HAPPY NEW YEAR!!!!!!!!

I want to thank everyone for making this the best year ever for my blog and to wish everyone a very Happy and Prosperous New Year!!
Bob Sproull

Five Primary Components of DDMRP

I hope everyone had a very Merry Christmas and I wish you all a very happy and prosperous New Year.  I finished my last posting by telling you we would define the five primary components of DDMRP.  The authors of the book, Orlicky's Material Requirements Planning 3rd Edition, Carol Ptak and Chad Smith, explain that all five of these primary components are necessary to remove the undesirable MRP conflict symptoms and compromises and open the door to agility and that ignoring any of these components will reduce the value of the solution dramatically in most environments.  So with this in mind, here are the five primary components of DDMRP.  I recommend that you purchase Carol and Chad's book to get the full explanation of these components.

1. Strategic Inventory Positioning - The first question of effective inventory management is not how much inventory should we have, nor is it when should we make or buy something.  The first question to ask in today's manufacturing environment is, given our system and environment, where should we position inventory (within BOMs and the facility) to have the best protection?  The authors tell us to think of inventory as a breakwall to protect boats in a marina to protect boats from the roughness of incoming waves.  A company will need to carefully analyze the environment and then position and build the necessary inventory breakwalls.
2. Buffer Profiles and Level Determination - Once the strategically replenished positions are determined, the targets levels of these buffers have to be set initially based upon several factors.  Buffer profiles take into account important factors, including lead time, variability (both demand and supply), whether the part is made, bought or distributed, and whether significant order multiples are involved.  These buffer profiles are made up of zones that produce a unique buffer picture for each part as their respective individual part traits are applied to the group traits.
3. Dynamic Buffers - The authors explain that over the course of time, group and individual traits can and will change as new suppliers and materials are used, new markets are opened and/or old markets deteriorate, and manufacturing capacities and methods change.  Dynamic buffer levels allow the company to adapt buffers to group and individual part trait changes over time through the use of several types of adjustments.  Thus, as more or less variability is encountered or as a company's strategy changes, these buffers adapt and/or are adjusted to fit the environment.
4. Demand Driven Planning - The authors explain that the world of push and promote is dead and has been replaced with pull based methodologies like Lean's Kanban system and/or TOC's Drum Buffer Rope.  They explain that the holdovers of the push and promote era, both the rules and tools, must be stripped away, greatly changed or enhanced, or completely restructured.  Instead of making things too complex or too simple, it is time to define a planning suite of rules that meet at least two requirements.  First is to take advantage of the sheer computational power of today's hardware and software.  Second is to take advantage of the new demand-driver approaches.  When these two elements are combined, then there is the best of both worlds: relevant approaches and tools for the way the world works today and a system that promotes better and quicker decisions and actions at the planning and execution levels.
5. Highly Visible and Collaborative Execution - Simply launching purchase orders (POs), manufacturing orders (MOs), and transfer orders (TOs) from any planning system does not end the materials and order management challenge.  These POs, MOs, and TOs have to be managed effectively to synchronize with the changes that often occur within the execution horizon.  The execution horizon is the time from which a PO, MO, or TO is opened until the time it is closed in the system of record.  Demand-driven MRP is an integrated system of execution for all part categories in order to speed the communication of relevant information and priorities throughout an organization and supply chain.

The authors explain that these five components work together to dampen, if not eliminate, the unnecessary nervousness of traditional MRP systems and the resulting bullwhip effect in comlex and challenging environments.  In using this approach, planner will no longer have to try to respond to every single message for every single part that is off by even one day.  This approach provides real information about those parts that are truly at risk of negatively affecting the planned availability of inventory.  DDMRP sorts the significant few items that require attention from the magnificent many parts that are currently being managed.  Under the DDMRP approach, fewer planners can make better decisions more quickly.  This means that companies will be better able to leverage their working and human capital as well as the significant investments they have made in information technology.

The authors add the following note:  There is a challenge associated with writing this book.  A large portion of the solution involves high visibility.  A large portion of that visibility is accomplished through easy-to-interpret color signals.  This book is printed in monochromatic format.  Printin monochromatically does not bring that visibility to life very well.  The reader will have to use some amount of imagination to get the proper sense of visibility.

