PUSH AND PULL

Push production is based on forecast demand and pull production is based on actual or consumed
demand. The interface between these stages is called the push–pull boundary or decoupling point.

Complete Definition

 PUSH – Node performs order planning for succeeding node. Control information flow is in
the same direction of goods flow.
 SEMI PUSH or PUSH-PULL – Succeeding node makes order request for preceding node.
Preceding node reacts by replenishing from stock that is rebuilt every fixed period.
 PULL – Succeeding node makes order request for preceding node. Preceding node reacts by
producing the order, which involves all internal operations, and replenishes when finished.
 SEMI-PULL or PULL-PUSH – Succeeding node makes order request for preceding node.
Preceding node reacts by replenishing from stock that is rebuilt immediately. Note that
there are several levels of semi-pull systems as the node can have stock at several layers in
the organization

Information flow

With a push-based supply chain, products are pushed through the channel, from the
production side up to the retailer. The manufacturer sets production at a level in accord
with historical ordering patterns from retailers. It takes longer for a push-based supply chain
to respond to changes in demand, which can result in overstocking or bottlenecks and
delays (the bullwhip effect), unacceptable service levels and product obsolescence.

In a pull-based supply chain, procurement, production and distribution are demand-driven

rather than to forecast. However, a pull strategy does not always require make-to-order
production. Toyota Motors Manufacturing is frequently used as an example of pull
production, yet do not typically produce to order. They follow the "supermarket model"
where limited inventory is kept on hand and is replenished as it is consumed. In Toyota's
case, Kanban cards are used to signal the need to replenish inventory.

A supply chain is almost always a combination of both push and pull, where the interface
between the push-based stages and the pull-based stages is sometimes known as the push–
pull boundary.[5] However, because of the subtle difference between pull production and
make-to-order production a more accurate name for this may be the decoupling point. An
example of this would be Dell's build to order supply chain. Inventory levels of individual
components are determined by forecasting general demand, but final assembly is in
response to a specific customer request. The decoupling point would then be at the
beginning of the assembly line.

Depending on the medium used, the communication can be either interactive or non-
interactive. For example, if the seller makes his promotion by television or radio, it's not
possible for the buyer to interact. On the other hand, if the communication is made by
phone or internet, the buyer has possibilities to interact with the seller. In the first case
information is just "pushed" toward the buyer, while in the second case it is possible for the
buyer to demand the needed information according to their requirements.

 Applied to that portion of the supply chain where demand uncertainty is relatively small
 Production and distribution decisions are based on long term forecasts
 Based on past orders received from retailer's warehouse (may lead to Bullwhip effect)
 Inability to meet changing demand patterns
 Large and variable production batches
 Unacceptable service levels
 Excessive inventories due to the need for large safety stocks
 Less expenditure on advertising than pull strategy...

In a marketing "pull" system, the consumer requests the product and "pulls" it through the
delivery channel. An example of this is the car manufacturing company Ford Australia. Ford
Australia only produces cars when they have been ordered by the customers.

 Applied to that portion of the supply chain where demand uncertainty is high
 Production and distribution are demand driven
 No inventory, response to specific orders
 Decrease in lead time
 Difficult to implement

When to use Pull/Push/Hybrid Push-Pull strategy

Harrison summarized when to use each one of the three supply chain strategies:

 Push based supply chain strategy, usually suggested for products with small demand
uncertainty, as the forecast will provide a good direction on what to produce and keep in
inventory, and also for products with high importance of economies of scale in reducing
costs.
 Pull based supply chain strategy, usually suggested for products with high demand
uncertainty and with low importance of economies of scales, which means, aggregation
does not reduce cost, and hence, the firm would be willing to manage the supply chain
based on realized demand.
 Hybrid Push–Pull strategy, usually suggested for products which uncertainty in demand is
high, while economies of scale are important in reducing production and/or delivery costs.
One good example of this strategy is the furniture industry, where production strategy has
to follow a Pull-based strategy, since it is impossible to make production decisions based on
long-term forecasts. On the other hand, the distribution strategy needs to take advantage of
economies of scale in order to reduce transportation cost, using a Push-based strategy.[5]

Examples in Push and Pull

 MRP is a push system because releases are made according to a master production
schedule without regard to system status. Hence, no a priori WIP limit exists.
 Classic kanban is a pull system. The number of kanban cards establishes a fixed limit on
WIP.
 Classic Base Stock System is, somewhat surprisingly, a push system because there is no limit on
the amount of work in process in the system. This is because backorders can increase beyond
the basestock level.
 LEAN MANUFACTURING
The core idea of lean manufacturing is actually quite simple…relentlessly work on
eliminating waste from the manufacturing process. Starts from raw material to customer
delivery. So, what is waste? It can take many forms, but the basic idea is to eliminate
anything and everything that does not add value from the perspective of your customer.

Another way to look at lean manufacturing is as a collection of tips, tools, and techniques
(i.e. best practices) that have been proven effective for driving waste out of the
manufacturing process.

Generally based on Pull.

SEVEN DEADLY WASTES

Let’s talk a bit more about waste. Traditional lean identifies seven key areas of waste –
typically referred to as the Seven Deadly Wastes. These are described below along with
suggested countermeasures. Don’t worry if the countermeasures are not immediately
“actionable” for you – right now they can be considered simply as a roadmap for the future.

Seven Deadly Description Countermeasure (Lean Tool)

Wastes

Overproduction Making something before  Pace production so the rate of

it is truly needed. This is a
particularly serious form
of waste because it leads 
to excess inventory that is
often used to mask other
 Reduce setup times so that smaller
underlying problems and
inefficiencies.
manufacturing matches the rate of
customer demand (Takt Time).
Use a pull system to control how much is
manufactured (Kanban).
batches can be economically
manufactured (SMED).

Waiting Time when work-in-  Design processes so that the flow is

process is waiting for the continuous and there are minimal (or no)
next step in production buffers between steps in production
(no value is being added). (Continuous Flow).
It can be truly illuminating
 Use standardized work instructions to
to look at the time from
ensure that a consistent method and
order to shipment and ask
– how much of that time
 is actually spent on true consistent times are used for each step of
valu production (Standardized Work).
e-added manufacturing.

Transport Unnecessary movement  Design a linear, sequential flow from raw

of raw materials, work-in- materials to finished goods (Value Stream
process or finished goods. Mapping).
 Make sure work-in-process is not placed
into inventory (Continuous Flow).
 Avoid continual changing of job priorities
(Theory of Constraints).

Motion Unnecessary movement  Ensure that work areas are logically

of people (movement that organized (5S).
does not add value).  Consider alternate arrangements of
equipment that reduce motion (Value
Stream Mapping).

