock Buffers
Many manufacturers make products to customer order. This means that each work order on the shop floor is for a specific customer with a given due date. For that environment, TOC prioritizes the production orders based on their due dates (for more details, please refer to Chapter 9, which covers the make-to-order environment).
When manufacturers embrace the TOC replenishment/distribution solution, another source of demand has to be dealt with—consumption from the PWH back through the manufacturing process. For these PWH orders, the right priority for manufacturing should be set (not according to time) based on the priority of the SKU. (Recall SKU means location and we know what, where, and when given by the buffer status.) The best priority mechanism is to take the