Pull Solution for Consumer Goods Companies

The Theory of Constraints (TOC) way of distribution analyses the impact of supply together with the demand over the management of the supply chain stocks, with an emphasis on the supply side. If it is possible to respond in an instant to demand, there is no need to rely on forecast at all. While this situation is of course unattainable in almost all business environments, a step in this direction should be considered.

In the case of keeping the right amount of stock in the supply chain, the objective is to have very good availability of the items at all the consumption points. This objective is limited by the Managing Distribution according to TOC availability of cash and space, which means that it is impossible to keep high stocks of all items at all locations, even when obsolescence is not an issue. Not only that, but keeping too high stocks of low demand SKUs will lower the sales overall (concept explained in subsequent sections).

The TOC solution is based on constant renewal of the consumed stocks, and is comprised of several steps:

1. Aggregating as much as possible at the source – the plant or central warehouse – setting a high inventory target there (called Stock Buffer Size)

2. Determining inventory targets at all stock locations (Stock Buffer Sizes)

3. Enabling the transfer of real consumption data from all stock locations

4. Shortening the replenishment time as much as possible

5. Replenishing as frequently as possible from the main (plant or central) warehouse to the consumption points – units are shipped only in order to replenish to real consumption (or to readjusting of buffer sizes)

6. Monitoring the buffer sizes according to consumption and readjust them accordingly