This will complete my series on this wonderful book and I highly recommend that my readers go purchase a copy.  In closing, I want to remind everyone that these same authors have put together a conference set for March 2015 in Houston, Tx and I encourage everyone to attend to learn first-hand from these experts.  And the good news is, they have set up a special promo code for my readers that further discounts the early bird registration, but you must take advantage of it before December 31st.  The promo code is BOBSBLOG so if you plan to attend, make sure you sign up by December 31st to get your extra discount.  Here is a link to the conference registration: 

 http://demanddrivenworld.com/conference/

Bob Sproull

Special Announcement

A friend of mine, Clarke Ching, has just published a book entitled Rolling Rocks Downhill.  It's Clarke's business novel about accelerating Agile projects using TOC.  Rolling Rocks Downhill happens in a world where  Agile doesn't yet exist.  The hero discovers Agile's first principles, from scratch, by learning how TOC and Lean have been applied to a commercial kitchen.  He learns about small batches and bottlenecks. His inspiration comes from TOC's retail solution and his solution is inspired by a practice used by journalists.   

Amazon.com:  http://amzn.to/1vdkhiC

Amazon.co.uk: http://amzn.to/1zQoSwM

I've got special 80%-off "launch" pricing on them at the moment, but if folks would rather take a "try before you buy" approach then they can pop over to my website (rolls.rocks), sign up for the newsletter, and then on January 1st, I'll send the first half, as a pdf, for free.  No harm in saving a couple of dollars.

Thanks for everything, 

Clarke

clarke@rolls.rocks

​Thanks!

Clarke​

Blog Posting Index Up To Part 404

Post #                    Subject Discussed

Each of the following postings can be reached by searching for the number designation below.  For example:  1 is Focus and Leverage or 2 is Focus and Leverage Part 2 and so forth.  The link to the first blog posting is: 

http://focusandleverage.blogspot.com/2010/08/focus-and-leverage.html

 