Over-processing More processing than is  Compare customer requirements to

needed to produce what manufacturing specifications (Kaizen).
the customer requires.  Look for potential simplifications to the
This is often one of the manufacturing process (Kaizen).
more difficult wastes to
detect and eliminate.

Inventory Product (raw materials,  Bring raw materials in only as they are
work-in-process, or needed (Just-In-Time).
finished goods) quantities  Reduce or eliminate buffers between
that go beyond supporting steps in production (Continuous Flow).
the immediate need.
 Refer to Overproduction
countermeasures (Takt Time, Kanban,
and SMED).

Defects Production that is scrap or  Design processes so they are less likely to
requires rework. produce defects (Poka-Yoke).
 Design processes to detect abnormalities
so they can be immediately corrected
(Jidoka).
  Look for the single most frequent defect
and determine why it occurs (Root Cause
Analysis).
 Create work instructions that provide a
consistent method of manufacturing the
part. (Standardized Work).

Lean concepts become a lot more intuitive and easy-to-understand when they are traced to
the ultimate goal – eliminating waste.

AN EIGHTH DEADLY WASTE

An extremely important form of waste that is not represented within the Seven Deadly
Wastes is unused human potential. This form of waste results in all sorts of lost
opportunities (e.g. lost motivation, lost creativity, and lost ideas).

One of the reasons that this from of waste is often underemphasized or even ignored at
companies is that responsibility for it lies squarely on the shoulders of management. Unused
human potential often results from management policies and management styles that
diminish employee contributions. By way of contrast, developing strong coaching skills for
managers can be very effective in strengthening employee contributions.

JUST-IN-TIME (JIT) MANUFACTURING

Before JIT was introduced by Toyota, most manufacturers kept large amounts of inventory
available just in case they needed it. Taiichi Ohno of the Toyota corporation developed a
production system in which parts would be ordered in small quantities based on short-term
needs. The process was designed to ensure that a part would arrive just in time to be used,
eliminating the need to keep it in inventory. Toyota found that the just-in-time system
reduced lead time on orders by one third and reduced production costs by 50 percent, and
the system eventually spread to many other companies. Just-in-time (JIT) manufacturing,
also known as just-in-time production or the Toyota production system (TPS), is a
methodology aimed primarily at reducing flow times within production as well as response
times from suppliers and to customers.

 JIT is a philosophy of continuous and forced problem solving via a focus on

throughput and reduced inventory.

When items are ready just in time, they aren't sitting idle and taking up space. This means
that they aren't costing you anything to hold onto them, and they're not becoming obsolete
or deteriorating. However, without the buffer of having items in stock, you must tightly
control your manufacturing process so that parts are ready when you need them.

When you do (and JIT helps you do this) you can be very responsive to customer orders –
after all, you have no stake in "forcing" customers to have one particular product, just
because you have a warehouse full of parts that need to be used up. And you have no stake
in trying to persuade customers to take an obsolete model just because it's sitting in stock.

The philosophy of JIT is simple: inventory is waste. JIT inventory systems expose hidden cost of
keeping inventory, and are therefore not a simple solution for a company to adopt. Just-in-Time
inventory system focus is having “the right material, at the right time, at the right place, and in the
exact amount.

JIT's objectives and benefits

 Reduced setup time. Cutting setup time allows the company to reduce or eliminate
inventory for "changeover" time.
 The flow of goods from warehouse to shelves improves. Small or individual piece lot
sizes reduce lot delay inventories, which simplifies inventory flow and its
management.
 “Jelly bean” scheduling- Make and move small lots so the level schedule is economical

 Employees with multiple skills are used more efficiently. Having employees trained to
work on different parts of the process allows companies to move workers where
they are needed. CROSS FUNCTIONAL
 Production scheduling and work hour consistency synchronized with demand. If there
is no demand for a product at the time, it is not made. This saves the company
money, either by not having to pay workers overtime or by having them focus on
other work or participate in training.
 Increased emphasis on supplier relationships. A company without inventory does not
want a supply system problem that creates a part shortage. This makes supplier
relationships extremely important.
 Supplies come in at regular intervals throughout the production day. Supply is
synchronized with production demand and the optimal amount of inventory is on
hand at any time. When parts move directly from the truck to the point of
assembly, the need for storage facilities is reduced.
 Minimizes storage space needed.
 Smaller chance of inventory breaking/expiring.

Waste elimination supports continuous quality and productivity improvement.

Remove Variability
Variability is any deviation from the optimum process. Sources of Variability:
  Incomplete or inaccurate drawings or specifications

 Poor production processes resulting in incorrect quantities, late, or non-conforming units

 Unknown customer demands

HOW

 JIT systems require managers to reduce variability caused by both internal and external
factors

 Inventory hides variability

 Less variability results in less waste

Improve Throughput
 Throughput time- The time it takes to move an order from receipt to delivery

 A pull system increases throughput. By pulling material in small lots, inventory cushions are
removed, exposing problems and emphasizing continual improvement

 Manufacturing cycle time is reduced.

 Push systems dump orders on the downstream stations regardless of the need

Two notable elements of JIT purchasing that could be separately listed are single-sourcing
and "milk runs."

 Single-sourcing means using just one supplier of a given item or items, thus to
reduce complexities and difficulties in developing JIT relationships with the supplier
base. Hall states that if the single-source fails to perform, "an alternative source is
available." In contrasting terminology, a sole source means there is no other source
with suitable capability, possible for technological or quality reasons. Hall goes on to
say that in case of a fire at the supplier plant or other emergency, "some reserve
capacity in supplier operations dedicated to other networks can be called to cover it.
One localized calamity does not destroy everything, and if the supplier has good
people involvement, strikes are a minimal risk."[48]

 Milk runs, in JIT purchasing, are rather like the way that the milk man of old made
daily "JIT" deliveries in small quantities to multiple customers: "A typical milk-run
truck makes a daily circuit of three to five suppliers and brings a mixed load of
material from each back to the customer plant

EXAMPLES OF JIT:

Toyota
Toyota is considered by many to be the poster child for JIT success. The Toyota production strategy is
highlighted by the fact that raw materials are not brought to the production floor until an order is received
and this product is ready to be built. No parts are allowed at a node unless they are required for the next
node, or they are part of an assembly for the next node. This philosophy has allowed Toyota to keep a
minimum amount of inventory which means lower costs. This also means that Toyota can adapt quickly to
changes in demand without having to worry about disposing of expensive inventory.

Important Factors to Toyota Success:

 Small amounts of raw material inventory must be kept at each node in production, so that production can
take place for any product. These parts are then replenished when they are used.
 Accuracy of forecasting is important so the correct amount of raw materials can be stocked.

