Theory of Constraints Handbook - James Cox Iii [761]
6The Z-value from a normal distribution table for .05 in the right tail is 1.645.
7A wide array of forecasting methods exists for modeling trend, seasonal, cyclic, and random factors, and their combinations at the aggregate level but all perform poorly at the consumption point.
8The sudden death of Michael Jackson caused the sales of his CDs to stockout most of the complete supply chain of all of his recordings. The same phenomenon occurred with Elvis Presley’s death.
9In most push systems, since the finished goods inventory is predominantly at the retailer end of the chain, manufacturing warehouses are generally small and hold only a few days of inventories. In a pull system, a larger warehouse is generally needed as inventory is held higher in the chain at the source.
10The supply factor is usually ignored in tactical and strategic decision making. Most efforts for improvement are directed at the demand side, especially trying to come up with more sophisticated forecast algorithms. Most new ERP systems developers keep coming up with new forecasting algorithms, neglecting the supply side completely.
11The replenishment part of the TOC pull distribution solution can be compared with a min-max model of replenishment where the min equals the max.
12I group the two methods together even though there are some minor differences. If we set the difference between the min and max values of the min-max model at the EOQ value then the results are quite similar. In traditional management this min-max gap is often set at the EOQ. Under these conditions we get very similar graphs. The two systems will give different results only when the EOQ is quite small or, alternatively, the consumption is chaotic rather than continuous.
13Despite the fact that the TOC solution discourages using forecasts, sometimes (like in the case of seasonality discussed later in the chapter) forecasts are still needed.
14The use of S-DBR, The TOC methodology for managing production in supply chains is covered in detail in Chapter 9 of this volume.
15The TOCICO Dictionary (Sullivan et al., 2008, 49) defines totally variable cost (TVC) as “Those costs that vary 1-to-1 for every increase in the number of units produced.” (© TOCICO 2007, used by permission, all rights reserved.)
16In some extreme cases, it is better to use different sizes of zones especially when the replenishment time is more than three months or, alternatively, the products are short shelf-life products.
17Note that these relate to all types of consumption points—shops, regional warehouses (RWHs), plant warehouse (PWH), central warehouse (CWH), raw materials warehouse (RMWH), etc.
18See the Inherent Simplicity Web site for an example and complete discussion of this concept at: URL= http://www.inherentsimplicity.com/.
19Too long is a term that depends on the specific environment—typically one to two weeks.
20It is important to note that this categorization is done after the TOC solution has been put in place. Therefore, the stock levels are already adjusted based on reality and not on a managerial decision.
21We use the number of turns here in a relative sense. If one did a Pareto analysis of retailer items based on inventory turns and ranked the items by number of turns, the A items (cheetahs) would have a high number of turns relatively speaking, the B items (regularly running) would have a moderate (around the mean) number of turns, and the C items (elephants) would have a low number of turns.
22This conclusion also stems from analyzing the sales results obtained from TOC implementations.
23The APICS Dictionary (Blackstone, 2008, 67) defines inventory turnover as “(t) he number of times that an inventory cycles, or ‘turns over,’ during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. For example, an average inventory of $3