1. Introduction to TOC – Lean – Six Sigma

2. Why Improvement Initiatives Fail

3. The Basic Concepts of TOC

4. Throughput Accounting

5. The Process of On-Going Improvement (POOGI)

6. The 3 Cycles of Improvement

7. Combining TOC, Lean and Six Sigma Graphically

8. Step 1a Performance Metrics

9. Planning Steps 1b and 1c Reducing Waste and Variation

10. Developing a Constraint’s Improvement Plan

11. This number was skipped

12. Steps 1b and 1c Reducing Waste and Variation plus an intro to DBR

13. Drum-Buffer-Rope

14. The Final Steps of UIC

15. How do I start the UIC?

16. The 10 Prerequisite Beliefs

17. Comparing Lean, Six Sigma and TOC

18. Types of Constraints

19. The Logical Thinking Processes

20. Undesirable Effects (UDE’s)

21. Categories of Legitimate Reservation

22. Current Reality Trees

23. Constructing Current Reality Trees

24. Conflict Diagrams Basic Principles

25. Constructing Conflict Diagrams

26. Intro to Future Reality Trees

27. Constructing Future Reality Trees

28. Prerequisite Trees

29. Constructing Prerequisite Trees

30. Transition Trees

31. Constructing Transition Trees

32. Book Announcement

33. Project Management Failures

34. Project Management Negative Behaviors

35. Critical Path Management (CPM)

36. Critical Chain Project Management (CCPM)

37. Tracking Projects In CCPM

38. Final Posting on CCPM

39. Intro to the TOC Parts Replenishment Model versus the Min/Max System

40. The TOC Parts Replenishment Model

41. Interview with Joe Dager from Business901

42. Deming, Ohno and Goldratt Commonality

43. Dedication to Dr. Eliyahu Goldratt

44. How processing time, cycle time, throughput and WIP are interrelated

45. Little’s Law

46. Batch and queue production system and the fallacy of a balanced line

47. Why an unbalanced line is better.

48. What prevents me from making more money now and more money in the future?

49. More on the 10 Prerequisite Beliefs

50. Motivating a work force to actively participate in improvement initiatives

51. Re-Introducing the Intermediate Objectives Map

52. Introducing Be Fast or Be Gone: Racing the Clock with CCPM

53. Parkinson’s Law, The Student Syndrome, Cherry Picking and Multi-Tasking

54. Overcoming the four negative behaviors in Project Management

55. Intro to combining the Interference Diagram (ID) and the IO Map

56. The Simplified Strategy

57. The Interference Diagram

58. Interference Diagram for Strategy

59. The ID/IO Simplified Strategy

60. Preface Part 1 for Epiphanized©

61. Preface Part 2 for Epiphanized©

62. CHAPTER 1 Part 1 for Epiphanized©

63. CHAPTER 1 Parts 2 and 3 for Epiphanized©

64. CHAPTER 1 Part 4 for Epiphanized©

65. CHAPTER 1 Part 5 for Epiphanized©

66. Focused Operations Management For Health Service Organizations by Boaz Ronen, Joseph Pliskin and Shimeon Pass

67. Marketplace Constraints

68. A Discussion on Variability

69. More Discussion on Variability

70. Still More Discussion on Variability

71. Paper from the International Journal of Integrated Care

72. Value Stream Mapping

73. Paths of Variation

74. Step 3, Subordination

75. The Key to Profitability: Making Money Versus Saving Money

76. My First Experience With TOC

77. TOC in Non-Manufacturing Environments

78. Deborah Smith’s Excellent Chapter in the TOC Handbook (i.e. Chapter 14)

79. More on Performance Metrics

80. Efficiency, Productivity, and Utilization (EPU) ©

81. Productivity as a Performance Metric

82. Utilization as a Performance Metric

83. What the Dog Saw –Malcolm Gladwell

84. Speaking at the CPI Symposium – Cal State, Northridge

85. NOVACES– A Great Young Company

86. NOVACES’SystemCPI©

87. Problems With My Publisher

88. The Why? – Why? Diagram

89. Experience With the Integrated Methodology

90. A New Piping Diagram

91. The Healthcare Industry

92. More Bad News From the Publisher

93. A Message from the CPI Symposium

94. Multiple Drum-Buffer-Rope

95. Problem Solving Roadmap

96. Problem Prevention Roadmap

97. Improving Profitability

98. More on Throughput Accounting

99. More on Parts Replenishment

100. TLS

101. Engaging the "Money Makers" in Your Company

102. A Conversation on the Theory of Constraints

103. The Key to Successful Consulting Engagements

104. The Three Basic Questions to Answer

105. A Problem With the Airlines

106. A Better Way to Improve Processes and Systems

107. The Problem With Project Management

108. Critical Path Project Management Revisited

109. Critical Chain Project Management Revisited

110. The Fever Chart

111. Comparing CPM and CCPM