Dell
Dell has also leveraged JIT principles to make its manufacturing process a success. Dell’s approach to JIT is
different in that they leverage their suppliers to achieve the JIT goal. They are also unique in that Dell is able to
provide exceptionally short lead times to their customers, by forcing their suppliers to carry inventory instead
of carrying it themselves and then demanding (and receiving) short lead times on components so that
products can be simply assembled by Dell quickly and then shipped to the customer.
Important Factors to Dell’s Success:
 Dependable suppliers with the ability to meet Dell’s demanding lead time requirements.
 A seamless system that allows Dell to transmit its component requirements so that they will arrive at Dell in
time to fulfill its lead times.
 A willingness of suppliers to keep inventory on hand allowing Dell to be free of this responsibility.
Harley Davidson
Harley Davidson’s use of JIT is mostly characterized by its transformation in the late World War 2 era from an
inefficient manufacturer that solved all of its problems with extra inventory to a manufacturer able to meet
demand and provide short lead times. Harley Davidson’s success with the implementation of JIT had a lot to
do with the fact that when JIT was put into practice, process problems could no longer be hidden by costly
inventory that helped to meet ship dates. The inefficiencies in the processes were quickly identified and
solved.

Results of Harley Davidson’s JIT Implementation:

 Inventory levels decreased 75 percent.
 Increased productivity.

SOME OTHER TOOLS OF LEAN:

Lean Tool What Is It? How Does It Help?

5S Organize the work area: Eliminates waste that results from

a poorly organized work area (e.g.
wasting time looking for a tool).
 Sort (eliminate that which is not
Can not be considered an end goal –
needed) must be part of a continuous
 Set In Order (organize remaining improvement movement
items)
 Shine (clean and inspect work area)
 Standardize (write standards for
above)
 Sustain (regularly apply the
standards)

Two additional S

 Safety – build in good practices

  Support/maintenance – reduce
variability and unplanned
downtime
Jidoka Design equipment to partially automate
(Autonomation) the manufacturing process (partial
automation is typically much less
expensive than full automation) and to
automatically stop when defects are
detected.
Just-In-Time Pull parts through production based on
(JIT) customer demand instead of pushing
parts through production based on
projected demand. Relies on many lean
tools, such as Continuous Flow,
Heijunka, Kanban, Standardized Work
and Takt Time.
Kaizen
Kaizen (GOOD CHANGE) is an important
(Continuous
Improvement) pillar of an organization’s long-term
competitive strategy. Kaizen
is continuous improvement that is
based on certain guiding principles:
 1 Good processes bring good results
 2 Go see for yourself to grasp the
current situation
 3 Speak with data, manage by facts
 4 Take action to contain and correct
root causes of problems
 5 Work as a team
 6 Kaizen is everybody’s business
One of the most notable features of
kaizen is that big results come from
many small changes accumulated
over time. In fact, kaizen means
everyone involved in making
improvements. While the majority of
changes may be small, the greatest
impact may be kaizens that are led by
senior management as transformational
projects, or by cross-functional teams
as kaizen events.
Kanban (Pull
System)
After Jidoka, workers can frequently
monitor multiple stations (reducing
labor costs) and many quality issues
can be detected immediately
(improving quality).
Highly effective in reducing inventory
levels. Improves cash flow and reduces
space requirements.
Combines the collective talents of a
company to create an engine for
continually eliminating waste from
manufacturing processes.
The cycle of kaizen activity can be
defined as:
1. Standardize an operation and
activities,
2. Measure the operation (find
cycle time and amount of in-
process inventory).
3. Gauge measurements
against requirements.
4. Innovate to meet
requirements and increase
productivity.
5. Standardize the new,
improved operations.
6. Continue cycle ad infinitum.
Eliminates waste from inventory and
overproduction. Can eliminate the need
for physical inventories (instead relying
on signal cards to indicate when more
goods need to be ordered).
Poka-Yoke Design error detection and prevention
(Mistake into production processes with the goal
Proofing) of achieving zero defects.
Poka-yoke "mistake-proofing". A poka-
yoke is any mechanism in a lean
manufacturing process that helps an
equipment operator avoid mistakes .Its
purpose is to eliminate product defects
by preventing, correcting, or drawing
attention to human errors as they
occur. as part of the Toyota Production
System.
Kanban system- better communication through visual management.
Kanban is Japanese for “visual signal” or “card.” Toyota line-workers used a kanban (i.e., an actual card)
to signal steps in their manufacturing process. The system’s highly visual nature allowed teams to
communicate more easily on what work needed to be done and when. It also standardized cues and
refined processes, which helped to reduce waste and maximize value.
It is difficult (and expensive) to find all
defects through inspection, and
correcting defects typically gets
significantly more expensive at each
stage of production.
TYPES OF POKA-YOKES
Poka-yoke is based on prediction and detection. That
is, recognizing that a defect is about to occur or
recognizing that a defect has occurred.
Consequently, there are two basic types of poka-
yoke systems. The control poka-yoke does not allow
a process to begin or continue after an error has
occurred. It takes the response to a specific type of
error out of the hands of the operator. For example,
a fixture on a machine may be equipped with a
sensing device that will not allow the process to
continue unless the part is properly inserted. A 3.5-
inch floppy disk will not work if inserted backwards
or upside down. As a matter of fact, it won't fit into
the drive at all unless properly inserted. A second
type of poka-yoke provides some type of warning
when an error occurs. This does not prevent the
error, but immediately stops the process when an
error is detected. Micro SIM CARD. This type of
poka-yoke is useful for mass production
environments with rapid processing as the device
prevents mass production of scrapped material. For
environments where large losses of time or
resources do not result, a warning poka-yoke is
warranted. All that is needed is a way to ensure that
the error is investigated and corrected in a timely
manner.
A picture is worth a thousand words for scientific reasons: The brain processes visual information
60,000 times faster than text. Kanban helps you harness the power of visual information by using
sticky notes on a whiteboard to create a “picture” of your work. Seeing how your work flows within your
team’s process lets you not only communicate status but also give and receive context for the work.
Kanban takes information that typically would be communicated via words and turns it into brain candy.

Four Core Kanban Principles

Unlike other methods that force fit change from the get-go, Kanban is about evolution, not revolution. It
hinges on the fundamental truth that you can’t get where you want to go without first knowing
where you are.

1. Visualize Work

By creating a visual model of your work and workflow, you can observe the flow of work moving through
your Kanban system. Making the work visible—along with blockers, bottlenecks and queues—
instantly leads to increased communication and collaboration.

2. Limit Work in Process

By limiting how much unfinished work is in process, you can reduce the time it takes an item to
travel through the Kanban system. You can also avoid problems caused by task switching and reduce
the need to constantly reprioritize items.

