In this final posting of my 6-part series on Part’s Replenishment Systems, Bruce Nelson lays out a very simple, but absolutely relevant example of just how the TOC Distribution and Replenishment Model works. Bruce and I hope that you have enjoyed this series and that many of you have seen the same problems with your current replenishment system, but at the same time, realize that there is a better way. Bruce did an excellent job of writing this appendix insert in our book Epiphanized: Integrating Theory of Constraints, Lean and Six Sigma.
Perhaps the best way to explain the TOC Distribution and Replenishment Model is with an easy example. 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.
The distinct contrast in results between simulated data runs using the minimum/maximum supply system and the TOC Distribution and Replenishment Model are undeniable. The true benefits of a TOC-based parts replenishment system are many, but the most significant impact is realized in these two areas. The first benefit is the reduction of total inventory required to manage and maintain the total supply-chain system. This inventory reduction could lead to a significant dollar savings in total inventory required, perhaps thousands of dollars.
The second benefit is the elimination of stock-out situations. Without a doubt, not having parts available is an expensive situation because it slows throughput through the production system. Production lines sit idle, waiting for parts to become available. Or worse yet, they start making products that aren’t needed only because parts are available, and everyone needs to be kept busy. Stock-out situations increase frustration, not only in not being able to complete the work, but also in the time spent waiting for parts to become available. When this happens, orders will be delivered late, and customers will be frustrated.
Looking for parts and experiencing part shortages are a continuing problem in most supply-chain systems. These problems are not caused by the production people, but by the negative effects of the supply-chain system and the way it is used. If the current supply system is maintained, then the output (results) from that system cannot be expected to change much, if at all. However, if new levels of output are required from the system now and in the future, then new thinking must be applied to solve the parts supply-system issues. The concepts and methodologies of the TOC Distribution and Replenishment Model can positively impact the ability to produce products on time and in the correct quantity.