112. Performance Improvement for Healthcare – Leading Change with Lean, Six Sigma and Constraints Management

113. More on Performance Improvement for Healthcare

114. Even more on Performance Improvement for Healthcare

115. Still One More on Performance Improvement for Healthcare

116. The Final One on Performance Improvement for Healthcare

117. The Real Final One on Performance Improvement for Healthcare

118. Focused Operation's Management for Health Services Organizations.

119. Focused Management Methodology

120. The Clogged Drain

121. The “Soft” Tools of Improvement

122. More on TOC’s Distribution/Replenishment solution

123. Still More on TOC’s Distribution/Replenishment solution

124. Amir Schragenheim’s Chapter 11 entry in the TOC Handbook

125. Comparison of Lean, Six Sigma and TOC

126. A Simple Lesson on Applying TLS to Your Processes

127. A Historical Index of Blog Postings

128. Mafia Offer Part 1

129. Mafia Offer Part 2

130. Mafia Offer Part 3

131. Airline Problems

132. A YouTube Interview with Bob Sproull and Mike Hannan

133. Active Listening

134. Viable Vision

135. Throughput Accounting

136.  Performance Metrics

137.  On-the-Line Charting

138.  Comment on Epiphanized from a reader in the US Marines

139.  Active Listening

140.  Healthcare Case Study

141.  Change

142.  Getting buy-in for Change

143.  Aviation Maintenance, Repair and Overhaul Client Part 1

144.  Aviation Maintenance, Repair and Overhaul Client Part 2

145.  Continuous Improvement in Healthcare

146.  Using Your Senses in Continuous Improvement

147.  A Video by Phillip Marris on CI

148.  An article about a Construction Company Using the TOC Thinking Processes

149.  Using TOC in Healthcare Part 1

150.  Using TOC in Healthcare Part 2

151.  Using TOC in Healthcare Part 3 Supply Replenishment

152.  Using TOC in Healthcare Part 4 Supply Replenishment (con’t)

153.  Using TOC in Healthcare Part 5 Supply Replenishment (final)

154.  The Sock Maker

155.  The Negative Effects of Using Efficiency

156.  Cost Accounting Part 1

157.  A Political Voting Story

158.  Cost Accounting Part 2

159.  Cost Accounting Part 3

160.  Using TLS for the Affordable Care Act

161.  The System Constraint in Hospitals Part 1

162.  Wait Times in Hospitals

163.  The Oncology Clinic Case Study Part 1

164.  The Oncology Clinic Case Study Part 2

165.  Article: Emergency Department Throughput, Crowding, and Financial Outcomes for Hospitals

166.  Goldratt’s 5 Focusing Steps in Healthcare

167.  My First Experience With TOC Part 1

168.  My First Experience With TOC Part 2

169.  My First Experience With TOC Part 3

170.  My First Experience With TOC Part 4

171.  My First Experience With TOC Part 5

172.  My First Experience With TOC Part 6

173.  Healthcare Case Study Part 1

174.  Healthcare Case Study Part 2

175.  Healthcare Case Study Part 3

176.  TOC in Healthcare

177.  Healthcare Case Study Part 4

178.  My Transition From Aviation Maintenance to Healthcare

179.  Door to Doc Time Case Study Part 1

180.  Door to Doc Time Case Study Part 2

181.  Door to Doc Time Case Study Part 3

182.  Door to Doc Time Case Study Part 4

183.  My White Paper in Quality Forum Part 1

184.  My White Paper in Quality Forum Part 2

185.  My White Paper in Quality Forum Part 3

186.  A Meeting on Epiphanized at the Pittsburgh Airport

187.  Billing for Immunizations Case Study Part 1

188.  Some Thoughts on Performance Improvement Part 1

189.  Some Thoughts on Performance Improvement Part 2

190.  Case Study on Using TOC in Healthcare

191.  IO Map

192.  TOC Thinking Process Tools Part 1

192B.  TOC Thinking Process Tools Part 2

193.  Case Study on How to Use TOC’s Thinking Processes Part 1

194.  Case Study on How to Use TOC’s Thinking Processes Part 2

195.  Case Study on How to Use TOC’s Thinking Processes Part 3

196.  Synchronized and Non-synchronized Production

197.  Competitive Edge Factors

198.  Case Study on How to Use TOC’s Thinking Processes Part 4

199.  Case Study on How to Use TOC’s Thinking Processes Part 5

200.  Case Study on How to Use TOC’s Thinking Processes Part 6

201.  Case Study on How to Use TOC’s Thinking Processes Part 7

202.  Case Study on How to Use TOC’s Thinking Processes Part 8

203.  Case Study on How to Use TOC’s Thinking Processes Part 9

204.  Case Study on How to Use TOC’s Thinking Processes Part 10

205.  Case Study on How to Use TOC’s Thinking Processes Part 11

206.  Case Study on How to Use TOC’s Thinking Processes Part 12

207.  Case Study on How to Use TOC’s Thinking Processes Part 13

208.  Case Study on How to Use TOC’s Thinking Processes Part 14

