Tuesday, October 30, 2012

Quality Digest Article

Last week I sent an article to Quality Digest to see if they might be interested in publishing it and low and behold, here it is today.  Here's the link to it.  http://www.qualitydigest.com/inside/quality-insider-article/focus-limiting-factor-or-improvement-processes-will-fail.html

Bob Sproull

Sunday, October 28, 2012

Focus and Leverage Part 155

One of the prevailing messages that Bruce Nelson and I tried to elucidate in Epiphanized is how damaging the effects of cost world thinking can be for companies. In this posting I’m going to focus on one of the most common performance metrics, manpower efficiency and demonstrate why using it can lead your company down the wrong path to profitability.  I hope you will see that monitoring this metric and trying to drive it higher will not only hamper your company’s profits, but it will actually take you in exactly the wrong direction.  Let’s first look at the calculation for manpower efficiency.

Efficiency has been defined as a ratio of an employee's actual time to perform a function compared to some theoretical standard time needed to complete it. For example, suppose an employee actually produces 80 parts in one hour.  Suppose now that the standard for this job is 100 products in an hour (as measured by a time study).  Based upon this employee’s output, this employee is calculated to be 80 percent efficient.   Theoretically this employee has the capacity, if he or she is producing to standard, to produce 20 more parts per hour.

So what would happen if you were trying to achieve maximum operator efficiency within the following simple 4-Step process (Figure 1)?
Figure 1
For each step in this process, the processing times and the corresponding capacities are listed.  So assuming you wanted each step in the process to operate at hypothetically, 100 % efficiency.  What would this process look like after running at full pace for one hour (Figure 2)?


Figure 2
Here is what this process, running at 100% efficiency would look like after running for one hour.  Since Step 1 can produce a part every 5 minutes (i.e. 12 Parts/Hour) while Step 2 can only produce 6 parts per hour, a WIP of 6 parts stacks up in front of Step 2.

Likewise, because Step 2 runs twice as fast as Step 3, 3 units of WIP would be stacked in front of Step 3.  Steps 1, 2 and 3 are running at 100% efficiency, which is what we wanted, but how about Step 4?  Does Step 4 even have an opportunity to run at 100% efficiency?  Step 4 received all three parts from Step 3, processed them in 30 minutes, and then was forced to sit idle because it had no parts to process during that hour.  So Step 4’s efficiency was 50%.  What would happen to this process after 10 hours of operation?


Figure 3

Figure 3 gives us a look at this process if we were attempting to run each step at 100% efficiency for 10 hours.  There would be 60 units of WIP stacked in front of Step 2, 30 units of WIP stacked in front of Step 3 and Step 4 would have finished all 30 units it had to work on to ship to the customer.  The overall efficiency for this process is 87.5%, but think about how much cash this WIP is tying up?  Does it make any sense at all to use manpower efficiency on each individual process step rather just at the system constraint?  In TOC this is known as local optimization.  The key to improving the throughput of this simple process is to focus improvements only on Step 3.  Unless Step 3’s capacity is improved, the capacity of the entire process will remain at 3 Parts/Hour.

At least three negative consequences result from using manpower efficiency in each individual step of this process:

1.    Excessive WIP build-up throughout the process tying up excessive amounts of cash.

2.    Individual cycle times for each individual part becomes extended

3.    On-time delivery deteriorates.

The efficiency model, like the one presented in the above figures, is typically measured and implemented at the wrong system location and usually has distressing effects on companies’ financial results. The end results are typically the opposite of what is ex­pected to happen by companies using this metric.  If companies would measure efficiency only at the constraint and attempt to maximize it there, improved throughput would be the effect.
As I’ve written about before, it’s important to appreciate that the principal focus of Cost Accounting is per part or per unit cost reductions. And because these perceived cost reductions are viewed favora­bly by many companies, it is the reason why there is so much emphasis on operator efficiency? Cost cutting or cost reductions is/are simply not the key to profitability.  There have been many highly efficient companies that have simply gone out of business. Have you ever heard of a com­pany that has saved themselves into wealth and prosperity? Think about it, any perceived savings that the sock maker (Focus and Leverage Part 154) thought he was getting were quickly eroded by buying more raw materials and typing up all of his cash. In fact, it ended up costing the sock maker much more money than he realized and not saving him anything!
Many companies will categorically state that the primary goal of their company is to make money and yet they spend the principal portion of their time trying to come up with ways to save money. The difference between the two approaches is blatant. The tactics you employ to make money are so immensely different than the approach you would use to save money. Quite simply, you make money by increasing throughput!  These two concepts are divergent in their thinking with each taking you in a completely differ­ent course with drastically different outcomes.

