Formation Brands - Replenishment Pull Systems Rev FB

Pull System
Replenishment
& Inventory
Management Visibility
Learning Objectives
 At the end of this section, you will be able to:

– Articulate the applications and benefits of
Replenishment Pull techniques
– Size and manage a Replenishment Pull System
– Articulate the difference between a traditional
Replenishment Pull and 2-Bin Systems
– Apply 2-Bin Replenishment Pull techniques, together
with ABC Stratification
 Knowledge Prerequisites:
– Basic lean concepts
– ABC Stratification
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 2
Agenda
 Introduction to Pull Systems

 Sizing a Replenishment Pull System
 Exercise
 Implementation Tips

Pull Systems – Overview
 Pull Systems were initially developed by Toyota in the 1950’s
to manage the execution of production control inventory.
– They have been applied in Production and Procurement.
 Manufacturing Pull Systems perform the following
functionality:
– Stabilize and Reduce Process Lead Time
– Control the amount of WIP, and
– Monitor the execution of work for visual prioritization.
 Procurement Pull Systems additionally allow:
– Scheduling and prioritizing work through the use of action triggers
based upon changes in each SKU’s supply and availability situation
linked to the actual customer demand.
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED Push Systems & 4Pull Systems –
4
Introduction to Replenishment
Pull Systems
 Pull systems establish strategically located “buffers” of

parts within a process.
– Raw material
– Manufactured parts
– Purchased parts
– Finished goods
 Pull systems de-couple supplying processes from the
consuming processes via the buffer inventory.
 Inventory (or part) replenishment is “triggered” based
on consumption versus pushed based on net
requirements.
– Future requirements help establish buffer sizing, not actual
material release.

When to Use Replenishment Pull
 Lead time is greater than customer expectation

window
 Repetitive product offering
 Relatively consistent demand (low variability)
 Applies equally well for Purchased Parts,
Supplies, and Manufactured Parts
Note: Generic pull systems should always be
used when a manufacturing replenishment pull
system is implemented.
– Why do you think this is the case?
Replenishment Pull System Defined
Definition:
A Replenishment Pull System establishes managed strategic buffers of product between
the customer and the production process – Replenishment of the buffer is based upon
actual customerReplenishment
“pulls” (demand) from the buffer.
Signal
Consumption
Procurement Process
Strategic
3-4 Week Buffer
 Sizing the Process

buffer Lead Time
based on the process parameters
– and the variability around these parameters
– is the key to meeting customer expectations. “Customer Expectation”
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED Push Systems &7Pull Systems – 7
Replenishment Pull System Benefits
 Effectiveness: Pull Systems will improve effectiveness by supplying
the “right product at the right time” to the customer, thus increasing
on-time delivery.
 Efficiency: A pull system can attain the same throughput as a push
system with less average WIP (and, therefore, a shorter lead time).
 Productivity: Replenishment pull systems virtually eliminate part
shortages to up-stream operations, allowing resources more “up” time
to produce product.
 Quality: Low WIP (and associated lead time) systems are more
sensitive to quality (and, therefore, force problem resolution) and
facilitate it (by improving feedback and learning cycles).
 Ease of Control: Pull systems rely on setting easily controllable WIP
levels, versus release rates for push systems (maintaining constant
throughput is much more difficult).

Electronic Pull System – Tool Discussion
General:
Pull Systems differ from deterministic ‘MRP’ inventory control systems which are
normally good at handling macro management of inventory in stores instead
by driving inventory management actions based on actual inventory movement
in the entire supply chain rather than only planned inventory movement from
stocks. In short Pull systems provide earlier supply chain signals that allow
focused ‘action’ rather than ‘re-action’.
How is this done?

