{"id":3570,"date":"2024-02-29T00:04:15","date_gmt":"2024-02-29T00:04:15","guid":{"rendered":"https:\/\/keypractices.viagointernational.com\/?page_id=3570"},"modified":"2024-02-29T00:04:15","modified_gmt":"2024-02-29T00:04:15","slug":"replenishment-decouple-application","status":"publish","type":"page","link":"https:\/\/keypractices.viagointernational.com\/?page_id=3570","title":{"rendered":"Replenishment Decouple Application"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

Julian, a journalist for \u2018Big in Business\u2019 magazine, was visiting Orbital Power Tools as research for an upcoming article. After a whirlwind interview with the operations manager, his next stop was the factory itself to meet with the production manager. The production manager, a short man with a long beard, met him at the door to the factory.<\/p>\n\n\n\n

\u201cHi! Julian, right?\u201d he said, extending his hand. \u201cI\u2019m Terry, the production guy here at OPT.\u201d<\/p>\n\n\n\n

\u201cGood to meet you,\u201d Julian said, shaking his hand. \u201cThat\u2019s right. I\u2019ve just spoken to Tabitha, and she said you could give me a few more details about the changes that you guys have been making.\u201d<\/p>\n\n\n\n

Terry nodded and gestured for Julian to enter a small glass-walled office just inside the door. \u201cLet\u2019s talk in there,\u201d he said. \u201cIt\u2019s a bit quieter, and we can do the tour after that.\u201d<\/p>\n\n\n\n

Once Julian was seated, Terry turned to him with an alert expression. \u201cSo, Tabby would have told you that we made some changes to how we maintain stock levels.\u201d<\/p>\n\n\n\n

\u201cYes\u2026\u201d Julian flipped a couple of pages in his notebook, checking what he had written during his earlier meeting. \u201cShe mentioned something about\u2026 replenishment? Is that right?\u201d<\/p>\n\n\n\n

\u201cThat\u2019s right,\u201d Terry nodded. \u201cIt\u2019s a response to the classic conflict of supply managers everywhere.\u201d<\/p>\n\n\n\n

Julian frowned and scribbled another note. \u201cYou\u2019re going to have to explain that a bit, sorry.\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cHappy to!\u201d Terry smiled and held out his hands. \u201cAs a supply manager, you want to do a good job, right? This means you have to make sure operations don\u2019t run out of input materials, so you need to keep the raw material inventory topped up. On the other hand, though, you also have to keep inventory costs low, so you need to let the raw material inventory run down to a minimum. And, obviously, you can\u2019t both top up the inventory and let it run down at the same time, so the conflict is about which side you choose.\u201d<\/p>\n\n\n\n

Terry shrugged. \u201cMost people are more concerned about protecting operations from stockouts, so that\u2019s the side they come down on, but that has negative consequences. Slow-moving inventory ends up being held for a long time, storage space becomes scarce, it\u2019s easy to end up with huge stocks of the wrong things, and to top it all off inventory costs are high.\u201d<\/p>\n\n\n\n

\u00a0<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cRight,\u201d Julian nodded, \u201cso that\u2019s why people tend to run down their stocks instead. It keeps inventory costs low and stops all that \u2018money in chains\u2019 we talk about.\u201d<\/p>\n\n\n\n

\u201cWell yes,\u201d Terry said, \u201cbut actually no. That approach has problems too. You run out of fast-moving inventory the fastest, there\u2019s a greater risk of stock-outs occurring, and so operations get disrupted because they don\u2019t have the supplies they need.\u201d<\/p>\n\n\n\n

\u201cAh\u2026 that\u2019s where the conflict comes in, right?\u201d Julian asked. \u201cThere are bad effects no matter which side you come down on. Does your replenishment idea fix that?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Terry nodded firmly. \u201cYes,\u201d he replied, then paused for a moment. \u201cWell, it\u2019s not quite perfect \u2013 no system ever is \u2013 but it\u2019s reduced our stock problems by about 90%. It\u2019s a completely different story now: our inventory costs are stable and low, we have high availability of supply, customer-facing lead times aren\u2019t affected by stock issues, there\u2019s minimal cash tied up in inventory, and because there\u2019s less handling and storage there\u2019s also less incidental damage. Really, there\u2019s no way we would want to go back to how things were.\u201d<\/p>\n\n\n\n