In my next posting, we’ll continue to explore some of the problems associated with traditional cost world thinking and discuss ways to overcome them.

Bob Sproull

Saturday, October 27, 2012

Another 5 Star Review on Amazon......

Here is one more 5 Star Review posted on Amazon today.  Thanks so much Vinny for your glowing remarks and please know that Bruce and I really appreciate it.  That's 10 out of 10 5 Star reviews for Epiphanized.

Bob Sproull

5.0 out of 5 stars What a practical book! Buy it and refer to it often!!, October 27, 2012


This review is from: Epiphanized: Integrating Theory of Constraints, Lean and Six Sigma (Paperback)
I have read a few books on TOC and TLS, and I must say, what a great job Bob and Bruce did! They were brilliant in setting it up in a way that has continuity and shows the next step in the process of changing the culture of a company from the "Cost world" to the "Throughput world."

The information is so simply put and explained, that allows the reader to use it exactly as it is written to explain to other people and also implement it. Also, because the message is conveyed in novel format, it gives the reader a step-by-step reference on how to do it, not just what to do. Where do you start? It tells you. What do you do next? It tells you. What if you experience resistance? This book shows you how to handle it too. Do you already implement TOC or LSS but want to take it to the next level? Guess what? It shows you how! (Even though chances are it won't happen exactly as it did in the book)

Because of all the information included in the appendices, and all the other tools throughout the book, I'll definitely keep this book close by and refer back to it. I definitely recommend this book!

Vinny Monteiro linkedin.com/in/vinnym
Industrial Engineer

Friday, October 26, 2012

Focus and Leverage Part 154

In the next few series of postings, I’m going to discuss accounting procedures and some of the problems that Cost Accounting brings to the table.  For those of you who have a copy of Epiphanized: Integrating Theory of Constraints, Lean and Six Sigma, you will remember the tale of the Sock Maker that Bruce Nelson wrote about so eloquently in Appendix 2.  For those of you who haven’t yet gotten a copy of Epiphanized, I want to share with you the tale of the Sock Maker as presented by Bruce Nelson.  It just might give you a different perspective on how some of the decisions made using cost accounting might negatively impact your business.
The Sock Maker

In the early 1900s Cost Accounting (CA) was in its early stages and beginning to be widely accepted and used.  For a business owner there were many things to consider in the day-to-day operation of the business.  One of the most important functions of the business owner was tending to the daily needs of the business financial situa­tion. Things like keeping the books, calculating the cost for raw materials, calculat­ing labor cost and making sales were all important issues to be dealt with on a daily basis.

It was understood by business owners that in order to stay in busi­ness and make money the cost they paid for the products or service rendered had to be less than the selling price of their products or services.  If it wasn’t, then they would quickly go out of business. Then and now, the needs of business haven’t changed much, but other  things have changed.

The ideas and concepts about what was important to measure and how to measure it were starting to form and were being passed from one generation to the next. This was considered important informa­tion that you needed to know in order to be successful. Without this understanding, it was assumed that you would fail.  Back then, the business structure and methods were different than they are today.  The labor force was not nearly as reliable and most workers did not work 40 hours a week. When they did work, they were not paid an hourly wage, but instead were paid using the piece-rate pay system.

As an example, suppose you owned a knitting business, and the prod­uct you made and sold was socks. The employees in your business would knit socks as their job. With the piece-rate pay system you paid the employees based on the number of socks they knitted in a day or a week or whatever unit of measure you used.  If an employee knitted ten pairs of sock in a day, and you paid a piece rate of $1.00 for each pair knitted, then you owed that employee $10.00.  However, if the employee didn’t show up for work and did not knit any socks, then you owed nothing.  In this type of work environment labor was truly a variable cost and deserved to be allocated as a cost to the prod­uct.  It just made sense in a piece-rate pay system.  The more socks the employees knitted, the more money they could make.  Also, as the business owner your labor costs were very precisely controlled.  If employees didn’t make any socks, then you didn’t have to pay.