3. Focus on Flow

By using work-in-process (WIP) limits and developing team-driven policies, you can optimize your
Kanban system to improve the smooth flow of work by analyzing the flow of work.

4. Continuous Improvement

Once your Kanban system is in place, it becomes the cornerstone for a culture of continuous
improvement. Teams measure their effectiveness by tracking flow, quality, throughput,
lead times and more. Experiments and analysis can change the system to improve the team’s
effectiveness.

 The card is an authorization for the next container of material to be produced

 User removes a standard sized container.
 PLACES THE CARD IN COLLECTION POINTS
 Signal is seen by the producing department as authorization to replenish

 When the producer and user are not in visual contact, a card can be used
 When the producer and user are in visual contact, a light or flag or empty spot on the floor
may be adequate
 Since several components may be required, several different kanban techniques
may be employed
 Usually each card controls a specific quantity or parts
 Multiple card systems may be used if there are several components or different lot sizes
 In an MRP system, the schedule can be thought of as a build authorization and the kanban a
type of pull system that initiates actual production
  Kanban cards provide a direct control and limit on the amount of work-in-process between
cells
 If there is an immediate storage area, a two-card system can be used with one card
circulating between the user and storage area and the other between the storage
area and the producer

BEST EXAMPLES OF LEAN MANUFACTURING:

Nike:
The super-cool clothing company worked with NGOs and fellow manufacturers on sustainability
projects to create performance indicators and sustainable sourcing and launched the Sustainable
Apparel Coalition with the US Environmental Protection Agency and other manufacturers, and in
the process saved money on energy and waste materials.

Kimberley-Clark Corporation
The Makers of Kleenex recently outsourced logistics at its Barton Mill UK plant to leading Lean thinkers,
Unipart. Before this, staff at the plant resented the long shifts and overtime and absenteeism
was at 10 percent. Unipart got Kimberley-Clark to spend on enhanced staff engagement and
development, meaning they saved on staff absenteeism and through an improvement in efficiency
brought about by better staff morale.
Intel
Intel is the world’s largest computer chip maker. Joe Foley, factory manager at Intel Fab Operations in
Leixlip, Ireland, said: “Five years ago, it took us 14 weeks to introduce a new chip to our factory; now it
takes 10 days. We were the first Intel factory to achieve these times using Lean principles.”
Toyota-
The Toyota philosophy – and it truly is a philosophy – has helped make Toyota the world top three car
company it is today, and has resulted in the ‘Lean’ concept, replicated worldwide.
Lean manufacturing is a management philosophy derived mostly from the Toyota Production System
(TPS), an integrated socio-technical system which comprises its management philosophy and practices.
A socio-technical system is an approach to complex organisational design that recognises the interaction
between people and technology in workplaces.
Sometimes referred to as the Toyota Way, the TPS’ main objectives are to design out overburden and
inconsistency and to eliminate waste. Waste not only refers to materials, but time, such as consumer
time waiting for product or assistance and even waste of movement. The philosophy also relies on the
process being as flexible as possible to reduce stress, which counts as overburden and generates waste.

ADVANTAGES & DISADVANTAGES OF LEAN:

 Advantages:

 Increased overall productivity

 Reduced amount of floor space required
 Reduced manufacturing lead time
 Improved flexibility to react to changes
 Improved quality

 Disadvantages:

 Difficulty involved with changing processes to implement lean principals

 Long term commitment required
 Very risky process - expect supply chain issues while changing over to lean
TOYOTA PRODUCTION SYSTEM

 Work shall be completely specified as to content, sequence, timing, and outcome

 Every customer-supplier connection, both internal and external, must be direct and
specify personnel, methods, timing, and quantity of goods or services provided
 Product and service flows must be simple and direct – goods and services are
directed to a specific person or machine
 Any improvement in the system must be made in accordance with the “scientific
method” at the lowest possible level in the organization
 Since the Toyota Production System requires that activities, connections, and flow
paths have built-in tests to signal problems automatically, gaps become immediately
evident.
 Results of the TPS are improvements in reliability, flexibility, safety, and efficiency.
 These lead to increase in market share and profitability.

PARETO ANALYSIS

Pareto Analysis is a statistical technique in decision-making used for the

selection of a limited number of tasks that produce significant overall
effect. It uses the Pareto Principle (also known as the 80/20 rule) the idea
that by doing 20% of the work you can generate 80% of the benefit of doing
the entire job. In terms of quality improvement, a large majority of
problems (80%) are produced by a few key causes (20%). This is also
known as the vital few and the trivial many.

In the late 1940s, named after Italian economist Vilfredo Pareto, who
observed that 80% of income in Italy went to 20% of the population. Pareto
later carried out surveys on a number of other countries and found to his
surprise that a similar distribution applied.

The 80/20 rule can be applied to almost anything:

 80% of customer complaints arise from 20% of your products and

services.
 80% of delays in the schedule result from 20% of the possible causes
of the delays.
 20% of your products and services account for 80% of your profit.
  20% of your sales-force produces 80% of your company revenues.
 20% of a systems defects cause 80% of its problems.

The Pareto Principle has many applications in quality control. It is the basis
for the Pareto diagram, one of the key tools used in total quality control and
Six Sigma.

Pareto Analysis
Eight steps to identifying the principal causes you should focus on, using
Pareto Analysis:

Steps to identify the important causes using 80/20 rule

1. Form an explicit table listing the causes and their frequency as a percentage.
2. Arrange the rows in the decreasing order of importance of the causes (i.e., the most
important cause first)
3. Add a cumulative percentage column to the table
4. Plot with causes on x- and cumulative percentage on y-axis
5. Join the above points to form a curve
6. Plot (on the same graph) a bar graph with causes on x- and percent frequency on y-axis
7. Draw a line at 80% on y-axis parallel to x-axis. Then drop the line at the point of intersection
with the curve on x-axis. This point on the x-axis separates the important causes (on the left)
and trivial causes (on the right)
8. Explicitly review the chart to ensure that causes for at least 80% of the problems are
captured
This is a simple example of a Pareto diagram, using sample data showing the
relative frequency of causes for errors on websites. It enables you to see what
20% of cases are causing 80% of the problems and where efforts should be
focussed to achieve the greatest improvement.

The value of the Pareto Principle for a project manager is that it reminds you
to focus on the 20% of things that matter. Of the things you do during your
project, only 20% are crucial. Those 20% produce 80% of your results.
Identify and focus on those things first, but don't entirely ignore the
remaining 80% of causes because of possibility of exclusion of possibly important
problems which may be small initially, but which grow with time.

