Demand-Driven Performance FAQ
Providing customers what they need, when they need it, while lowering the overall cost of delivery and improving ROI
08. Supply Chain Visibility From The Perspective Of Demand-Driven Performance (DDPSC08)
When it comes to supply chain management, we can either be reactive or proactive. Knowing where something is physically located and when it arrived or departed a particular location is certainly a key part of supply chain visibility. But it is NOT sufficient to ensure we will be able to manage from a proactive position. Proactive management of a supply chain requires visibility.
Supply chain visibility means knowing where something is in relation to where it is supposed to be, both physically and in time, with time to respond, not just react.
To create that kind of visibility across the entire supply chain, we would have to make effective use of what was described in DDPSC06, Configure And Manage Supply Chains To More Effectively Address The Challenges Associated With Inventory Management, and DDPSC07, Configure And Manage The Supply Chain To More Effectively Address The Challenges Associated With Achieving Operational Performance, to configure and manage each individual business within the supply chain as well as the overall supply chain. Consider the following depiction of a supply chain having a Supplier, which in this case is a Manufacturer, whose product once produced moves through Distributors to the Customers, and on to the Consumer, which is the actual Point Of Sale (POS).
- One must recognize and acknowledge that the most significant effect of variability, whether from the supply-side or demand-side, is the resulting time delay in satisfying demand, whether from stock or direct delivery.
- One must use Reliable Lead Times (RLT) or Times to Reliably Replenish (TRR), not averages. RLTs or TRRs and Point Of Sale (POS) demand data are used to establish Time Based Demand Patterns. Time Based Demand Patterns clearly convey the relationships and tradeoffs between supply-side variability, demand-side variability, investments in inventory buffers, and the risk of being out-of-stock in a manner that can be easily understood and evaluated at the item (i.e., Part Number (PN) or Stock Keeping Unit (SKU)) level throughout an entire supply chain.
- Properly located and sized inventory buffers must be managed using TOC Replenishment Principles to provide a closed loop inventory management process.
- When establishing RLTs and TRRs, the actual planning process itself must account for the supply-side variability at a level of detail sufficient to enable execution management to contain the resulting time delays through adjustments in workflow priorities.
- The adjustments in workflow priority must be based on actual to planned movement and the resulting impact on delivery performance outcomes.
- In short, Planning and Execution Management must become an integrated process with decision support technology that enables businesses to operate as an integrated system and supply chains to operate as an integrated system of systems.
The inventory buffers at the Customers would be sized for each item (i.e., Part Number (PN) or Stock Keeping Unit (SKU)) using POS demand data and TRRs from the replenishing Distributor. The Distributor to Customer TRRs would likely include process steps such as order placement, order receipt, pick, pack, load, transport, receive, unload, unpack, and stock shelf, along with the time interval between replenishment deliveries.
The inventory buffers at the Distributors would be sized for each item (i.e., Part Number (PN) or Stock Keeping Unit (SKU)) using the same POS demand data and the TRRs from the replenishing Supplier. The Supplier to Distributor TRRs would also include the Supplier's manufacturing lead times if there were no Finish Product inventory buffer at the Supplier. Given the fact that manufacturing lead times could significantly increase the TRRs to the Distributors and the resulting size of their inventory buffers and warehousing costs, it may well be advantageous to establish an inventory buffer at the Supplier. With an inventory buffer at the Supplier, the Supplier to Distributor TRRs would likely include process steps such as order placement, order receipt, pick, pack, load, transport, receive, unload, unpack, and stock shelf, along with the time interval between replenishment deliveries.
The same process would once again be repeated when sizing the Finished Goods inventory buffers at the Supplier and could very well carry back through the manufacturing process in terms of establishing intermediate inventory buffers for component parts and raw materials, depending on the impact those inventory buffers would have on reducing the manufacturing lead times operating as TRRs to replenish the Finished Goods inventory buffers. Remember, locating and sizing upstream inventory buffers is usually most effective when POS demand can be effectively aggregated as discussed in DDPSC06.
With the above closed loop replenishment processes in place we would be able to utilize the Execution Management process described in DDPSC07 to monitor actual to planned movement in accordance with its impact on delivery performance outcomes to provide the supply chain visibility needed for proactive supply chain management. Configured and managed in this way gives us a pull based customer driven supply chain management process with full end to end supply chain visibility.
For a more comprehensive overview of how properly located and sized inventory buffers can improve availability, reduce out-of-stocks and increase inventory turns, please view: TOC for Inventory Management – Overview.
To see a working example of the TOC Inventory Management Solution, where properly located and sized inventory buffers are managed using TOC Replenishment Principles to provide a closed loop inventory management process that can reduce out-of-stock conditions, while improving inventory turns, please view: TOC for Inventory Management - Buffer Sizing Exercise.
For a more in-depth overview of how properly located and sized time buffers can be used to create work flow visibility and prioritization, thus providing for a more cost-effective use of capacity to deliver on-time, please view: Work Flow Prioritization - Cost-Effective On-Time Delivery Performance.
This is the final of eight articles on Demand Driven Supply Chain Performance.
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Dale T. Houle, Partner
Avraham Y. Goldratt Institute, LP
440 Wheelers Farms Road, Suite 304
Milford CT 06461