Electronic pull systems do this by frequently analyzing the multiple data elements
that are changing often on a daily basis and distilling the data interactions into
a concise set of exception conditions that need to be acted upon preemptively
to meet customer delivery requirements.
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED Push Systems & 9Pull Systems –
9
Replenishment Pull System Design Drivers
 Component parts have different “characteristics”

– Dollar volume varies part to part, and drives need for part stratification
(impacts order frequency)
– Demand profiles (peaks and valleys), or variability, is different for different
parts
– Lead time (replenishment time) varies part to part
 Demand is dynamic and changes over time
– Seasonality, ramp up/down, engineering changes, etc. drive need to resize
Kanban quantities (typically monthly)
 Design trade-offs manage risk
– Safety stock (designed as protection against variability), reduces part
shortages but increases inventory
– Holding semi-finished inventory smoothes demand at that buffer, but adds
process lead time
Pull
Pullsystem
systemgoals:
goals: establish
establishinventory
inventorycontrol
control(Kanban
(Kanbansizing),
sizing),stabilize
stabilizefill
fillrate,
rate,
reduce
reduceinventory
inventory––ininthat
thatorder!
order!
Effectiveness, then Efficiency
Effectiveness, then Efficiency
Replenishment Pull Applications
 Anywhere consumables are used:

– Finished goods (consumed by customers’
processes)
– Spare parts
– Assembly parts
– Laboratory supplies
– Office supplies
– IT stockrooms
– Emergency room supplies
– Etc.
Replenishment Pull reduces the likelihood of stockouts,

while right-sizing the amount in inventory
Replenishment Pull System Candidates:
Product Life Cycle – Demand Profile Zones 1-4
General Repetitive Product Life Cycle

Zone 1: BIRTH (New) Inflow handled by MRP
(Deterministic Planning)
 Goods Purchased Based on Forecast

2.
Speculation
Volume
ACTIVE Repetitive
 Volume and Mix Sensitive- Market immature
Products:
 Inventory risk requires multiple input decisions Replenishment

3. 4.
 1. Pull System Candidates-
High Management Required
Sunset Sell Off
Birth Handled with Pull
 Order Fulfillment Cycle Time usually full lead
Time System Tools ONLY for Repetitive Demand
Zone 2 : Replenishment Pull – ACTIVE
time Products - NOT for Seasonal
 Selected by stability based on Variability, Cost, Products
Zone 3 :Sunset PHASE
Customer base
 Zone 4: SELL OFF PHASE
 Volume Flexible (Calculated Safety Stock
Products purchased only to fixed orders
 Products discounted to
maintained)
 Products sold in lower tier markets
clear from warehouse
 Low Shortage, Inventory Risk  Full lead time included in delivery calculations
 Sold in closeout markets
 Action by Exception NoticesCONSULTING,
generated daily  Change in demand indicate phase change
COPYRIGHT 2014 FIREFLY ALL RIGHTS RESERVED 12
SEASONAL Products
Product Life Cycle – Demand Profile Zones 1+4
Ideal Inventory Plan for Seasonal Products : 5 Cycles per Calendar Year
Objective: Zone 4 Starts
Plan the Introduction to Inventory AND
Seasonal
The Selloff Phase at Birth Inventory Event
Zone 1 Starts Level
in Stock Zero Level
Date
(ED)
Zero Level
Event
Date
(ED)
Time Line (Not to Scale)

Timing
Zone 1: BIRTH (New) Inflow handles by MRP (Deterministic
Zone 4: SELL OFF PHASE
Planning)
 Products discounted to clear from
 Goods Purchased Based on Forecast Speculation
warehouse
 Inventory risk2014
requires multiple input decisions
COPYRIGHT FIREFLY CONSULTING, ALL RIGHTS RESERVED
 Sold in closeout markets
13
Performance Measurements
 Pull System effectiveness measurements

– Actual vs. Target On-Hand Inventory
– Actual vs. Target On-Order Inventory
– On-Time Delivery
 Additional measurements
– Inventory turns
– Backlog by order, part and age
– Quantity of Daily Completions
– Source reliability to promise dates
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 14Systems – 14

Replenishment Pull
Purchasing Pull System Elements
 Demand (DMD) (calculated by analysis of actual demand and forecast)

– Average weekly or average daily usage
– Based on either history, forecast (backlog) or combination
– Recalculated frequently in order to capture changes in inputs and trends
 Cycle Stock (driven by the business situation) (the largest of-)
– MOQ (working to make this as small as possible), or
– The procurement dept order frequency x (times) the DMD, or
– The largest downstream lot size required (working to get customers to continuous flow)
 Production Lead Time (PLT)
– Time from when product is released into the process until the product is received or ready
for the next process element.
 Transport Lead Time (TLT)
– Time from when product is released for transport until the product is received or ready to be
processed at the next process element.
 Safety Stock (SS)
– Buffer required to compensate for variation ( i.e., demand, quality, vendor delivery)
As parameters change,
the associated product pull system loop