When he didn\u2019t continue, Julian prodded him a little. \u201cThat sounds really good,\u201d he said. \u201cBut I\u2019m still a bit puzzled about what this replenishment idea actually is. Could you explain what you are doing differently, so I can include a description of it in the article I\u2019m writing?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cRight\u2026\u201d Terry said thoughtfully, \u201cOkay, normal supply management can be summed up as you order a stock of supplies, you use them up, and when you get low you order more. That\u2019s obviously oversimplified, but it\u2019s pretty much how it works. And that system causes problems: you almost always end up ordering too much or not enough. Order too much and it has to be stored, it ties up cash, if your needs change you might be stuck with a room full of stuff you can\u2019t use, and even in storage, it can get damaged. If you don\u2019t order enough, though, that\u2019s just as bad: you might have to stop operations, your lead times extend because you\u2019re waiting for supplies, and even with expediting you can\u2019t fulfil customer requests that have short lead times. With me so far?\u201d<\/p>\n\n\n\n

Julian nodded. This all sounded familiar \u2013 he\u2019d talked with supply managers at other businesses, and there was nothing new about any of this. \u201cAnd replenishment is different?\u201d he prompted.<\/p>\n\n\n\n

\u201cYeah,\u201d Terry said, grinning. \u201cWhat we do is track usage of supplies, same as anywhere else. The difference is that at the end of every day, we put in an order for what we used that day.\u201d<\/p>\n\n\n\n

Julian frowned. \u201cSurely daily deliveries must make the freight charges explode,\u201d he said. \u201cAnd isn\u2019t this really a just-in-time system with a clown suit on?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cAh, not quite!\u201d Terry exclaimed. \u201cWe order daily, but we don\u2019t get deliveries daily. Our supplier just adds them all up and delivers when they hit a certain threshold. What that threshold is differs from product to product, of course \u2013 the point is that we don\u2019t have to guess how much to order, it\u2019s based on actual usage. That alone makes a big difference.\u201d<\/p>\n\n\n\n

\u201cHmm.\u201d Julian thought about it. He could see that this method would reduce the amount of inventory that had to be kept on-hand. But\u2026 \u201cYou must still keep some stock here,\u201d he said. \u201cOtherwise, your lead times would be even longer. And if you have to do that anyway, is there really much advantage over ordering a whole batch at once?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Terry nodded firmly. \u201cAbsolutely,\u201d he said with conviction. \u201cIt\u2019s still much easier and more flexible. It took us a few tries to get the levels right, of course. But our supply lead times are actually pretty reliable \u2013 if an order ships, we know pretty accurately how long it\u2019ll take to get to us. The rule of thumb that we use is to have enough stock on hand that 90% of the time, the replacement \u2018top-up\u2019 gets to us before we run out of the item being ordered. If we wanted to reduce the risk even further, we could keep more stock on hand, but that 90% figure is good enough for us. The remaining 10% we can cover with expediting if we need to. The reality is that we now find most of our inventory is actually en route rather than being here in the warehouse, and we now get almost continual small volume inward goods deliveries that clear quickly, rather than the more disruptive large deliveries.\u201d<\/p>\n\n\n\n

Julian still wasn\u2019t sure he understood properly. \u201cAre there any other situations where this is used?\u201d he said. \u201cJust so there\u2019s another point of reference, you understand.\u201d<\/p>\n\n\n\n

\u201cAbsolutely!\u201d Terry laughed. \u201cToilet paper.\u201d<\/p>\n\n\n\n

\u201cToilet \u2013 what?\u201d For a moment Julian wasn\u2019t sure he\u2019d heard right.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cToilet paper,\u201d Terry repeated, and leant forward to explain. \u201cThink about it \u2013 it\u2019s something you absolutely don\u2019t want to run out of, right? But you won\u2019t just buy it once a year and keep a whole room full of it, no matter how good the price is. Most people can confidently predict when they\u2019ll be able to get more, so they just buy enough to last them until then, plus maybe a couple of extra rolls just to be on the safe side, right?\u201d<\/p>\n\n\n\n

\u201cThat\u2026 actually makes sense,\u201d Julian said slowly. \u201cThat\u2019s a good example!\u201d<\/p>\n\n\n\n

\u201cYeah,\u201d Terry grinned. \u201cMost people actually understand replenishment already, they just don\u2019t know they\u2019re doing it.\u201d<\/p>\n\n\n\n