209.  Case Study on How to Use TOC’s Thinking Processes Part 15

210.  Case Study on How to Use TOC’s Thinking Processes Part 16

211.  The IO Map Revisited Part 1

212.  The IO Map Revisited Part 2

213.  The IO Map Revisited Part 3

214.  The IO Map Revisited Part 4

215.  An Interview About The Ultimate Improvement Cycle by Joe Dager

216.  Healthcare Case Study:  Door to Balloon Time Part 1

217.  More On My First Experience With TOC Part 1

218.  More On My First Experience With TOC Part 2

219.  More On My First Experience With TOC Part 3

220.  More On My First Experience With TOC Part 3

221.  More On My First Experience With TOC Part 4

222.  A Discussion on Constraints Management Part 1

223.  A Discussion on Constraints Management Part 2

224.  A Discussion on Constraints Management Part 3

225.  A Discussion on Constraints Management Part 4

226.  A Discussion on Constraints Management Part 6

227.  How I Present TOC Basics to Students & Teams Part 1 (Most viewed of all posts)

228.  How I Present TOC Basics to Students & Teams Part 2

229.  YouTube Video on Improving Flow Through a Bottleneck

230.  YouTube Video on Throughput Accounting

231.  YouTube Video on What to Change

232.  YouTube Video on What to Change To

233.  YouTube Video on How to Cause the Change to Happen

234.  A Meeting With an Executive of a Larger Corporation

235.  The Missing Link

236.  You Tube Video by Goldratt on Henry Ford and Taichi Ohno

237.  Prevention Versus Detection – The Bug Guy

238.  An Article by Anna Gorman of the LA Times

239.  TOC’s Solution to Supply Chain Problems

240.  The Nun and the Bureaucrat Part 1

241.  The Nun and the Bureaucrat Part 2

242.  The Nun and the Bureaucrat Part 3

243.  The Nun and the Bureaucrat Part 4

244.  The Nun and the Bureaucrat Part 5

245.  The Nun and the Bureaucrat Part 6

246.  A Healthcare Clinic Case Study Part 1

246B.  An Update to Focus and Leverage Part 246

247,  Drum Buffer Rope in Manufacturing

248.  The Sock Maker Revisited Part 1

249.  The Sock Maker Revisited Part 2

250.  Throughput Accounting Part 1

251.  Throughput Accounting Part 2

252.  Throughput Accounting Part 3

253.  How to Use and Integrated TOC, Lean & Six Sigma Methodology Part 1

254.  How to Use and Integrated TOC, Lean & Six Sigma Methodology Part 2

255.  How to Use and Integrated TOC, Lean & Six Sigma Methodology Part 3

256.  How to Use and Integrated TOC, Lean & Six Sigma Methodology Part 4

257.  How to Use and Integrated TOC, Lean & Six Sigma Methodology Part 5

258.  Critical Path Project Management Versus Critical Chain PM Part 1

259.  Critical Path Project Management Versus Critical Chain PM Part 2

260.  Critical Path Project Management Versus Critical Chain PM Part 3

261.  Critical Path Project Management Versus Critical Chain PM Part 4

262.  Critical Path Project Management Versus Critical Chain PM Part 5

263.  Critical Path Project Management Versus Critical Chain PM Part 6

264.  The Cabinet Maker – A TOC Case Study Part 1

265.  The Cabinet Maker – A TOC Case Study Part 2

266.  The Cabinet Maker – A TOC Case Study Part 3

267.  The Cabinet Maker – A TOC Case Study Part 4

268.  How I Run Improvement Events

269.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 1

270.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 2

271.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 3

272.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 4

273.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 5

274.  Using The Goal Tree vs. the Full Thinking Process Analysis Part 6

275.  An Analysis of Focus and Leverage’s Top Page View Postings

276.  An Index of All Focus and Leverage Blog Posts

277.  Using the Thinking Processes in Healthcare Part 1

278.  Using the Thinking Processes in Healthcare Part 2

279.  Using the Thinking Processes in Healthcare Part 3

280.  The Four Disciplines of Execution Part 1

281.  The Four Disciplines of Execution Part 2

282.  The Four Disciplines of Execution Part 3

283.  The Four Disciplines of Execution Part 4

284.  The Four Disciplines of Execution Part 5

285.  The Goal Tree – A New Way to Make it and Use It Part 1

286.  The Goal Tree – A New Way to Make it and Use It Part 2

287.  The Goal Tree – A New Way to Make it and Use It Part 3

288.  Operation Excellence by Jim Covington

289.  The Saw Mill Assessment

290.  How I present the Theory of Constraints to People Not Familiar With it

291.  David and Goliath – Malcolm Gladwell’s Latest Book

292.  The Basics of TOC

293.  TOC’s Replenishment Model Part 1

