Theory of Constraints Handbook - James Cox Iii [213]
The builddown is very similar to the buildup of inventory—it is important to decide whether the reduction of the stock in the system will be done in one step or in a few steps—depending on the steepness, the demand drops. Usually, the demand drops gradually and therefore it is best to absorb the reduction in a few steps. Important note: just as the increase in inventory was planned over a period of time, the decrease in inventory should be planned and will take time. Depending on the expected aggregated demand until the peak demand falls, it is important to set the buffer size to be decreased, stopping the replenishment well ahead of the demand decrease and in this way ensuring that one is not left with too much stock at the end of the peak. In most of the cases, it is enough to lower the stock buffer size (target) about a replenishment time before the demand is expected to start dropping, thereby stopping the replenishment of the SKU until the amount of inventory on hand goes below the (new) buffer size. Replenishing within the peak is done under stress. Suppliers and distribution channels feel the high demand and are under pressure. Therefore, it is important to reduce the pressure on some of the items—those that we don’t need until the end of the peak—maintaining the focus of everyone involved.
Implementing the TOC Distribution/Replenishment Model—How Can Software Help and Is It Really Needed?
To successfully implement the TOC methodology to manage a distribution environment, three major requirements need to be fulfilled:
1. Replenishment—replenish stock buffer size according to consumption at all locations.
2. DBM—manage the stock buffer size constantly at all stock locations and adjust it to support the consumption points’ demand. It is very important, especially for environments that manage a large number of buffers, to have the software automatically manage the DBM changes.
3. Managing predictable SDCs—override the DBM mechanism during SDC buffer changes.
These requirements are not the only ones that need to be implemented, but these three are necessary conditions for success in any manufacturer/distribution implementation of the TOC principles.
Even considering only these three requirements, the conclusion must be that no distribution organization can manage based on TOC without software, unless it is a really small distribution chain (anything more than 100 buffers to manage requires some kind of software or additional personnel). The question is, what kind of software should be used?
First, define how many buffers are likely to be kept under the TOC distribution/replenishment model34:
The number of items that will be managed—this is the number of items the company currently offers the market.
The number of stock locations in which the items will be managed—all warehouses (PWH, RWH) and client shops for the manufacturing environment and all warehouses (CWH, RWH) and client shops in which the future the SKUs will be stocked in a distributor environment.
The estimate on the number of SKUs and therefore buffers that will need to be managed stems from the multiplication of the two previous items.
In general, there are three options to choosing software:
1. Develop the needed software components within the existing ERP system used by the organization.
2. Develop the needed software components as Excel sheets external to the ERP system.
3. Purchase an external TOC distribution/replenishment solution software.
The answer to the question of which option to choose depends mainly on the operation scale.
For any environment where less than 500 buffers are required, using internal software is a possibility