In time, metrics for calculating labor costs changed and the labor rates changed as well. Many employees were now paid a daily rate in­stead of a piece rate.  Labor costs had now shifted from a truly variable cost per unit to a fixed cost per day.  In other words, the employees got that same amount of money per day no matter how many pairs of socks they knitted or didn’t knit.  As time went by, the employee labor rates shifted again.  This time labor rates shifted from a daily rate to an hourly rate.  With the new hourly rate came the more standardized work week of forty hours, or eight hours a day, five days a week.  With the hourly rate the labor costs now become fixed.

With these changes it became apparent to the sock-knitting busi­ness owner that in order to get the biggest bang for the labor buck, the owner needed to produce as many pairs of socks as he could in a day in order to offset the rising labor costs.  The most obvious way to do that was to keep all of your sock knitters busy all of the time making socks.  In other words, efficiency was a key ingredient and needed to be increased.  If the owner could make more pairs of socks in the same amount of time, then his labor cost per pair of socks would go down.  This was the solution the business owner was looking for—reducing his costs.  If everyone was busy making more and more socks, and they could make a lot of socks in a day, then his new labor cost per pair of socks could be reduced!  This had to be the answer— look how cheap he could make socks now!  Or so he thought.

With these new found levels of high efficiency came another prob­lem. The owner quickly noticed that he had to buy more and more raw materials just to keep his employees working at such high ef­ficiency levels.  The raw materials were expensive, but he had to have them.  The owner knew that his past success was directly linked to his ability to maintain such high efficiency and keep his cost low.  More and more raw materials were brought in.  More and more socks were made.  The socks were now being made much faster than he could sell them.  What he needed now was more warehouse space to store all of those wonderfully cheap socks!  So at great expense, the owner built another warehouse to store more and more cheap socks.  The owner had lots and lots of inventory of very cheap socks.  According to his numbers the socks now were costing next to nothing to make.  He was saving lots of money! Wasn’t he?

Soon the creditors started to show up and wanted their money.  The owner was getting behind on his bills to his raw material suppliers.  He had warehouses full of very cheap socks, but he wasn’t selling his socks at the same rate he was making them.  He was just making more socks.  He rationalized that he had to keep the costs down and in order to do that he had to have the efficiency numbers high.  The business owner soon realized that he had to save even more money.  He had to cut his costs even more, so he had to lay people off and reduce his workforce to save even more money.  How did he ever get into a situation like this?  His business was highly efficient.  His cost per pair of socks was very low.  He saved the maximum amount of money he could, and yet he was going out of business—How come?

Reality had changed and labor costing had changed (labor shifted from a variable cost to a fixed cost), but the cost accounting rules did not change.  The owner was still trying to treat his labor cost as a variable cost.  Even today many businesses still try to treat their labor cost as a variable cost and allocate the labor cost to individual products. When the labor costs are allocated to a product, then companies try and take the next step—they work hard to improve efficiency and drive down the labor costs per part, or unit.  This erroneous thought process is ingrained in their mind, and they believe that this action will somehow reduce labor costs.  And if you can reduce labor costs, they think, then you are making more profit.  But take just a moment and reflect back on the consequences of the sock maker’s experience with cost savings and the high efficiency model.  Are these end results anywhere close to what the business owner really wanted to have hap-pen?  Was this the real outcome business owners really wanted from high efficiency?

In my next posting I’ll expand upon the negative effects of the performance metric efficiency and begin another discussion on an alternative accounting method known as Throughput Accounting.  I have posted other discussion on TA, but I’ll try to present a bit of a twist.

Bob Sproull


Thursday, October 25, 2012

A very nice email.....

Normally I wait until someone has placed an official review of Epiphanized and then post it, but I wanted to share an email I received this week from Vinny Monteiro.  He had just finished reading Bruce and my book and had to tell me about it.  Thanks Vinny.

Hello Bob!
I just came back from vacation and I was able to read your book on the plane ride! I must say it's simply awesome! the amount of information is mind boggling!
I identified with Joe because I thought too that I knew TOC pretty well, but the TOC thinking process, it was very new and powerful in my point of view. The IO Map, Interference diagram, all of them were great. I need to go back and get my notebook and write down everything, because it was a lot to take in for sure. I feel like I can use your book as a "TOC implementation guide" when going to a new company.
really enjoyed how you showed more than once how to get someone familiar with TOC and get them to be on your team.
I am now reading the Appendices, but just wanted to say that I love your book, and will recommend it to others!

