Theory of Constraints Handbook - James Cox Iii [210]
Managing Seasonality in the TOC Distribution/Replenishment Model
Evidence supports the claim that the DBM is an excellent mechanism to monitor and control stock levels when changes in supply or demand are gradual27 or otherwise when the changes are unpredictable.
However, sudden large changes in either supply or demand are not handled well by the DBM mechanism or by any other known mechanism. An unanticipated, sudden, and steep increase in demand or deterioration in supply can cause shortages that will lead to lost sales and a damaged reputation. Alternatively, an unanticipated, sudden, and steep decrease in demand or improvement in supply will cause excess inventories and an undesired focus on sales efforts to move slow-running items.
While some of these changes in patterns are unpredictable (and thus unanticipated), experience shows that there are known recurring predictable, sudden, and steep patterns. These situations can be moderated by recognizing where and when to use the DBM methodology. The general guidelines are as follows:
When the changes are gradual, either predictable or unpredictable, use DBM—this should be the mostly used method. Preferably, use automatic DBM in order to avoid mistakes and enhance the focus on exceptions.
When the changes are unpredictable and large, use DBM in order to point to the problem and use a manual decision process to define by how much the buffers should be changed when the change occurs.
When the changes are predictable and large, use the seasonality module. The seasonality module handles known patterns for sudden changes in consumption.
Known Patterns for Sudden Changes in Consumption
Most of the time significant changes in supply or demand are predictable. Marketing and Sales people know from experience when to expect these changes in demand and their consequences on the supply. Generally, the direction of the change is well known and a gross approximation of the size of the change is possible, enabling taking measures ahead of time to deal with the change. Typical causes of changes in patterns28 are divided into two groups: Pull Seasonality & Push Seasonality.
Inherent Simplicity defines the following patterns as Pull Seasonality, meaning the environment defines the demand pattern for the organization without the organization being able to do anything about it:
Seasons in the year affecting the consumption of certain SKUs.
Holidays or events geographically affecting where certain SKUs will be consumed, more or less.
Inherent Simplicity defines the following patterns as Push Seasonality, meaning the organization, for various reasons that should be verified, takes actions that create a peak in demand in the market. These patterns include the following:
Promotions—very similar to holidays in nature as they are short and create a spike in demand. They are generally followed by a low period in demand.
A known price increase—many times an organization will announce an increase in product prices becoming effective at a point in time. Customers generally stock up on the item before the price increase. They are generally followed by a low period in demand.
Financial period end seasonality—measurements of salespeople that focus on quarterly or yearly quotas usually create a kind of seasonality in which sales go up sharply before the period ends and down sharply at the start of the next period, caused by pulling orders ahead toward the end of the period. Note: this can also be created from the budget management of the clients—toward the end of a period, they try to take advantage of all unused budgets for purchasing. They are generally followed by a low period in demand.
Two Different Changes
Each of these situations has a beginning and an end, which Inherent Simplicity29 defines as Sharp Demand Changes (SDCs). In the previous descriptions, the beginning SDC is (usually) the event that causes an increase in demand and the end SDC signals the sudden end of the increased demand and a return to “normal” or below normal demand.
Resolving