Pareto analysis is a formal technique useful where many possible courses of action are
competing for attention. In essence, the problem-solver estimates the benefit delivered by
each action, then selects a number of the most effective actions that deliver a total benefit
reasonably close to the maximal possible one.

This technique helps to identify the top portion of causes that need to be addressed to
resolve the majority of problems. Once the predominant causes are identified, then tools
like the Ishikawa diagram or Fish-bone Analysis can be used to identify the root causes of
the problems.
JIDOKA
Providing machines and operators the ability to detect when an abnormal condition has
occurred and immediately stop work. This enables operations to build in quality at each
process and to separate men and machines for more efficient work. Jidoka is one of the
two pillars of the Toyota Production System along with just-in-time.

Jidoka highlights the causes of problems because work stops immediately when a problem
first occurs. This leads to improvements in the processes that build in quality by eliminating
the root causes of defects.

Jidoka sometimes is called autonomation, meaning automation with human intelligence.

This is because it gives equipment the ability to distinguish good parts from bad
autonomously, without being monitored by an operator. This eliminates the need for
operators to continuously watch machines and leads in turn to large productivity gains
because one operator can handle several machines, often termed multiprocess handling.
The concept of jidoka originated in the early 1900s when Sakichi Toyoda, founder of the
Toyota Group, invented a textile loom that stopped automatically when any thread broke.
Previously, if a thread broke the loom would churn out mounds of defective fabric, so each
machine needed to be watched by an operator. Toyoda's innovation let one operator
control many machines. In Japanese, jidoka is a Toyota-created word pronounced exactly
the same (and written in kanji almost the same) as the Japanese word for automation, but
with the added connotations of humanistic and creating value.

AGILE MANUFACTURING
Agile manufacturing represents a very interesting approach to developing a competitive
advantage in today’s fast-moving marketplace. It places an extremely strong focus on rapid
response to the customer – turning speed and agility into a key competitive advantage. An
agile company is in a much better position to take advantage of short windows of
opportunity and fast changes in customer demand.

WHY IS IT EFFECTIVE?

Why is agile manufacturing an effective strategy?

 Consumers love instant gratification. They are increasingly getting used to it and they are
often willing to pay for it. For example, have you ever ordered a product with overnight
shipping…waiting in eager anticipation?
 Consumers love choice. They prefer to get a product exactly as they want it…without
compromise.
 Consumers are fickle. Their interests shift and move in unpredictable ways.

Agile is effective because it directly addresses these issues. It acknowledges the realities of
the modern marketplace and transforms them into a competitive advantage.

Agile is of particular value for manufacturers in countries with large, well-developed local
markets and high labor costs (e.g. the United States). It leverages proximity to the market by
delivering products with an unprecedented level of speed and personalization, which simply
cannot be matched by offshore competitors. It turns local manufacturing into a competitive
advantage.

KEY ELEMENTS OF AGILE MANUFACTURING

There are four key elements for agile manufacturing:

 Modular Product Design (designing products in a modular fashion that enables them to
serve as platforms for fast and easy variation)
 Information Technology (automating the rapid dissemination of information throughout
the company to enable lightning fast response to orders)
 Corporate Partners (creating virtual short-term alliances with other companies that
enable improved time-to-market for selected product segments)
 Knowledge Culture (investing in employee training to achieve a culture that supports
rapid change and ongoing adaptation)

Agile manufacturing builds on lean with four key elements:

Modular Product Design, Information Technology, Corporate Partners, and a Knowledge
Culture.

RELATIONSHIP TO LEAN MANUFACTURING

Lean manufacturing is generally considered to be a precursor to agile. Many lean practices

are also enablers for agile manufacturing. For example, manufacturing in small batches (or
even better – manufacturing with one-piece flow), fast changeovers, and a culture of
continuous improvement are all foundations that pave the road to agile manufacturing.

It is quite interesting to see how lean manufacturing techniques and tools can provide
benefits in areas that extend beyond the core lean objective (improving productivity and
profitability by relentlessly eliminating waste). Agile manufacturing is one such area.

IS AGILE FOR ME?

For any given business segment, ask the following questions:

 Is there a potential market for a personalized fast-delivery version of one of our current
products?
 Is there a new product that we can develop that is within our company’s sphere of
competence (or alternately that can be co-developed with a partner) that would strongly
benefit from personalization and fast delivery?

For example, the 3-Day Car Project (in the UK) and the 5-Day Car Project (in the EU) focused
on the idea of transforming automotive manufacturing into a build-to-order system (i.e.
each car built for a specific customer order) with delivery times measured in days instead of
weeks or months. Considering that the actual manufacturing time for a car is on the order of
1.5 days, this is a realistic goal – although perhaps not yet an attainable goal. But without a
doubt – the company that gets there first will have created a significant competitive
advantage.

Poka Yoke
Poka-yoke is a Japanese term that means "mistake-proofing". A poka-yoke is any mechanism in a lean
manufacturing process that helps an equipment operator avoid mistakes. Its purpose is to eliminate
product defects by preventing, correcting, or drawing attention to human errors as they occur.
Poka-yoke is designed to stop the movement of a component to the next station by using "fail-
safing" techniques to eliminate errors or quality-related production defects as far upstream in
the process as possible.

History

The term poka-yoke was applied by Shigeo Shingo in the 1960s to industrial processes
designed to prevent human errors.[4] Shingo redesigned a process in which factory workers,
while assembling a small switch, would often forget to insert the required spring under one
of the switch buttons. In the redesigned process, the worker would perform the task in two
steps, first preparing the two required springs and placing them in a placeholder, then
inserting the springs from the placeholder into the switch. When a spring remained in the
placeholder, the workers knew that they had forgotten to insert it and could correct the
mistake effortlessly.

Shingo distinguished between the concepts of inevitable human mistakes and defects in the
production. Defects occur when the mistakes are allowed to reach the customer. The aim of
poka-yoke is to design the process so that mistakes can be detected and corrected
immediately, eliminating defects at the source.

Implementation in manufacturing
Poka-yoke can be implemented at any step of a manufacturing process where something
can go wrong or an error can be made. For example, a jig that holds pieces for processing
might be modified to only allow pieces to be held in the correct orientation, or a digital
counter might track the number of spot welds on each piece to ensure that the worker
executes the correct number of welds.
Shigeo Shingo recognized three types of poka-yoke for detecting and preventing errors in a
mass production system:

1. The contact method identifies product defects by testing the product's shape, size, color, or
other physical attributes.
2. The fixed-value (or constant number) method alerts the operator if a certain number of
movements are not made.
3. The motion-step (or sequence) method determines whether the prescribed steps of the
process have been followed.

