Frequently Asked Questions TOC and Synchronized Supply Chain
The differences and advantages of TOC-Supplychain Synchronization versus: Stock management on order point; Kan-Ban; E-Kan-Ban or Requirement planning with MRP or ERP.
There are already many stock control methods, is there really a need for something else? From the experience of the application in more complex supply chains, one can conclude that the TOC-Supplychain control absorbs many shortcomings that are typical of other known and nevertheless good techniques. Not because these techniques are not good, but because they can only be applied under certain conditions, which are often not recognised or changed by the evolution of the business itself.
The oldest technique: Re-supply at order point is one of the best, isn't it?
The most commonly used technique for stock management is indeed based on the order point: A critical quantity that has been determined according to algorithms based on calculations or experience, and that gives a signal that there is a need to re-stock.
The advantage is obvious: the quantities are no longer up for discussion. Purchasing, logistics and production know exactly what to do. The EOQ (Economic Order Quantity) formula is often used to put a more responsible figure on it. This approach is very tempting because it meets our desire to use an 'objective' figure that is economically sound. The formula itself is mathematically correct but the outcome depends mainly on the assumptions behind the parameters. For example, large mistakes are sometimes committed to variable fixed costs, which are not variable at all in the operational horizon.
When this order point, even if it is correctly calculated, is elevated as absolute truth and no further account is taken of delivery periods and the variation of those delivery periods and/or the variation and especially peaks in demand, panic situations regularly arise due to shortages. When this symptom arises, one should certainly ask oneself whether the decision algorithms are still valid. Moreover, let us not forget that some of these 'classic' solutions were devised for the companies of the last century with relatively large volumes, whereas we now have to deal with ever smaller volumes and volatile markets. In other words, we should be constantly updating the parameters of order points and security stocks... which, of course, does not happen in practice. As a result, these figures are over-ruled and more and more of our 'own' calculations are created with the frequent (mostly off-line) Spread-Sheet systems.
Surely it is not just stocks of finished products or raw materials that need to be managed?
In some mass production, Kan-Ban has brought a simple and reliable solution.
It ensures synchronisation between 2 operations in the chain, while the variation is absorbed by the size of the Kan-Ban. Bravo, this works! What's more, this technique requires little or no red tape and is preferably carried out by the operational people on the work floor themselves.
As always, attempts have been made to copy this successful technique to other domains with much less result. Not because the technique is flawed, but because the basic conditions are not met, such as: repetitiveness and stability. From our own experience we also have to conclude that more than half of the very well started Kan-Ban implementations get bogged down after a while due to a lack of update because: no time for this kind of puzzle work with the operational managers when one of the preconditions changes.....
One of these preconditions is, for example: the physical layout on the work floor. If there are now too many components, it becomes cluttered again and so a solution has been sought in the computerisation process: the so-called..: E-KanBan, but this again depends on the availability of the information. What's more, regular checks and updates are needed here too... and here we go again!
But even this technique does not offer a solution for the synchronisation of the different points of stock such as: central and regional warehouses and certainly not in an environment where there is a lot of variation.
Is there no solution for smaller volumes?
People once thought: Oh, don't worry, the material requirement planning of our MRP or ERP will solve this! Right, this also works well when everything is fairly stable; but when the order date is shifted or when deliveries are longer than planned or when production bottlenecks arise or when combinations of make-to-stock and make-to-order are created, one often has to fall back on manual interventions that are controlled by a lot of craftsmanship and intuition of the people involved, whether or not helped by so beloved 'own systems'. Attempts have also been made to optimally synchronise this with APS, but there are even larger bear traps under the grass here too.
How do we get out of this tangle?
It seems that the typical TOC technique n.l. BUFFERMANAGEMENT is a solution. When applied in the supply chain, buffer management provides a number of solutions. Buffers are not only there to absorb shocks but are actively used in the TOC control as a priority mechanism. Together with some fundamental interventions such as the disappearance of the order point in favour of a monitoring zone, the dynamic adjustment of parameters and the combination of make-to-order and make-to-stock in a single logic, the whole becomes workable.
Is that not already available in most ERPs?
Ironically, the answer is no! The data is there, but the overarching logic, which supports daily decisions, is usually based on the 'classical' methods. By the way, this has forced us to work out the complete logic in the C&DS software.
What does this solve?
The known advantages are at present:
* The 'right' stock is no longer a point of discussion because the built-in correction and monitoring mechanism ensures that the quantities are self-adjusting. The same applies to changes in the behaviour of supply or offtake.
* Large volume or small volumes, it doesn't matter anymore. The method of control is the same.
* All users in the entire supply chain work according to the same priorities.
* Global stocks can be drastically reduced without loss, sometimes even with improvement, of delivery reliability.
* Continuous improvement is done with a focus on the structural problems.
How can a stock manager still keep control of all these phenomena and parameters and adjustments?
POOGI technology is coming to the rescue here. (POOGI = Process Of On-Going Improvement) which was originally used in production. POOGI not only becomes the internal means of communication between the various managers in the supply chain, but also provides the permanent diagnosis of the supply chain and allows the difference between symptoms and real causes to be made.
So is C&DS a separate application? Are we not going to sin against the basic rules of the integrated ERP and create inconsistencies?
On the contrary, C&DS is plugged into the existing ERP and integrated as far as possible, which in practice ensures a fast and reliable implementation, which is much quicker, and much cheaper, than 'reprogramming' it into your own ERP.