March 15, 2013 at 16:57Once again about inventory management
The other day I had negotiations with two different companies. The main theme of both negotiations is inventory management. In both cases, they tried to convince me that the methods of Goldratt's Theory of Constraints were not suitable for them.
And this happened every time from a banal ignorance of how these methods work.
First in the meeting room is one person from the company. Directly the one who invited us.
Excerpts from the dialogue:
“Do I understand correctly that the key topic of the negotiations is stocks?” I ask.
- Yes. We have been dealing with this issue for a long time and now we are looking for a solution. We heard about the decision of company X (I will not mention it in this post), the peaks are very beautifully smoothed there, everything is planned. They have been using this system for a year now. Very good, efficient system.
- How have the stocks of this company changed over the past year?
- uh, I don't know. What for do you need it?
- Why then you say that the system is effective? It seems to me that the effectiveness of any inventory management system should be evaluated not by how it smooths peaks, but by how stocks have changed. If they have decreased by an amount in excess of investment in this system, and at the same time, the sales volume and satisfaction of demand have not suffered, then yes, the system is effective. Everything else is a game of numbers and beautiful graphs.
- HM interesting. Now people will come to our meeting room, you do not tell them that the reduction in stocks is the main criterion for the operation of such a system. Low stocks are not always good.
- Not understood. And what, are there any other criteria for effectiveness? And about low stocks can be more detailed?
- Well, if, for example, your stocks grow, then the banks will give you loans with great pleasure.
I sigh. That said, not some student on an online forum, but a person from business. Thank God that an IT director. Uffff, I breathe a sigh of relief that this is not the director of logistics.
Then three more people enter the meeting room. One of which is the person who is directly responsible for the reserves and we continue the dialogue.
- I looked at your site, I know about the methods of the Theory of Constraints, but they do not suit us. We have our own way.
- Why?
- Because we regularly have strong jumps in shipments.
- So. And why doesn't the Theory of Limitations suit you?
- Because the “buffers” will not solve this problem.
- Buffers should not solve such a problem. What kind of races can you tell in more detail?
- Yes, these are wine stocks that take place regularly.
- Are the dates of these shares known? Is the nomenclature and quantity required known?
- Oh sure.
- Then you simply enter this action into the system, indicate what you need and when, and send it to the purchase. The system will assemble your need for priorities and the logistics will take care of your stock when necessary. And buffers are responsible for other things.
I clarify. Constraint Theory is more than just buffer management. These are deliveries “under the order”, “under the plan”, name it whatever you like.
In the picture I showed how it looks in reality. Positions where something is indicated in the “Basis” column are target deliveries by a certain date. Where nothing is indicated in the basis, these are deliveries under the “buffer”.
What is surprising, this company already turned to us about a year and a half ago. Then in the negotiations, I said that in such a company the introduction of such a system is faster than in a year - almost unbelievable. The company has 1000 people. 80% of the project’s time will be procrastination of the company itself, its bureaucracy and mess. I said as it is. However, people involved in the implementation of 1s also participated in the negotiations, who promised that they would implement it in three months. They were chosen. Moreover, they said that everything was ready for them and it was necessary to “finish it off” quite a bit.
Apparently "a little bit" dragged on ... And so much so that now another person from this company turned to us, tired of expecting a "little".
However, we still called the one who contacted a year and a half ago and asked for comment.
Well, and the conversation turned to inventory management. What actually have been struggling for a year and a half, those who had to "finish off just a little". True, it is not clear what they have to finish. Because, as far as I know, in the basic configuration 1c there is no inventory management system at all . But I could be wrong.
“The Theory of Constraints doesn't suit us.” We will work according to sales plans.
- Why do you think that TOC is not suitable for you?
- Because we have a very long supply cycle, goods can also be delivered for four months. And it is better for us to incur losses from the fact that a lot of unsold remains in the warehouse than to get a situation when a client arrives, and we do not have what he needs. Therefore, we draw up sales plans and purchase them.
“But the plans immediately cease to be followed.” What are you doing with this?
- These are our risks. Unfortunately this is the case.
The further content of the dialogue is no longer important. Another thing is important. People have some completely incomprehensible stereotypes, and they believe that they have some special way, and they believe that they will come up with a stock management system for their special way. You have to be Goldratt to come up with such a system. But Goldratt was already there and no need to reinvent the wheel. And its system is already used by thousands of enterprises around the world, and even Toyota, which developed the kanban, admits that Goldratt’s methods work more correctly.
For example, in the case of intermittent, intermittent demand, where kanban works much worse.
So, consider a long supply cycle. If you can carry goods to order and your customers agree to this, then there are no questions at all. This is done as I described above and as shown in this video .
If you want to protect yourself from a situation when a customer arrives and there is no product, then there is only one solution - the stock buffer. The only question is its size. I also talked about this in the video. And do not be afraid that the system will immediately begin to fill the buffer, and you will get surpluses (however, even if the buffer is full, these are not surpluses). It will not happen. Because Goldratt is a management genius. He developed a self-regulating system. So you set the buffer equal to 100pcs. When your stocks go down to 90pcs, the system will indeed create a request for a replenishment of 10 pcs. And the Goldrat method is theoretically not much different from the traditional one. Differences further. In the traditional scheme, this application will fall into procurement and logistics will begin to deal with it. And if you apply the Theory of Constraints, then most likely this application will not be a priority, because the state of the buffer is not so bad. Therefore, no one rushes to urgently provide this application. This is the key difference between Goldratt's methods and classical methods. And so the stocks will always be in perfect order.
