Reducing Delivery Lead Time: 13 Weeks to One Week

by Atsushi Kitabayashi
Vice President
Omron Manufacturing of Dalian (OMD) Co. Ltd

Our experience has shown that TOC can be extremely effective in inventory management as well; at OMD we were able to shorten the time lag for inventory replacement from 13 weeks to one week. In addition, we achieved inventory reductions of 40 percent across the entire supply chain.

I was transferred in July 2010 to OMD to implement a transformation in inventory management. It was my second stint at Dalian; my first took place in 2003‐2008. We utilized Dynamic Buffer Management (DBM), which was referenced in Dr. Goldratt’s book Isn’t It Obvious. In the book, the manager of a textile chain needed to balance sales and inventory to maximize profit and ended up reducing stock significantly.

Surplus versus Out‐of‐Stocks

In DBM, forecasting product demand is considered to be a bottleneck. The goal is inventory optimization. Faced with demand fluctuations for a product, you must determine a buffer size for every stock keeping unit (SKU). The allowable volume of inventory is divided into three parts, coded green, yellow or red. A product in the green zone is selling slower than predicted, which means there is ample stock and no need for replenishment. To reduce the replenishment quantity, the allowable volume of inventory is reduced.

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