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED Push Systems & 15
Pull Systems –
15
Key Pull System Segments
 Cycle Stock: Cycle Stock is inventory needed to cover

customer demand until you are ready to build the part
again. It may be driven by MOQs
 Safety Stock: Safety Stock is inventory needed to cover

variability in demand (customer requirements) OR supply
(Process Lead Time variability)
 Process Stock: Process Stock is inventory needed to

cover customer demand while you are actually producing,
transporting, and verifying the product

Replenishment Pull
Supplier Lead Time (SLT) and
Order Frequency (OF)
 SLT is the time to replenish a part from a supplier once

the part has been consumed. It should include:
– PO Generation + Supplier LT + Transportation + Receiving and Inspection
Supplier
Receive Supplier Supplier Receive and
Generate and
and Prepare and Transport Inspect
Mail/Fax PO
Log/ Ship Product Product Product
Enter PO
SLT
 OF is the frequency that a specific part is ordered (drives
order quantity). When the supplier or the customer
require large quantities, these drive the OF which must
consider three situations.
– Staff practices in placing orders, (transactions)
– Minimum Order Quantities from the supplier, and
– Large, infrequent orders from the customer.
Demand (DMD)
DMD is the usage over a period of time. Ensure that the
demand is calculated in the same units as the other
components (i.e. weeks, days, etc.)
Stable Demand
(Little growth or decline projected)
One has to be careful when using only historical usage
for average demand as it may not reflect coming
Stable Demand
Seasonal Demand changes in Stable
the business
Demand – i.e., product mix, volume
(Little growth or decline projected)
(Projected growth)
increases, etc. Typically some combination of:
• Historical Usage
Stable Demand
(Projected growth)
• Forecasted Demand
• Look Ahead Window to firm orders
Replenishment Pull
are used if the parts see seasonality or other volume
Handling Seasonality
Resizing in a procurement pull system can be calculated automatically on a daily
basis. It captures the living nature of a very active product portfolio.
FY00 Parts Activity by Week

400
2
350
300
Volume (X1000 pcs)
1.5
250
% of Yr Avg
200
1
150
100 0.5
50
- 0
Sum (x1000) 4w k Rol Avg / Yr avg
 Utilize historical + forecast to determine inflection points in demand – resizing warnings

 Forecast window should be at least the average total LT to account for lag times in demand
and order receipt
 Utilize historical/future demand weighting tools to smooth ramp-ups/downs
–Larger upswings >> higher weighting in forecast
–Smaller upswings >> lower weighting on forecast
Replenishment Pull Systems – 19

Safety Stock (SS)
 Calculated SS is product required to guard against:

– Process Variability
– Demand Variability
– Process Lead Time Variability
– Quality Problems
Demand
Demand

Replenishment Pull
Basic Pull Formulas for
Purchased Parts
Balance on
On Order Quantity = OOQ = Hand (BOH) Loop Max
Purchase Order Transport

Quantities
Manufacturing OF
LeadTime Lead Time Cycle First Avg
(MLT) (TLT) Stock SS Trigger BOH*
Point
(Cal SS) MLT
Cycle Stock & Safety Stock
+
Process Stock TLT
Total Procurement Lead Time
(1) Loop Qty = [(MLT x DMD)+(TLT x DMD)] + (MOQ)+ (Cal SS)

maximum inventory in the pull system loop
(2) Trigger Point = [(Process Stock )+Cal SS]

minimum expected BOH inventory in the pull system loop
(3) Order if: (BOH + OOQ - Allocated Stock)<=Trigger Point

defining whether or not an order is triggered
(4) QTO = Qty to Order = [Loop Qty - (BOH + OOQ)]