Focus and Leverage Part 153

This posting is the final posting in this series about replenishment systems comparing the Min/Max system to TOC’s Dynamic Replenishment.  I finished my last blog posting by listing four criteria that must be in place in order for TOC’s Dynamic Replenishment Model to work effectively.  The reality is that there are actually six criteria as follows:

1.    The system reorder amount needs to be based on daily or weekly usage and SKU lead time to replenish.

2.    The system needs to allow for multiple replenish orders, if required. 

3.    Orders are triggered based on buffer requirements, with   possible  daily actions, as  required. 

4.    All SKUs/inventory must be available when needed.

5.    SKU inventory is held at a higher level, preferably at central supply locations or coming directly from the supplier/vendor.

6.    SKU buffer determined by usage rate and replenish supplier lead time. Baseline buffer should be equal to 1.5.   If lead-time is 1 week, buffer is set at 1.5 weeks and then we can adjust the size as required, based on historical data.

The TOC Distribution and Replenishment Model tells us that we should hold most of the inventory at the highest level in our supply chain and not at the lowest level like the min/max system.  Yes, we still want inventory at our point of use, but not the majority of it.  One of the major consequences of the min/max system is the distribution of SKUs much too early especially when the same type of inventory or part is used in several locations such as different hospital wards or units.  It’s not uncommon to see, for the same SKU, an excess in one ward and a stock-out in another all because the inventory was pushed down through the supply chain.  This does not happen in the Dynamic Replenishment Model since stocks are pulled through the system based upon usage.

In Dynamic Replenishment we eliminate using the minimum target as a trigger to reorder and replace it with a system that monitors our safety buffer and usage on a daily or weekly basis and replenish only what has been used for that time period.  We also eliminate the min/max maximum order quantity in that we only order what has been consumed rather than some maximum level.  What we end up with by using Dynamic Replenishment is much lower inventory levels, in the right location, at the right time, with zero or minimal stock-outs.  In fact, using Dynamic Replenishment we not only virtually eliminate stock-outs, but we do so usually with 40-50% less inventory thus freeing up huge amounts of cash.

To further make this point, I want to use a very common example taken from Bruce Nelson and my book Epiphanized in Appendix 5.  In this scenario, Bruce tells us to consider a soda vending machine.  When the supplier (the soda vendor) opens the door on a vending machine, it is very easy to calculate the distribution of prod­ucts sold, or the point-of-use consumption. The soda person knows immediately which inventory has to be replaced and to what level to replace it. The soda person is holding the inventory at the next high­est level, which in on the soda truck, so it’s easy to make the required distribution when needed. He doesn’t leave six cases of soda when only twenty cans are needed. If he were to do that, when he got to the next vending machine he might have run out of the necessary soda because he made distribution too early at the last stop.

After complet­ing the required daily distribution to the vending machines, the soda person returns to the warehouse or distribution point to replenish the supply on the soda truck and get ready for the next day’s distribu­tion. When the warehouse makes distribution to the soda truck, they move up one level in the chain and replenish from their supplier. This type of system does require discipline to gain the most benefits. It assumes that regular and needed checks are taking place at the inven­tory locations to determine the replenishment needs. If these points are not checked on a regular basis, it is possible for the system to ex­perience stock-out situations.

Remember in back in Focus and Leverage Part 151 and how we demonstrated the effects of the Min/Max replenishment method with what you see in Figure 1.  What you see in Figure 1 are the results of a simulation run by Bruce Nelson using the following criteria (For details and actual data used please refer to Appendix 5 in Epiphanized):

1.    The maximum level is 90 items.

2.    The minimum reorder point is 20 items.

3.    The lead time to replenish this SKU from the vendor averag­es 4 weeks. The average is based on the fact that there are times when this SKU can be delivered faster (3 weeks) and other times it delivers slower (5 weeks).

4.    Usage of this SKU varies by week, but on average is equal to about 10 items per week.

Remember, using the Min/Max replenishment method we don’t reorder until we meet or exceed our minimum reorder quantity (i.e. 20 items left in stock).  In Figure 2 we are applying the Dynamic Replenishment Model rules to exactly the same criteria we set for Figure 1. Bruce used the same SKU simulation, and the same period of time, with the same usage numbers. The difference will be in this simulation he changed the rules to fit the TOC Distribution and Replenishment Model.  That is, reorder is based on usage amount and vendor lead time rather than minimum and maximum amount.

Figure 1


Let’s now look at this same scenario using Dynamic Replenishment to see what it might look like.