And this happened every time from a banal ignorance of how these methods work.
Negotiations number 1. Wine trading company.
First in the meeting room is one person from the company. Directly the one who invited us.
Excerpts from the dialogue:
“Do I understand correctly that the key topic of the negotiations is stocks?” I ask.
- Yes. We have been dealing with this issue for a long time and now we are looking for a solution. We heard about the decision of company X (I will not mention it in this post), the peaks are very beautifully smoothed there, everything is planned. They have been using this system for a year now. Very good, efficient system.
- How have the stocks of this company changed over the past year?
- uh, I don't know. What for do you need it?
- Why then you say that the system is effective? It seems to me that the effectiveness of any inventory management system should be evaluated not by how it smooths peaks, but by how stocks have changed. If they have decreased by an amount in excess of investment in this system, and at the same time, the sales volume and satisfaction of demand have not suffered, then yes, the system is effective. Everything else is a game of numbers and beautiful graphs.
- HM interesting. Now people will come to our meeting room, you do not tell them that the reduction in stocks is the main criterion for the operation of such a system. Low stocks are not always good.
- Not understood. And what, are there any other criteria for effectiveness? And about low stocks can be more detailed?
- Well, if, for example, your stocks grow, then the banks will give you loans with great pleasure.
I sigh. That said, not some student on an online forum, but a person from business. Thank God that an IT director. Uffff, I breathe a sigh of relief that this is not the director of logistics.
Then three more people enter the meeting room. One of which is the person who is directly responsible for the reserves and we continue the dialogue.
- I looked at your site, I know about the methods of the Theory of Constraints, but they do not suit us. We have our own way.
- Why?
- Because we regularly have strong jumps in shipments.
- So. And why doesn't the Theory of Limitations suit you?
- Because the “buffers” will not solve this problem.
- Buffers should not solve such a problem. What kind of races can you tell in more detail?
- Yes, these are wine stocks that take place regularly.
- Are the dates of these shares known? Is the nomenclature and quantity required known?
- Oh sure.
- Then you simply enter this action into the system, indicate what you need and when, and send it to the purchase. The system will assemble your need for priorities and the logistics will take care of your stock when necessary. And buffers are responsible for other things.
I clarify. Constraint Theory is more than just buffer management. These are deliveries “under the order”, “under the plan”, name it whatever you like.
In the picture I showed how it looks in reality. Positions where something is indicated in the “Basis” column are target deliveries by a certain date. Where nothing is indicated in the basis, these are deliveries under the “buffer”.
Negotiations number 2. Production and distribution.
What is surprising, this company already turned to us about a year and a half ago. Then in the negotiations, I said that in such a company the introduction of such a system is faster than in a year - almost unbelievable. The company has 1000 people. 80% of the project’s time will be procrastination of the company itself, its bureaucracy and mess. I said as it is. However, people involved in the implementation of 1s also participated in the negotiations, who promised that they would implement it in three months. They were chosen. Moreover, they said that everything was ready for them and it was necessary to “finish it off” quite a bit.
Apparently "a little bit" dragged on ... And so much so that now another person from this company turned to us, tired of expecting a "little".
However, we still called the one who contacted a year and a half ago and asked for comment.
Well, and the conversation turned to inventory management. What actually have been struggling for a year and a half, those who had to "finish off just a little". True, it is not clear what they have to finish. Because, as far as I know, in the basic configuration 1c there is no inventory management system at all . But I could be wrong.
“The Theory of Constraints doesn't suit us.” We will work according to sales plans.
- Why do you think that TOC is not suitable for you?
- Because we have a very long supply cycle, goods can also be delivered for four months. And it is better for us to incur losses from the fact that a lot of unsold remains in the warehouse than to get a situation when a client arrives, and we do not have what he needs. Therefore, we draw up sales plans and purchase them.
“But the plans immediately cease to be followed.” What are you doing with this?
- These are our risks. Unfortunately this is the case.
The further content of the dialogue is no longer important. Another thing is important. People have some completely incomprehensible stereotypes, and they believe that they have some special way, and they believe that they will come up with a stock management system for their special way. You have to be Goldratt to come up with such a system. But Goldratt was already there and no need to reinvent the wheel. And its system is already used by thousands of enterprises around the world, and even Toyota, which developed the kanban, admits that Goldratt’s methods work more correctly.
For example, in the case of intermittent, intermittent demand, where kanban works much worse.
So, consider a long supply cycle. If you can carry goods to order and your customers agree to this, then there are no questions at all. This is done as I described above and as shown in this video .
If you want to protect yourself from a situation when a customer arrives and there is no product, then there is only one solution - the stock buffer. The only question is its size. I also talked about this in the video. And do not be afraid that the system will immediately begin to fill the buffer, and you will get surpluses (however, even if the buffer is full, these are not surpluses). It will not happen. Because Goldratt is a management genius. He developed a self-regulating system. So you set the buffer equal to 100pcs. When your stocks go down to 90pcs, the system will indeed create a request for a replenishment of 10 pcs. And the Goldrat method is theoretically not much different from the traditional one. Differences further. In the traditional scheme, this application will fall into procurement and logistics will begin to deal with it. And if you apply the Theory of Constraints, then most likely this application will not be a priority, because the state of the buffer is not so bad. Therefore, no one rushes to urgently provide this application. This is the key difference between Goldratt's methods and classical methods. And so the stocks will always be in perfect order.