Strategic Positioning of Buffers

Strategic Placement

Strategic Placement is one of the first activities that takes place when establishing DDMRP at your company. It assists in determining which items are important for buffering and which do not need to be buffered.

The goal of inventory method positioning is to protect the flow of material through strategic placement of inventory throughout the supply chain. Strategically placed buffers, when part of a well-designed system, tend to hold much less inventory than randomly placed buffers. Your inventory method strategy can be determined based on certain parameters:

• Customer Tolerance Time: How long is your customer willing to wait for this item? Can you meet their requirement within the R+ lead time?

• Market Potential Lead Time: Would you be able to increase the price or demand for this item if the lead time were decreased? If yes, does the potential growth justify holding inventory on this item?

• Order Visibility Horizon: When do you typically receive orders for these items? Do you have a “freeze” period for any work orders? Would keeping stock on this item help mitigate a short visibility horizon for demand?

• Variable Rate of Demand: How regular is the demand for this item? Do spikes in demand regularly overwhelm resources? Would holding stock on this item improve the cash flow and/or service level for it or its parent part?

• Variable Rate of Key Sources of Supply: How reliable is the supply for this part? Can you always guarantee on time delivery and in full receipt of this item? Would holding stock on this item mitigate supplier/manufacturing disruptions?

• Inventory Leverage, Flexibility and Product Structure: Where are the most available options and lead time compression points? Is this a divergent point in the BOM? Is this material prone to waste and excess is needed for protection to finish orders?

• Protection of critical operational areas: Is there a critical resource in the routing either before or after this item that would benefit from removing either supply or demand variability via a decoupling point?