Replenishment Pull
Consuming Versus Supplying
Processes
Supplying Process
Supplying or Consuming?
Consuming Process
This diagram represents a ‘coupled’ system, with supplying processes
delivering items ‘just-in-time’ to the consuming process
Replenishment Pull Systems
Inventory Buffers
Replenishment Pull Systems decouple consuming processes from supplying

processes, by placing buffers between them to absorb variation
Purchasing Pull System
Replenishment Signal (Purchase Order)
Transport Time Consumption

Supplier
Total Lead Time Customer Expectation

20 Weeks Strategic
Quick Delivery
Buffer
 Replenishment based on consumption (customer demand)

 The strategic buffer size is a function of demand variability, supplier
lead time, order frequency, and the desired service level
 Part shortages are reduced and/or eliminated (reducing expediting)
 Total inventory is reduced through better mix (right sizing)

Purchase Pull System Parameters
 Demand (DMD)
– Average weekly or Average Daily Usage (ADU)
– Based on either history, forecast (backlog) or combination
– Recalculated frequently in order to capture changes in trends
 Supplier Lead Time (SLT)
– Time from when a release (PO) is sent to the supplier until parts are received
(replenishment time)
 Order Frequency (OF)
– Represents the order frequency (days), or order quantity (units) that should be
purchased and is based on the situation. May be driven by MOQ, staffing, or size
of customers orders
– Working to reduce the OF will reduce average stock levels
 Safety Stock (SS)
– Parts required to compensate for variation (i.e. demand, quality, vendor delivery)
As
Asparameters
parameterschange,
change,the
theassociated
associatedpull
pullsystem
system
sizing
sizing(Kanban)
(Kanban)needs
needsto
toadjust
adjustaccordingly!
accordingly!
Agenda
 Introduction
 Exercise

The Replenishment Pull Loop
OI
LT Stock Stock
SS
 Three Components:
– Lead Time (LT) Stock
– Safety Stock (SS)
– Order Interval (OI)
Once sized, the quantity of items
in the full loop remains constant Stock
 Sometimes called
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED
Production Interval
27
(PI) Stock
Lead Time (LT) Stock
 Represents the sum of items in the loop between the time

of consumption until the point they are replenished and
ready for use
 LT Stock is typically not available for use… It is on its way to
you
 Factors impacting LT Stock:
– Lead Time (LT) = The time required to replenish stock
(Includes: vendor lead time, incoming inspection time, etc.)
– Demand = The rate of items (items/time) required by the
consuming process
OI
LT Stock = LT x Demand LT Stock Stock
SS

Order Interval (OI) Stock
 Represents the desired interval between processing replenishment

orders
 The desired order interval (OI) is situational or chosen by the team. It
is the max of 3 elements. Usually it is case 1 below
– 1. The OI period x the demand,
– 2. The MOQ (minimum order quantity), or
– 3. The max max order during the LT period.
 ABC Stratification is a tool which can be used to help determine the desired
OI period to optimize transaction volume to value
 The OI Stock represents the working inventory required to support the
consuming process between order receipts
 Factors impacting OI Stock:
– Order Interval (OI) = The desired time between orders
– Demand = The rate of items (items/time) required by the consuming
process
OI Stock = OI x Demand LT Stock
OI
Stock
SS
Safety Stock (SS)
 Provides the buffer of working inventory, protecting the

consuming process from stockouts due to variation in
Demand and Lead Time
 Factors impacting Safety Stock:
– Service Level = A factor selected based on the desired
probability of having an item in stock when needed. The
larger the factor, the lower the risk of stockouts
– sDemand = The demand standard deviation. A measure of
demand variability
– Lead Time (LT) = The time required to replenish stock
– b = A factor related to Lead Time variation. Typically it is
recommended thatxthis
SS = Service Level value
sDemand x LTbe
b set at 0.7
LT Stock
OI
Stock
SS