Julian nodded. \u201cAlright. Any advice for people thinking about trying out replenishment?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cBe prepared for some intense discussions about what stock levels to maintain,\u201d Terry said, grimacing slightly. \u201cPeople can get pretty sensitive about reducing safety margins if they think they\u2019re going to be held responsible for stock-outs. My suggestion is to start small \u2013 choose five or so items and implement replenishment for them, get a feel for how the system works and what sort of stock levels you need, and then choose another five items and do it again. When the debate couldn\u2019t be easily resolved we started tracking actual levels daily to find the highs and the lows, and then halved the excess safety.\u201d<\/p>\n\n\n\n

Terry thought for a moment, looking at the ceiling. \u201cUmm, you also probably shouldn\u2019t bother with replenishment for small low-value items. Replenishment does take a bit of admin overhead, and it\u2019s just not worth it for low-value items. For them, just use a 2-bin or 3-bin floor stock system, it\u2019s easier and less fuss.\u201d<\/p>\n\n\n\n

\u201cGood to know.\u201d Julian made another note, then looked up. \u201cThere\u2019s a couple of other issues I can see, although I imagine you\u2019ve got answers for them.\u201d<\/p>\n\n\n\n

Terry shrugged. \u201cMaybe, maybe not. If they\u2019re things we haven\u2019t thought of then it\u2019ll be good to have them pointed out. What\u2019s on your mind?\u201d<\/p>\n\n\n\n

\u201cThey\u2019re both to do with variability of demand,\u201d Julian said. \u201cSome businesses have seasonal variation. I don\u2019t imagine power tools is one of them, but would replenishment work in those environments?\u201d<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

\u201cIt should do,\u201d Terry responded. \u201cIf the seasonal demand is predictable \u2013 Christmas or winter sports, say \u2013 there\u2019s no reason you can\u2019t just automatically increase the replenishment amounts in those months, and the ones leading up to them, to allow for that. You still wouldn\u2019t have to carry seasonal protection in the off-season.\u201d<\/p>\n\n\n\n

 \u201cUh-huh,\u201d Julian said. \u201cAnd what about if the variability isn\u2019t<\/em> predictable? Like, what if everyone gets a wild desire for belt-sanders, for example? You\u2019d run out of stock way faster than your replenishment system would allow for.\u201d<\/p>\n\n\n\n

Terry laughed again. \u201cYeah, belt sanders are really one of those fashion items that might take off at any minute! Actually, that\u2019s something we thought about when we were setting all this up,\u201d he said, still chuckling. \u201cIt was a sort of an emergency plan in case we hadn\u2019t got the replenishment amounts right, but we decided to keep it in place in case belt sanders get really popular or something. The short version is that for anything on replenishment, we have a stock level which triggers an alert when it goes below 1\/3 of what we need to get through to the next reliable replenishment date. When that happens, we put in a rush order for enough to get us back up to two-thirds. It costs a bit more, and we have to deal with different suppliers, which is a pain, but it\u2019s better than having operations grind to a halt.\u201d<\/p>\n\n\n\n

Julian nodded, impressed. \u201cIt sounds like you\u2019ve covered everything,\u201d he said. \u201cAnything else you want to make sure I cover in the article?\u201d<\/p>\n\n\n\n

Terry shook his head. \u201cCan\u2019t think of anything right now.\u201d He stood up and gestured towards the door. \u201cReady for that factory tour?\u201d<\/p>\n\n\n\n

Julian smiled and stood up, putting away his notebook. \u201cYeah, I think I am. Let\u2019s see what a factory using replenishment looks like!\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Julian, a journalist for \u2018Big in Business\u2019 magazine, was visiting Orbital Power Tools as research for an upcoming article. After a whirlwind interview with the operations manager, his next stop was the factory itself to meet with the production manager. The production manager, a short man with a long beard, met him at the door …<\/p>\n

Replenishment Decouple Application<\/span> Read More »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","footnotes":""},"class_list":["post-3570","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/pages\/3570"}],"collection":[{"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3570"}],"version-history":[{"count":2,"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/pages\/3570\/revisions"}],"predecessor-version":[{"id":3583,"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=\/wp\/v2\/pages\/3570\/revisions\/3583"}],"wp:attachment":[{"href":"https:\/\/keypractices.viagointernational.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}