As Debra Smith and Chad Smith state in their book, Demand Driven Performance: “Demand driven strategy is about dramatic lead-time compression and the alignment of efforts to respond to market requirements. This includes careful synchronization of planning, scheduling, and execution with actual consumption.” The idea is that organizations position themselves and their operations to be able to respond to customers and the environment in the most agile way possible, and with the least waste (of time, money, and other resources) possible.
We’ve already covered the first two steps of the design process, placing decoupling points and control points, and this blog will discuss the big ideas behind the third step of the process, which is protecting decoupling and control points with buffers, and go over what capacity buffers are. While these blogs will provide a useful jumping-off point, oftentimes the most effective way to successfully create a demand driven operating model for your organization is working with a trained professional who understands the process deeply and can help guide you through it. If you’re interested in learning more or beginning the process, members of our team at Repathis, are certified as Demand Driven Leader Professionals, meaning we have resources certified to analyze and evaluate organizations using the demand driven operating model and demand driven S&OP principles. Contact us here if you’d like to learn more about designing a demand driven operating model and applying demand driven principles.
Let’s tackle the third step in designing a demand driven operating model: protecting decoupling and control points.
How to Protect Decoupling and Control Points? Buffers.
There are three types of buffers used to protect decoupling and control points. We've already covered the stock buffer, which specifically protects decoupling points and is considered integral to a well-functioning demand driven operating model, as well as time buffers, which protect control points. Now, we'll turn our attention to the third and final type, capacity buffers, which protect both decoupling points and control points.
Demand Driven Capacity Buffers
“Capacity buffers protect control points and decoupling points by giving resources in the preceding workflow the surge capacity to ‘catch up’ with variability.” By offering agility and flexibility, capacity buffers allow for the safe reduction of stock and time buffers.
Capacity buffers work by dividing the upper levels of a resource’s capacity into a green, yellow, and red zone, with red being closest to the resource’s total capacity level and over capacity level. It then becomes easier to track where loads are falling capacity-wise for that resource. When loads regularly land in the red zone and/or over capacity level, it indicates that the resource is less responsive and becoming capacity constrained, which is a sign that it should be considered for capacity upgrades or delegated as a control point.
Because capacity buffers demand that an amount of capacity go unused in the name of maximized flow, it goes against traditional costing policies. While it is valid to find ways to minimize the costs related to this unused capacity, it is important that the buffer remains and is not used to improve unit cost. Failure to maintain the buffer leads to detrimental effects on stock buffers and time buffers, and therefore lead times and inventory levels.
Capacity buffers should exist for every resource that is not a control point. While this does not mean that organizations should needlessly invest in capacity in every area, it does mean that they will attempt to maintain more capacity in these resource areas compared to the control points they funnel to.
We know that learning about and implementing ideas like these in your organization to create a demand driven operating model can be overwhelming and frustrating. That’s why we at Repathis are available to help. Interested in learning more about control points, decoupling points, designing a demand driven operating model for your organization, or implementing software that compliments demand driven operations, like our manufacturing software, Revive? Contact our team here.