Theory of Constraints Handbook - James Cox Iii [576]
Clients are often coproducers of services. Outside legal counsel typically works with inside legal staff. Outside consultants work with company management. Outside technical specialists work with inside technical staff. Thus, the constraint on services isn’t always within the service provider; it can just as easily be within the client’s organization.
There are many sources of variability in services that cannot be buffered with inventory. If the service provider doesn’t have sufficient capacity to deliver services on demand, and its clients are unwilling to accept services as available, those clients may choose to do without the service, find another service provider, or do it themselves (Ricketts, 2008, Chapter 4).
Service providers may be bound by Service Level Agreements (SLAs) that impose penalties on the provider for noncompliance, and may offer bonuses for extraordinary performance. However, if demand for service is outside the service provider’s control, such as when the client’s customers call contact centers operated by the service provider on the client’s behalf, the provider cannot unilaterally deny or delay service without missing the SLA, as traditional TOC applications might dictate.
Despite these difficulties, every one of the applications from TOCG has been adapted for TOCS, as will be seen next. Hence, for PSTS the short answer to the question, “What to change to?” is TOCS.
Replenishment for Services
Replenishment for Goods (RG) is the traditional TOC application for distribution. Briefly, RG establishes inventory buffers that cover total consumption of inventory during the time needed to resupply, taking variability into account. Those inventory buffers are located at a central warehouse rather than retail locations because aggregated demand varies less.
Thus, if it typically takes three to five days to get more of a particular inventory item, and a distributor typically ships 25 units per day, that distributor might size its inventory buffer at 100 units—or 25 units per day times four days. Ideally, this buffer prevents the distributor from running out of that item because the buffer is replenished based on actual consumption. On those rare occasions when the buffer nears depletion, the distributor expedites the active order with its supplier.
Aligning buffer size with consumption and resupply time thus optimizes inventory, so whenever those parameters change, the buffer is resized accordingly. This is a radical departure from conventional wisdom, which says inventory levels ought to be dictated by demand forecasts and infrequent shipments of large, economic order quantities.
Replenishment for Services (RS) is the TOC application for resource management in services. In general terms, resources are anything a service provider needs to deliver a service, but in labor-based services the term “resources” is virtually synonymous with “people.”
In a services context, resources are not consumed in the same sense as inventory is consumed by distribution. Once shipped, inventory typically does not come back. Once assigned, resources naturally come back for more work. Therefore, RG is based on total consumption, while RS is based on net consumption, which is the difference between resources going out on assignment minus those coming back. Net consumption for a given period can therefore be positive, negative, or zero.
Briefly, RS establishes resource buffers that cover net consumption of resources during the time needed to change supply, considering variability. In addition, those resource buffers are located in skill groups that serve the enterprise rather than individual projects, because aggregated demand varies less.
Thus, if it typically takes 60 to 90 days to complete the hiring process and get a new employee on board, and the service provider typically needs one additional employee per month in a particular skill group, that service provider might size its resource buffer at two or three resources. Whether it would be two or three depends on whether that particular skill group is the