294.  TOC’s Replenishment Model Part 2

295.  Blog Posting Index

296.  Overcoming Natural Resistance to Change

297.  Integrating TOC, Lean and Six Sigma Part 1

298.  Appendix 1 from Epiphanized Part 1

299.  The Winter Storm in Atlanta

300.  Appendix 1 from Epiphanized Part 2

301.  Appendix 1 from Epiphanized Part 3

302.  Appendix 1 from Epiphanized Part 4 Final

303.  Bill Dettmer videos on TOC’s Thinking Processes

304.  Queuing Theory Part 1

305.  Queuing Theory Part 2

306.  Delta Airlines Lack of Customer Focus

307.  Bill Dettmer’s Book Strategic Navigation

308.  Excerpts from The Ultimate Improvement Cycle – My second book Part 1

309.  Excerpts from The Ultimate Improvement Cycle – My second book Part 2

310.  Excerpts from The Ultimate Improvement Cycle – My second book Part 3

311.  Excerpts from The Ultimate Improvement Cycle – My second book Part 4

312.  Excerpts from The Ultimate Improvement Cycle – My second book Part 5

313.  The Ultimate Improvement Cycle – Step 1:  Identify - My second book Part 6

314.  The Ultimate Improvement Cycle – Step 2:  Define, Measure and Analyze - My second book Part 7

315.  The Ultimate Improvement Cycle – Step 3:  Improve - My second book Part 8

316.  The Ultimate Improvement Cycle – Step 3:  Control - My second book Part 9

317.  Throughput Accounting Part 1

318.  Throughput Accounting Part 2

319.  Throughput Accounting Part 3

320.  Throughput Accounting Part 4

321.  Throughput Accounting Part 5

322.  Throughput Accounting Part 6

323.  Throughput Accounting Part 7 Final

324.  Optimium Health’s Amazing New Software for Healthcare

325.  Personal experiences using Throughput Accounting

326.  MRO Project Management Case Study Part 1

327.  MRO Project Management Case Study Part 2

328.  MRO Project Management Case Study Part 3

329.  MRO Project Management Case Study Part 4

330.  MRO Project Management Case Study Part 5

331.  MRO Project Management Case Study Part 6

332.  MRO Project Management Case Study Part 7 (Finale)

333.  Part’s Replenishment Systems Part 1

334.  Part’s Replenishment Systems Part 2

335.  Part’s Replenishment Systems Part 3

336.  Part’s Replenishment Systems Part 4

337.  Part’s Replenishment Systems Part 5

338.  Part’s Replenishment Systems Part 6 (Finale)

339.  My Most Rewarding Experience

340.  Operation Excellence by Jim Covington

341.  Epiphanized sequel update

342.  The intent of Focus and Leverage Part 1

343.  The intent of Focus and Leverage Part 2

344.  The intent of Focus and Leverage Part 3

345.  The intent of Focus and Leverage Part 4

346.  The intent of Focus and Leverage Part 5

347.  My Most Profound Learning

348.  An update to our sequel to Epiphanized

349.  TOC and the VA Problem

350.  Reasons for Failing Improvement Initiatives

351.  Appendix 1 from Epiphanized Part 1

352.  Appendix 1 from Epiphanized Part 2

353.  Appendix 1 from Epiphanized Part 3

354.  Link to a presentation on TLS

355.  Article on 91 Hospitals laying-off Employees

356.  How Cost Accounting is Hurting Hospitals

357.  Improvement Approach for Healthcare

358.  Being a Satisficer Versus an Optimizer

359.  Healthcare Case Study – Door to Doc Time

360.  Presentation by Henry Camp

361.  Healthcare Case Study – Waiting Time to be Admitted

362.  Using the True Subject Matter Experts for Improvement

363.  Problems at WaterSaver

364.  Systems Thinking Part 1

365.  Systems Thinking Part 2

366.  Systems Thinking Part 3

367.  Systems Thinking Part 4

368.  A Great Quote

369.  A New Book on Project Management

370.  Inside the New Book on Project Management

371.  My Version of TLS

372.  TLS Part 2

373.  TLS Part 3

374.  Cost Accounting Versus Throughput Accounting Part 1

375.  Cost Accounting Versus Throughput Accounting Part 2

376.  Cost Accounting Versus Throughput Accounting Part 3

377.  Why I use the Piping Diagram Versus Chain Analogy for TOC

378.  Cost Accounting Versus Throughput Accounting Part 4

379.  Cost Accounting Versus Throughput Accounting Part 5

380.  Cost Accounting Versus Throughput Accounting Part 6

381.  Demand Driven Performance Part 1

382.  Demand Driven Performance Part 2

383.  Demand Driven Performance Part 3

384.  Demand Driven Performance Part 4

385.  Demand Driven Performance Part 5

386.  Demand Driven Performance Part 6

387.  Demand Driven Performance Part 7

388.  Demand Driven Performance Part 8

389.  Drum Buffer Rope

390.  Starting the Ultimate Improvement Cycle Part 1

391.  Starting the Ultimate Improvement Cycle Part 2

392.  Starting the Ultimate Improvement Cycle Part 3