Either the operator is alerted when a mistake is about to be made, or the poka-yoke device
actually prevents the mistake from being made. In Shingo's lexicon, the former
implementation would be called a warning poka-yoke, while the latter would be referred to
as a control poka-yoke.[2]

Shingo argued that errors are inevitable in any manufacturing process, but that if
appropriate poka-yokes are implemented, then mistakes can be caught quickly and
prevented from resulting in defects. By eliminating defects at the source, the cost of
mistakes within a company is reduced.

SIX SIGMA

DMAIC- DEFINE, MEASURE, ANALYSE, IMPLEMENT, CONTROL (reducing defects and rejects
and variations)
Gather data of errors (pin points)-DM
Problem area- A

Establish mean value- expected value

Acceptance region
Objective- variation should not exceed 6 times of sigma
Probability- 3.4 defects/million

Assemble mobile-
Mobile -1 entity.100 compnents.
Each component defect should be lesser than 0.034 / million.

Motorola introduced. General Electrics

Strt- invstmnt high. Return low.
Gradually –inverse
So recommended. Six Sigma is a set of techniques and tools for process improvement. It was
developed by Motorola in 1986.

Six Sigma seeks to improve the quality output of process by identifying and removing the
causes of defects (errors) and minimizing variability in manufacturing and business
processes. It uses a set of quality management methods, mainly empirical, statistical
methods, and creates a special infrastructure of people within the organization
("Champions", "Black Belts", "Green Belts", "Yellow Belts", etc.) who are experts in these
methods. Each Six Sigma project carried out within an organization follows a defined
sequence of steps and has quantified value targets, for example: reduce process cycle time,
reduce pollution, reduce costs, increase customer satisfaction, and increase profits.

The term Six Sigma originated from terminology associated with statistical modeling of
manufacturing processes. The maturity of a manufacturing process can be described by a
sigma rating indicating its yield or the percentage of defect-free products it creates. A six
sigma process is one in which 99.99966% of all opportunities to produce some feature of a
part are statistically expected to be free of defects (3.4 defective features / million
opportunities), although, as discussed below, this defect level corresponds to only a 4.5
sigma level.

Eg. Motorola, Gneral Electric, Honeybell.

Six Sigma projects follow DMAIC.

The DMAIC project methodology has five phases:

 Define the system, the voice of the customer and their requirements, and the project goals,
specifically.
 Measure key aspects of the current process and collect relevant data; calculate the 'as-is'
Process Capability.
 Analyze the data to investigate and verify cause-and-effect relationships. Determine what
the relationships are, and attempt to ensure that all factors have been considered. Seek out
root cause of the defect under investigation.
 Improve or optimize the current process based upon data analysis using techniques such as
design of experiments, poka yoke or mistake proofing, and standard work to create a new,
future state process. Set up pilot runs to establish process capability.
 Control the future state process to ensure that any deviations from the target are corrected
before they result in defects. Implement control systems such as statistical process control,
production boards, visual workplaces, and continuously monitor the process.
Graph of the normal distribution, which underlies the statistical assumptions of the Six Sigma model. The
Greek letter σ (sigma) marks the distance on the horizontal axis between the mean, µ, and the curve's
inflection point. The greater this distance, the greater is the spread of values encountered. For the green
curve shown above, µ = 0 and σ = 1. The upper and lower specification limits (USL and LSL, respectively)
are at a distance of 6σ from the mean. Because of the properties of the normal distribution, values lying
that far away from the mean are extremely unlikely. Even if the mean were to move right or left by 1.5σ
at some point in the future (1.5 sigma shift, coloured red and blue), there is still a good safety cushion.
This is why Six Sigma aims to have processes where the mean is at least 6σ away from the nearest
specification limit.

POSTPONEMENT
Postponement is a concept in supply chain management where the manufacturer produces a generic
product, which can be modified at the later stages before the final transport to the customer. Take for
example an umbrella manufacturer who does not know what the demand will be for different colored
umbrellas. The manufacturer will manufacture all white umbrellas and dye them later when umbrellas
are in season, and it's easier to predict demand of each color of umbrella. This way the manufacturer
can stock up on white umbrellas early with minimal labor costs, and be sure of the demand before they
dedicate time and money into predicting the demand so far in the future.

REQUEST FOR INFORMATION

A request for information (RFI) is a standard business process whose purpose is to collect
written information about the capabilities of various suppliers. Normally it follows a format
that can be used for comparative purposes.

An RFI is primarily used to gather information to help make a decision on what steps to take
next. RFIs are therefore seldom the final stage and are instead often used in combination
with the following: request for proposal (RFP), request for tender (RFT), and request for
quotation (RFQ). In addition to gathering basic information, an RFI is often used as a
solicitation sent to a broad base of potential suppliers for the purpose of conditioning
suppliers' minds, developing strategy, building a database, and preparing for an RFP, RFT, or
RFQ.[1]

The RFI procedure is used in the construction industry in cases where it is necessary to confirm the
interpretation of a detail, specification or note on the construction drawings or to secure a
documented directive or clarification from the architect or client that is needed to continue work.

An RFI raised by the general contractor that has been answered by the client or architect
and distributed to all stakeholders is generally accepted as a change to the scope of work
unless further approval is required for costs associated with the change.

It is common and accepted practice for a subcontractor or supplier to use an RFI to state
his/her concern related to the omission or misapplication of a product, and seek further
clarification of the building owner's intended use or the building official acceptance of the
specified product. It is also acceptable for the subcontractor to use an RFI to call attention
to an inferior product that may not meet the building owner's needs, and use his/her
expertise to recommend the better/correct product.

RFP

A request for proposal (RFP) is a solicitation, often made through a bidding process, by an
agency or company interested in procurement of a commodity, service or valuable asset, to
potential suppliers to submit business proposals. It is submitted early in the procurement
cycle, either at the preliminary study, or procurement stage.

The RFP presents preliminary requirements for the commodity or service, and may dictate
to varying degrees the exact structure and format of the supplier's response. Effective RFPs
typically reflect the strategy and short/long-term business objectives, providing detailed
insight upon which suppliers will be able to offer a matching perspective.

Similar requests include a request for quotation (RFQ), whereby the vendor may simply be
looking for a price quote, and a request for information (RFI), where the customer needs
more information from vendors before submitting an RFP. An RFI is typically followed by an
RFP or RFQ.

In principle, an RFP:

 informs suppliers that an organization is looking to procure and encourages them to

make their best effort.
 requires the company to specify what it proposes to purchase. If the requirements
analysis has been prepared properly, it can be incorporated quite easily into the
Request document.
 alerts suppliers that the selection process is competitive.
  allows for wide distribution and response.
 ensures that suppliers respond factually to the identified requirements.
 is generally expected to follow a structured evaluation and selection procedure, so
that an organization can demonstrate impartiality - a crucial factor in public sector
procurements.