Figure 2

 In Figure 2 Bruce assumed the following:

1.    Maximum level is 90 items. (This is the start point for the current inventory when Dynamic Replenishment was initiated.)

2.    There is no minimum reorder point.  Instead reorder is based on usage and vendor lead time.

3.    Lead time to replenish is still 4 weeks. 

4.    Average usage of the part is about 10 per week.

There are several key points observed in Figure 2:

1.    What is most notable is that total inventory required through time has been virtually cut in half when compared to that of Figure 1.

2.    There are no stock-out situa­tions present.

3.    The total inventory is maintained within a very stable range over a long period of time.

Searching for SKUs and having to experience the negative impact of stock-outs are a constant problem in many hospital supply-chain systems. These problems aren’t caused by the logistics people, but are instead negative consequences of the supply-chain system and the manner by which it is used.  The concepts and methods associated with Dynamic Replenish­ment can and will positively impact the flow and availability of SKUs within a hospital setting.

Bob Sproull

Tuesday, October 23, 2012

Focus and Leverage Part 152

In my last blog posting I laid out the typical problems we see using the very popular Min/Max replenishment system in healthcare.  Today I want to discuss a different approach to replenishing SKUs that my company, NOVACES, refers to as the Dynamic Replenishment Model (DRM).  Just to refresh, I told you the classics symptoms of the Min/Max system were:

ü  Having the wrong medicines or drugs in stock or having too much of one and too little of another.

ü  Significant amounts of cash tied up in excessive inventory.

ü  Significant amounts of money lost through drug obsolescence or even being out-of-date.

ü  Hoarding of SKUs by nurses and other medical personnel so that they have their own personal storage.  They all mean well because they have the best interests of the patient in mind.

So whatever system I am proposing here, it must overcome these negatives in a significant way.  Before I explain how Dynamic Replenishment works, let’s look at some of the basic differences between it and the Min/Max System..

First of all, the TOC’s Dynamic Replenishment Model is a robust SKU replenishment system that allows the user to be proactive in managing the supply-chain system.  And unlike the Min/Max System which pushes material down the supply chain based upon a minimum re-order inventory target, the DRM model is a pull-based system whereby material is replenished based upon actual usage.  This is, in my mind, the key differentiator between the two replenishment methods.

The TOC Dynamic Replenishment model argues that the majority of the inventory should be held at a highest level in the distribution system (supply chain) and not at the lowest level as mandated by the Min/Max model.  This is an important difference because many times materials get distributed too early to users resulting in stock-outs in one part of the supply chain and potentially excess inventory in another.

Unlike the Min/Max system, instead of using the minimum amount in inventory to trigger the reorder process, the DRM is triggered by daily usage and supplier lead times to replenish.  This quality, plus the location of the inventory stock, virtually eliminates the aforementioned stock-outs in parts of the supply chain.  The DRM eliminates the maximum reorder amount as well and replaces it with an increase in the order frequency, again based upon usage.  This change in order frequency based upon usage, effectively reduces the volume of on-hand inventory, typically on the order of 30-50%!

Ok, so now that we have seen some of the key differences between the Min/Max system and the DRM system, let’s now focus on how Dynamic Replenishment overcomes the negative symptoms of the Min/Max system that I started with in today’s blog.

As stated earlier, in Dynamic Replenishment stock is positioned at the highest level in the distribution system so that all available inventory can be used to satisfy demand at the downstream multiple points of use.  Since the location of the stock is positioned in this way, this allows more frequent ordering to be completed.  The central warehouse or stock room sums the demand usage of the various usage points so that larger order quantities can be accumulated at the central stock location sooner than at each separate location.

In the DRM buffers are positioned at points of potential high demand variation and stocked and restocked at levels determined by stock on hand, demand rate and replenishment lead time.  Order frequency is increased and order quantity is decreased to maintain buffers at optimum levels and, as a result, stock-out conditions which cause interruption to the flow of patients is usually completely avoided.

Rather than relying on some minimum stock level to trigger a reorder of SKUs, ordering is determined by the depletion of the buffer stock.  So effectively, how much to order and where to distribute the available stock is determined by the status of the buffer for that SKU.  The data for depletion of buffer provides signals to determine when and how much to modify buffer size.

Order urgency is based upon the depletion of the buffer and is therefore used to set ordering priorities.  The DRM order method accounts for buffer depletion and local demand information so the right mix of SKUs is ordered and SKUs are distributed to the priority locations.  This is one of the major differences between the two replenishment methods.

