Theory of Constraints Handbook - James Cox Iii [206]
As shown in Fig. 11-7, every production order looks at the VBP of the previous production order in production (the one that was released before it) to get its current manufacturing priority.
In this example, we see that stock in PWH for item A is 25 units versus a buffer size of 100 units. VBP is 75 percent and in the red zone. In the plant, WO1 is for 25 units, bringing the buffer to 50 units and to the middle of the yellow zone with 50 percent VBP. WO2 is for 40 units, bringing the buffer to 90 units and to almost the top of the green zone with 10 percent VBP.
FIGURE 11-7 Virtual buffer concept applied to prioritizing work orders (WO).
This penetration measure shows that manufacturing is synchronized to the actual usage of the stock. If the stock is depleted fast, the manufacturing order will be expedited through manufacturing. Otherwise, it will follow its normal processing sequence. Using this VBP concept provides a holistic system measure that fully aligns and synchronizes the chain links with the goal of the system—to be responsive to the actual consumption of stocks by the consumer across the chain.
Why Does a Pull Supply Chain Work Better?
Let us look at the shop and the different entities operating in this environment.
We can categorize the sale of items in the shop as three different types20:
1. Cheetah items—these items are sold very fast relative to their stock level, enabling the retailer to reach high inventory turns21 (if managed correctly).
2. Regular running items—the items that do not fit the previous categories. These items generally exhibit moderate turns.
3. Elephant items—these items are slow movers; the retailer just can’t get rid of them. These items are traditionally low inventory turn items.
What is bound to happen with the fast running items?
When items are cheetahs, by definition the market demand is high for them relative to the amount of inventory we keep for them. Regular running items (and new products) that turn out to be cheetahs are the ones most likely to be sold out. If one goes to a retailer and asks how many shortages he experiences, the most likely answer would be very few, maybe 2 to 3 percent. Misconception abounds here. If the situation and question instead were, we stand outside your store and ask people whether they found what they were looking for; in how many cases will we get an answer of “No” even though you are supposed to carry what they are looking for? The most probable answer regarding shortages would be 10 to 15 percent. This (subjective) finding suggests that the level of shortages experienced in shops is much higher than what the retailers think.22 If the typical shopping pattern of consumers is that of purchasing more than one item at a time, then the real impact of the shortages is 10-fold. How many times have you decided not to purchase an item because the retailer was missing one or two other key items you needed? You then put the items back (hopefully) and go to another retailer hoping they have all of the items. What is the chance, when having only 15 percent shortages, for a customer to find all 20 items he wants for a home improvement project in the shop? The answer is less than 4 percent, which equals (.85)20 as every single item has an 85 percent chance of being there but all 20 must be there at the same time for the purchase to be considered successful. These shortages affect the buying patterns of almost every customer.
A very interesting factor comes into play when analyzing those missing items: The 10 to 15 percent of