Specifications
An RFP typically involves more than a request for the price. Other requested information
may include basic corporate information and history, financial information (can the
company deliver without risk of bankruptcy), technical capability (used on major
procurements of services, where the item has not previously been made or where the
requirement could be met by varying technical means), product information such as stock
availability and estimated completion period, and customer references that can be checked
to determine a company's suitability (including educational and military background of its
employees on the project --- college graduates and those with advanced college degrees
may add "value" from the bidder.

In the militaries of many countries, an RFP is often raised to fulfil an Operational

Requirement (OR), after which the procurement authority will normally issue a detailed
technical specification against which tenders (i.e.., bids) will be made by potential
contractors. In the civilian use, an RFP is usually part of a complex sales process, also known
as enterprise sales.

RFPs often include specifications of the item, project or service for which a proposal is
requested. The more detailed the specifications, the better the chances that the proposal
provided will be accurate. Generally RFPs are sent to an approved supplier or vendor list.

The bidders return a proposal by a set date and time. Late proposals may or may not be
considered, depending on the terms of the initial RFP. The proposals are used to evaluate
the suitability as a supplier, vendor, or institutional partner. Typically organizations follow a
detailed vendor screening process to short list the vendors who should be invited for further
rounds of negotiation. This screening process could either be vendor scoring models or
internal discussions within the buyer organization. Discussions may be held on the proposals
(often to clarify technical capabilities or to note errors in a proposal or in many cases to
negotiate on the price). In most instances, only selected bidders may be invited to
participate in subsequent bids, or may be asked to submit their best technical and financial
proposal, commonly referred to as a Best and Final Offer (BAFO). Subsequent changes can
be referred to as the Best and Revised Final Offer (BARFO).

Once both the parties i.e. a buyer organization and seller organization agree on the
technical and commercial terms and conditions of the proposal, they could move on to next
steps like contract signing, statement of work which would formalize the purchase
transactions.

Today, many organizations are becoming more collaborative in the development of RFPs;
this is especially true for universities and other major public entities making major
technology purchases. RFP-issuing groups ask for specific use cases, rather than providing a
list of features, and ensure they have the opportunity to include demonstrations, webinars
and meetings as part of the RFP process to ensure they have a strong understanding of all
competing products before making a purchase. [4]

Other requests
A request for quotation (RFQ) is used when discussions with bidders are not required
(mainly when the specifications of a product or service are already known) and when price is
the main or only factor in selecting the successful bidder. An RFQ may also be used prior to
issuing a full-blown RFP to determine general price ranges. In this scenario, products,
services or suppliers may be selected from the RFQ results to bring in to further research in
order to write a more fully fleshed out RFP.

RFP is sometimes used for a request for pricing.

A request for information (RFI) is a proposal requested from a potential seller or a service
provider to determine what products and services are potentially available in the
marketplace to meet a buyer's needs and to know the capability of a seller in terms of
offerings and strengths of the seller. RFIs are commonly used on major procurements,
where a requirement could potentially be met through several alternate means. An RFI,
however, is not an invitation to bid, is not binding on either the buyer or sellers, and may or
may not lead to an RFP or RFQ.

A request for qualification (RFQ) is a document often distributed before initiation of the
RFP process. It is used to gather vendor information from multiple companies to generate a
pool of prospects. This eases the RFP review process by preemptively short-listing
candidates which meet the desired qualifications.

A request for tender (RFT) is more commonly used by government.

Request for quotation

A request for quotation (RFQ) is a standard business process whose purpose is to invite
suppliers into a bidding process to bid on specific products or services. RFQ, generally means
the same thing as IFB (Invitation For Bid).[1]

An RFQ typically involves more than the price per item. Information like payment terms,
quality level per item or contract length are possible to be requested during the bidding
process.

To receive correct quotes, RFQs often include the specifications of the items/services to
make sure all the suppliers are bidding on the same item/service. Logically, the more
detailed the specifications, the more accurate the quote will be and comparable to the
other suppliers.[original research] Another reason for being detailed in sending out an RFQ
is that the specifications could be used as legal binding documentation for the suppliers.

The suppliers have to return the bidding by a set date and time to be considered for an
award. Discussions may be held on the bids (often to clarify technical capabilities or to
note errors in a proposal). The bid does not have to mean the end of the bidding. Multiple
rounds can follow or even a reverse auction can follow to generate the best market price.

RFQs are best suited to products and services that are as standardised and as commoditised
as possible, as this makes each supplier's quote comparable. In practice, many businesses
use an RFQ where an RFT or RFI would be more appropriate.[2]

An RFQ allows different contractors to provide a quotation, among which the best will be
selected. It also makes the potential for competitive bidding a lot higher, since the
suppliers could be quite certain that they are not the only ones bidding for the products.

Requests for quotations are most commonly used in the business environment but can also
be found being applied to domestic markets.

Here is the list of specifications that are typically included in requests for studies in the
market research industry

 Type of Study (e.g., Online, P, CLT, Focus Groups)

 Survey Lengths (e.g., 1-5 mins, 6-10 mins, 11-15 mins)
 Research Methodology (e.g., Conjoint Study, Optimization Study, Discrete Choice
Study, Segmentation, Satisfaction Tracking, etc.)
 Subgroups - readable bases necessary for statistically significant reporting.
 Type of material (eg: commodity etc.

THEORY OF CONSTRAINTS

The theory of constraints (TOC) is a management paradigm that views any manageable
system as being limited in achieving more of its goals by a very small number of
constraints.

There is always at least one constraint, and TOC uses a focusing process to identify the
constraint and restructure the rest of the organization around it.

TOC adopts the common idiom "a chain is no stronger than its weakest link." This means
that processes, organizations, etc., are vulnerable because the weakest person or part can
always damage or break them or at least adversely affect the outcome.
The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that
every complex system, including manufacturing processes, consists of multiple linked
activities, one of which acts as a constraint upon the entire system (i.e. the constraint
activity is the “weakest link in the chain”).

 NECESSITY OF TOC- Spending time optimizing non-constraints will not provide

significant benefits; only improvements to the constraint will further the goal
(achieving more profit).

Thus, TOC seeks to provide precise and sustained focus on improving the current
constraint until it no longer limits throughput, at which point the focus moves to
the next constraint.

The Theory of Constraints provides a specific methodology for identifying and

eliminating constraints, referred to as the Five Focusing Steps. As shown in the
following diagram, it is a cyclical process.

Step Objective

Identify the current constraint (the single part of the process that limits the rate at which the goal is achieved).
Identify
 Make quick improvements to the throughput of the constraint using existing resources (i.e. make the most of
Exploit what you have).