There are key criteria that must be in place in order for TOC’s Dynamic Replenishment Model to work effectively as follows:

1.    The system reorder amount  needs to be based on daily or weekly usage and SKU lead time to replenish.

2.    The system needs to allow for multiple replenish orders, if required. 

3.    Orders are triggered based on buffer requirements, with   possible  daily actions, as  required. 

4.    All SKUs/inventory must be available when needed.

In my next posting, I’ll demonstrate why the Dynamic Replenishment works so well and show you just how good your results can be.

Bob Sproull


Monday, October 22, 2012

Focus and Leverage Part 151

In my last blog posting I ended by saying that there it is possible to both reduce inventory and protect throughput at the same time.  But before I do so, let’s go into a bit more depth on why what a typical healthcare facility is using today isn’t working so well.

Most, if not all, businesses are linked one way or another to some kind of supply chain.  They need SKU’s or raw materials from somebody else in order to do what they do and pass it on to the next system in line until it finally arrives at the end consumer.  In a hospital environment this means that a doctor will prescribe a treatment that requires something to bring the patient back to a healthy state.  Maybe it’s a prescription for a medicine or maybe even an orthopedic item, so he writes the prescription and waits for the order to be filled and then given to his patient.  Hopefully what the doctor has prescribed is in the stockroom so the patient can begin the treatment.

For many organization the supply chain/inventory system of choice is one often referred to as the Minimum/Maximum (MIN/MAX) system.  In this type of supply chain system SKUs (or inventory) are evaluated based on a projected need and usage (a forecast), and some type of maximum and minimum levels are established for each item.  The typical rules that are followed for these min/max systems are:

§  Rule 1: Determine the maximum and minimum levels for each item
§  Rule 2: Don’t exceed the maximum level
§  Rule 3: Don’t reorder until you go below the minimum level
The foundational assumptions behind these rules and measures are primarily based on the belief that in order to save money and minimize your expenditures for supply inventory, you must minimize the amount of money you spend for these items.  Remember the conflict resolution diagram from my last posting?  The assumption here is that the purchase price per SKU (unit) could be driven to the lowest possible level by buying in bulk and the company would save the maximum amount of money on their purchase.  The reality is that there always seem to be situations of excess inventory for some items and of stock-out situations for others.  So why is it that even though we have plenty of  inventory, these stock-outs continue to happen?  Let’s take a more in-depth look at the typical rules for managing this Min/Max Supply System.

1.    The system reorder amount is usually always the maximum amount no matter how many SKUs are currently in the point-of-use storage bin.  The thinking here is that in order to obtain the maximum discount, we must always buy in bulk.

2.    Most supply systems only allow for one order at a time to be present in the system for a specific SKU.

3.    Orders for SKUs are triggered only after the minimum amount has been exceeded.  That is, for example, if the minimum level for a drug is set at 1,000, when it goes below 1,000 it can be re-ordered.
4.    Total SKU inventory is held at the lowest possible level of the distribution chain, the point-of-use (POU) storage location.  Typically this is at the hospital unit or ward.
5.    SKUs are inventoried once or twice a month and orders placed, as required.
Graphically, Rules 1, 2 and 3 look like what you see in Figure 1.  The problem with this system is that it’s prone to conditions of stock-outs on a fairly routine basis as depicted in Figure 2 where the pattern repeats itself.

Figure 1

Figure 2

In Figure 2 we see that even though there inventory in the system, we still have the stock-out situation happening.  Rules 4 and 5 are graphically illustrated in Figure 3.

Figure 3
In Figure 3 we see that parts are distributed from the supplier and pushed down through the links in the supply chain which ends up clogging the supply chain with disorganization and ineffectiveness.  The classic symptoms that we see using the Min/Max system are:

ü  Having the wrong medicines or drugs in stock or having too much of one and too little of another.

ü  Significant amounts of cash tied up in excessive inventory.

ü  Significant amounts of money lost through drug obsolescence or even being out-of-date.

ü  Hoarding of SKUs by nurses and other medical personnel so that they have their own personal stash when needed.  They all mean well because they have the best interests of the patient in mind.

 So if ordering in bulk quantities and having lots of inventory on hand isn’t the solution, then what is?  In my next posting I’ll introduce you to what my company (NOVACES) calls Dynamic Replenishment.

Bob Sproull