Saturday, January 18, 2014

Focus and Leverage Part 294

In my last posting we discussed the replenishment system known as the Min/Max system.  In this posting we pointed out some of the recurring problems organizations routinely experience when using this system.  This posting will be about how TOC overcomes the problems of excessive inventory and stock-outs routinely experienced with the Min/Max system.

The TOC Distribution and Replenishment Model eliminates the use of minimums and maximums and replaces them with a system that monitors the actual usage. Replenishment occurs at a minimum weekly and possibly daily for highly used items. The end result of these actions will be sufficient inventory in the right location at the right time with zero or minimal stock-outs to support production activity. Instead of using the minimum amount to trigger the reorder process like the Min/Max system does, replenishment should be triggered by daily usage with vendor lead time to replenish being factored in.

When the TOC Distribution and Replenishment Model is used to manage the supply chain there is always sufficient parts inventory to continue production work. The total inventory is also much more stable, through time, without the large gaps and gyrations from zero inventories available to maximum inventory as noted using the Min/Max system.  In other words, the stock-out problem essential goes away for good.

The figure above depicts how the inventory and stock-outs look as a function of time using TOC’s replenishment method and as you can readily see, there are virtually no stock-outs while the total inventory has been significantly reduced when compared to the Min/Max system figure displayed in my last posting.  When you consider the impact on your production output having virtually no stock-outs, I think you will agree that this replenishment method is a better way of doing business.

In this and the previous posting I have only covered the basics of both replenishment methods, but I encourage you to take a good look at what is happening within your own company.  If you are having a problem with stock-outs and you have an excess in inventory, then you may be using the Min/Max system of replenishment.  If you are, I encourage you to look into the TOC replenishment method.

Bob Sproull


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