Review all other activities in the process to ensure that they are aligned with and truly support the needs of
Subordinate the constraint.

If the constraint still exists (i.e. it has not moved), consider what further actions can be taken to eliminate it
Elevate from being the constraint. Normally, actions are continued at this step until the constraint has been “broken”
(until it has moved somewhere else). In some cases, capital investment may be required.

The Five Focusing Steps are a continuous improvement cycle. Therefore, once a constraint is resolved the next
Repeat constraint should immediately be addressed. This step is a reminder to never become complacent –
aggressively improve the current constraint…and then immediately move on to the next constraint.

Key assumption
The underlying premise of the theory of constraints is that organizations can be measured
and controlled by variations on three measures: throughput, operational expense, and
inventory. Inventory is all the money that the system has invested in purchasing things
which it intends to sell. Operational expense is all the money the system spends in order to
turn inventory into throughput. Throughput is the rate at which the system generates
money through sales. [3]

Core Measures Definition

Throughput The rate at which customer sales are generated less truly variable costs (typically raw materials, sales
commissions, and freight). Labour is not considered a truly variable cost unless pay is 100% tied to pieces
produced.

Investment Money that is tied up in physical things: product inventory, machinery and equipment, real estate, etc.
Formerly referred to in TOC as Inventory.

Operating Money spent to create throughput, other than truly variable costs (e.g. payroll, utilities, taxes, etc.). The cost
Expense of maintaining a given level of capacity.

The five focusing steps aim to ensure ongoing improvement efforts are centered on the
organization's constraint(s). In the TOC literature, this is referred to as the process of
ongoing improvement (POOGI).
These focusing steps are the key steps to developing the specific applications mentioned
below.

A successful Theory of Constraints implementation will have the following benefits:

 Increased profit (the primary goal of TOC for most companies)

 Fast improvement (a result of focusing all attention on one critical area – the system
constraint)
 Improved capacity (optimizing the constraint enables more product to be manufactured)
 Reduced lead times (optimizing the constraint results in smoother and faster product
flow)
 Reduced inventory (eliminating bottlenecks means there will be less work-in-process)

Types of (internal) constraints

 Equipment: The way equipment is currently used limits the ability of the system to
produce more salable goods/services.
 People: Lack of skilled people limits the system. Mental models held by people can
cause behavior that becomes a constraint.
 Policy: A written or unwritten policy prevents the system from making more.

The constraint is the limiting factor that is preventing the organization from getting more
throughput (typically, revenue through sales) even when nothing goes wrong.

Breaking a constraint

If a constraint's throughput capacity is elevated to the point where it is no longer the

system's limiting factor, this is said to "break" the constraint. The limiting factor is now
some other part of the system, or may be external to the system (an external constraint).

YHIN TK

Applications in Supply chain / logistics

In general, the solution for supply chains is to create flow of inventory so as to ensure
greater availability and to eliminate surpluses.
The TOC distribution solution is effective when used to address a single link in the supply
chain and more so across the entire system, even if that system comprises many different
companies. The purpose of the TOC distribution solution is to establish a decisive
competitive edge based on extraordinary availability by dramatically reducing the
damages caused when the flow of goods is interrupted by shortages and surpluses.

This approach uses several new rules to protect availability with less inventory than is
conventionally required. Before explaining these new rules, the term Replenishment Time
must be defined. Replenishment Time (RT) is the sum of the delay, after the first
consumption following a delivery, before an order is placed plus the delay after the order is
placed until the ordered goods arrive at the ordering location.

1. Inventory is held at an aggregation point(s) as close as possible to the source. This

approach ensures smoothed demand at the aggregation point, requiring
proportionally less inventory. The distribution centers holding the aggregated stock
are able to ship goods downstream to the next link in the supply chain much more
quickly than a make-to-order manufacturer can.
2. Following this rule may result in a make-to-order manufacturer converting to make-
to-stock. The inventory added at the aggregation point is significantly less than the
inventory reduction downstream.
3. In all stocking locations, initial inventory buffers are set which effectively create an
upper limit of the inventory at that location. The buffer size is equal to the maximum
expected consumption within the average RT, plus additional stock to protect in case
a delivery is late. In other words, there is no advantage in holding more inventory in
a location than the amount that might be consumed before more could be ordered
and received. Typically, the sum of the on hand value of such buffers are 25–75%
less than currently observed average inventory levels.
4. Once buffers have been established, no replenishment orders are placed as long as
the quantity inbound (already ordered but not yet received) plus the quantity on
hand are equal to or greater than the buffer size. Following this rule causes surplus
inventory to be bled off as it is consumed.
5. For any reason, when on hand plus inbound inventory is less than the buffer, orders
are placed as soon as practical to increase the inbound inventory so that the
relationship On Hand + Inbound = Buffer is maintained.
6. To ensure buffers remain correctly sized even with changes in the rates of demand
and replenishment, a simple recursive algorithm called Buffer Management is used.
When the on hand inventory level is in the upper third of the buffer for a full RT, the
buffer is reduced by one third (and don’t forget rule 3). Alternatively, when the on
hand inventory is in the bottom one third of the buffer for too long, the buffer is
increased by one third (and don’t forget rule 4). The definition of “too long” may be
changed depending on required service levels, however, a general rule of thumb is
20% of the RT. Moving buffers up more readily than down is supported by the
usually greater damage caused by shortages as compared to the damage caused by
surpluses.

Once inventory is managed as described above, continuous efforts should be undertaken to

reduce RT, late deliveries, supplier minimum order quantities (both per SKU and per order)
and customer order batching. Any improvements in these areas will automatically improve
both availability and inventory turns, thanks to the adaptive nature of Buffer Management.

A stocking location that manages inventory according to the TOC should help a non-TOC
customer (downstream link in a supply chain, whether internal or external) manage their
inventory according to the TOC process. This type of help can take the form of a vendor
managed inventory (VMI). The TOC distribution link simply extends its buffer sizing and
management techniques to its customers’ inventories. Doing so has the effect of smoothing
the demand from the customer and reducing order sizes per SKU. VMI results in better
availability and inventory turns for both supplier and customer. More than that, the benefits
to the non-TOC customers are sufficient to meet the purpose of capitalizing on the decisive
competitive edge by giving the customer a powerful reason to be more loyal and give more
business to the upstream link. When the end consumers buy more the whole supply chain
sells more.

One caveat should be considered. Initially and only temporarily, the supply chain or a
specific link may sell less as the surplus inventory in the system is sold. However, the
immediate sales lift due to improved availability is a countervailing factor. The current levels
of surpluses and shortages make each case different.[citation needed]