Demand Variation
Demand Distribution
+3s
+2s
Average Daily Demand = ADU +1s
-1s
-2s
-3s
 +3s < 99.73% of Values < -3s
 +2s < 95.46% of Values < -2s
 +1s < 68.27% of Values < -1s
Service Level
Demand Distribution
+3s
+2s
-1s
-2s
-3s
 The primary concern is stocking out due to high demand… or the top
half of the distribution
 So the probability of being above -1s = (68.27%/2)+50%  84%
 This is Service Level = 1
Service Level (cont.)
Demand Distribution
+3s
+2s
-1s
-2s
-3s
 Service Level = 1: 84% Probability of in-stock
 Service Level = 2: 98% Probability of in-stock
 Service Level = 3: 99.9% Probability of in-stock
b
 The specific derivation of b is outside the scope of this

course, but here are some considerations in selecting its
value
 A b of 0.7:
– Works well in most cases, if anything somewhat over
estimating Safety Stock needs
– Tends to overestimate Safety Stock requirements if item
has shorter Lead Time and low Demand variability
– May underestimate Safety Stock requirements for long Lead
Time items, with larger Demand variability
SS = Service Level x sDemand x LTb

Sizing the Replenishment
Pull Loop
Max Loop
OI
LT Stock Stock
SS
OI
Stock Reorder
 Max Loop = OI Stock + SS + LT Stock Point
 Reorder Point = LT Stock + SS
SS
OI Stock = OI x Demand or MOQ
SS = Service Level x sDemand x LTb LT

Stock
LT Stock = LT x Demand

Inventory Balance On-Hand (BOH)
in the System
Maximum
OI
LT Stock Stock
OH*
SS OI
Stock
Average
 Maximum BOH* = OI Stock + SS BOH
 Average BOH = (OI Stock)/2 + SS SS
LT
How
Howcan
canthis
thisinformation
informationbebeused
used Stock
when
whenestimating
estimatingsavings
savingsresulting
resulting
from
from‘right-sizing’
‘right-sizing’inventories?
inventories?

The System Working
Across Time
Max Loop
Inventory in the Loop
Reorder
Point
OI
LT Stock Stock
SS
COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED

Time 37
Agenda
 Introduction
 Exercise

Purchase Pull System
Example #1
Purchase Part Number “11111” has the following data:
Supplier Lead Time (SLT) = 20 days
Demand (DMD) = 50.0 parts/day
Order Frequency (OF) = 10 days
Minimum Order Quantity = 300 parts
Standard Deviation (  ) = 12.5 parts/day

Service Level = 98% = coefficient 2
(1) Determine the Max Loop (Kmax)

Max Loop = (SLT x Demand) + [larger of (OF value or MOQ)] + SS
= (____ x ______) + (________) + (__)
= ________
(2) Determine the Min Loop (Kmin or Trigger Point):
Trigger Point = (SLT x Demand) + SS
= (___ x ______) + (__)
= ________
* Note: SS can be ( x Service Level x (SLT)0.7 ) or just (4 days of DMD) = 200 parts
Example #1 (Cont.)
Max Loop
OF Quantity
______ Trigger Point (Kmin)
SS Quantity
______
Buffer (BOH)
SLT Quantity
______
Using the data on the previous slide, calculate the following:
(3) What is the Highest Buffer (on hand) Inventory we would expect to see? ______
(4) What is the Lowest Buffer (on hand) Inventory we would expect to see? ______
BONUS QUESTIONS: If the BOH = 500 parts and the OOQ = 500 parts, should we trigger? If
so how much?

Example #2
Max Loop (Kmax)
OF Quantity
______ Trigger Point (Kmin)
SS Quantity
______
Buffer (BOH)
SLT Quantity
______
• Demand (DMD) = 7 parts/day
• Supplier Lead Time (SLT) = 10 days
• Order Frequency (OF) = 5 days
• Safety Stock (SS) = 10 parts
Using the data above, calculate the following:
What is the supplier lead time quantity = ________ ?
What is the trigger point = _________?
What is the typical order quantity = ________ ?
What is the typical (avg) BOH (buffer inventory) = _________?
Agenda
 Introduction
 Exercise

Pull versus Push –
Rules of Thumb
 Pull products are only for repetitive demand, otherwise use
‘Push’ planning for inventory with rigorous forecasts
 Pull candidates need stability in demand (frequency & volume)
– If the Coefficient of Variation (CV), based on Average Daily Usage
(ADU) is less than or equal to 1.0, then a Pull system is typically the
right path (S based on actual daily orders or weekly orders)
 1.0  CV  1.5 is a borderline zone between
Pull and Push s ADU
If the CV > 1.5, it is often best to use a
CV 

