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Distribution Management Through Replenishment

If your business suffers primarily from . . .

  • Too many missed or partial shipments to customers
  • Frequent out-of-stocks on some products
  • Excess finished goods on others
  • Frequent periods of high demand on production
  • Excess returned goods from your channel

. . . then chances are good that your constraint is related to the way that your distribution channel is managed.

Many organizations are in a situation where it is appropriate to "make-to-stock" because the products are common and it's important to be able to fill an order promptly when it arrives. One of the big questions in this environment is "How much should we keep on hand?"

A common way of answering this question is through forecasting -- trying to predict how much the market will require of you. But how far out do you trust your forecasts? Probably not too far. The further out into the future you try to forecast, the foggier it gets. And in any event, aren't these forecasts often simply guesses wrapped up in sophisticated mathematics?

But many organization use these guesses to determine how much product they push into their distribution pipeline. And when they do so they are at the mercy of the accuracy of those guesses.

Maybe the answer to the question of how much to keep on hand is not in the realm of better forecasts but related more to how long it takes to replenish stock when something is shipped?

Replenishment

The TOC Replenishment solution involves holding just enough inventory at the distribution location(s) closest to the end user to satisfy the expected demands of the market during the time it takes to reliably replenish the distribution site(s) with what was actually sold.

Yes, there is a bit of forecasting involved, but only related to the timeframe that relates to the ability to replenish when stock has been drawn by customer orders.

This approach to management of distribution also helps to focus the organization on the virtue of speed. Speedy customer delivery is assured by having stock to meet orders. Speedy distribution through the pipeline assures that inventory is where it is needed when it is needed. And the benefits of enhancements to achieve speedy production are clearly recognized as the system pulls material through the pipeline based on a demand-driven environment. Whether there is a single warehouse drawing directly from production or whether there is are a string of regional warehouses in a sophisticated distribution network, speed translates to less inventory and better cash flow.

A pull-system of distribution, based on replenishment of stock as it is drawn, is the most effective way of moving product and cash through the organization.

To implement such a system requires an examination of the issues and viewpoints of the producer, the distributor, the customer, the transportation services, the warehouse managers, and the product itself as it is pulled through the pipeline by customer demand.

No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future. - Ian E. Wilson

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