393.  An article on TLS

394.  Defining Improvement and its impact

395.  Corrected Improvement and its impact

396.  Preface from The Ultimate Improvement Cycle

397.  Throughput Accounting

398.  Breaking Constraints

399.  DDMRP Case Study Part 1

400.  DDMRP Case Study Part 2

401.  TOC e-books

402.  DDMRP revisited – A Conflict

403.  5 Primary Components of DDMRP

404.  DDMRP A Discussion about Inventory

 

Bob Sproull

 

 

 

 

Orlicky's MRP 3rd Edition

At the end of my last posting I said I wanted to write about whether inventory is an asset or a liability.  Once again I am quoting material from Orlicky's Material Requirements Planning 3rd Edition written by Carol Ptak and Chad Smith.  I know I probably sound like a broken record, but if you have gotten this book, you are missing out on a true gem!!  So what about inventory....is it an asset or a liability?

In Chapter 24 of their book the authors tell us that in order to better understand how to determine the buffer levels of strategic positions/parts we must first answer a question:  Is inventory an asset or a liability?  The authors explain that according to the balance sheet, it is an asset.  They go on to explain that in the 1980's and 1990's we saw many large companies playing an interesting paper game with inventory.  Despite having no demand, many companies continued to build inventory realizing the accounting value-add from that inventory, and declared profits against it.  In the process, the company was drained of cash and went deeply into debt, but according to generally accepted accounting principles (GAAP), they were profitable.  The authors further explain that today, with the proliferation of methodologies such as Lean and the Theory of Constraints (TOC), in addition to the global economic meltdown starting in 2008, fewer companies could afford to play these games.  Wall Street also has become aware of this ruse and the penalties of too much inventory.

The authors explain that with regard to inventory and planning, we should assume the word asset means that inventory is available in a quantity sufficient to capture a valid market opportunity and nothing more.  Continuing, they explain that extrapolating this definition further, it can be concluded that there is liability when a company has more inventory than is necessary to meet market requirements (overages) and when it does not have enough (shortages).

In order to illustrate the concepts of asset and liabilities as related to inventory levels, the authors present the following simple graphic.  In this graphic the Y axis determines whether the inventory position is an asset or liability.  Asset and liability are delineated by the X axis, which depicts quantity.  Above the X axis, the inventory position is an asset; below it is a liability.  Where the axes intersect, the quantity is zero.  Clearly, when companies do not have enough inventory, there will be stock-outs, back-orders and missed sales.  Conversely, as inventory quantities grow beyond the market's desire, the organization wastes cash, capacity and space.  This graphic clearly depicts two points that represent the limits that a company must manage to stay within with regard to both individual part/SKU buffer levels and its aggregate inventory position.

 



OK, back to my series on DDMRP.  In my last posting I laid out the five primary components, along with a brief description of each, of Demand-Driven MRP as follows:

1. Strategic Inventory Positioning
2. Buffer Profiles and Level Determination
3. Dynamic Buffers
4. Demand-Driven Planning
5. Highly Visible and Collaborative Execution

In their book, the authors depict the five primary components, in linked order, like the following visual display.  This graphic quite vividly displays a structured order for implementing Demand Driven Material Requirements Planning (DDMRP).

 

 

 

 In my next posting we will discuss the five components of DDMRP.  Again, I want to remind everyone that these same authors have put together a conference set for March 2015 in Houston, Tx and I encourage everyone to attend to learn first-hand from these experts.  And the good news is, they have set up a special promo code for my readers that further discounts the early bird registration, but you must take advantage of it before December 31st.  The promo code is BOBSBLOG so if you plan to attend, make sure you sign up by December 31st to get your extra discount.  Here is a link to the conference registration: 

 http://demanddrivenworld.com/conference/

Bob Sproull