Push framework
x ADU
Be very wary of using ‘average weekly’ or especially ‘average monthly’

numbers. Due to the way standard deviations add, weekly or monthly
CVs must be much lower than the above rules of thumb
Review of Learning Objectives
 You should now be able to:

– Articulate the applications and benefits of
Replenishment Pull techniques
– Size and manage a Replenishment Pull System
– Articulate the difference between a traditional
Replenishment Pull and 2-Bin systems
– Apply 2-Bin Replenishment Pull techniques,
together with ABC Stratification

This Training Manual and all materials, procedures and systems herein contained or depicted (the
"Manual") are the sole and exclusive property of Firefly Consulting, LLC (“Firefly Consulting ) and
The Sharing Group. (“”Sharing Group”).
The contents hereof contain proprietary trade secrets that are the private and confidential
property of Firefly Consulting and Sharing Group. Unauthorized use, disclosure, or reproduction
of any kind of any material contained in this Manual is expressly prohibited. The contents hereof
are to be returned immediately upon termination of any relationship or agreement giving user
authorization to possess or use such information or materials. Any unauthorized or illegal use
shall subject the user to all remedies, both legal and equitable, available to Firefly Consulting and
Sharing Group. This Manual may be altered, amended or supplemented by Firefly Consulting and
Sharing Group from time to time. In the event of any inconsistency or conflict between a
provision in this Manual and any federal, provincial, state or local statute, regulation, order or
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properties subject to that law.

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Pull System

 At the end of this section, you will be able to:

 Introduction to Pull Systems

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 3

 Pull systems establish strategically located “buffers” of

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 5

 Lead time is greater than customer expectation

A Replenishment Pull System establishes managed strategic buffers of product between

3-4 Week Buffer

 Sizing the Process

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 8

How is this done?

 Component parts have different “characteristics”

 Anywhere consumables are used:

Replenishment Pull reduces the likelihood of stockouts,

General Repetitive Product Life Cycle

 Goods Purchased Based on Forecast

 Inventory risk requires multiple input decisions Replenishment

Time Line (Not to Scale)

 Pull System effectiveness measurements

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 14Systems – 14

 Demand (DMD) (calculated by analysis of actual demand and forecast)

the associated product pull system loop

 Cycle Stock: Cycle Stock is inventory needed to cover

 Safety Stock: Safety Stock is inventory needed to cover

 Process Stock: Process Stock is inventory needed to

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 16Systems – 16

 SLT is the time to replenish a part from a supplier once

for average demand as it may not reflect coming

increases, etc. Typically some combination of:

FY00 Parts Activity by Week

Sum (x1000) 4w k Rol Avg / Yr avg

 Utilize historical + forecast to determine inflection points in demand – resizing warnings

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 19

 Calculated SS is product required to guard against:

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 20Systems – 20

Purchase Order Transport

(MLT) (TLT) Stock SS Trigger BOH*

Process Stock TLT

Total Procurement Lead Time

(1) Loop Qty = [(MLT x DMD)+(TLT x DMD)] + (MOQ)+ (Cal SS)

(2) Trigger Point = [(Process Stock )+Cal SS]

(3) Order if: (BOH + OOQ - Allocated Stock)<=Trigger Point

(4) QTO = Qty to Order = [Loop Qty - (BOH + OOQ)]

Replenishment Pull Systems decouple consuming processes from supplying

Replenishment Signal (Purchase Order)

Transport Time Consumption

Total Lead Time Customer Expectation

 Replenishment based on consumption (customer demand)

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 24

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 26

 Represents the sum of items in the loop between the time

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 28

 Represents the desired interval between processing replenishment

 Provides the buffer of working inventory, protecting the

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 30

Average Daily Demand = ADU +1s

Average Daily Demand = ADU +1s

Average Daily Demand = ADU +1s

 The specific derivation of b is outside the scope of this

SS = Service Level x sDemand x LTb

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 34

SS = Service Level x sDemand x LTb LT

COPYRIGHT 2014 FIREFLY CONSULTING, ALL RIGHTS RESERVED 35