Reduce Material On-Hand to Reduce Cash-to-Cash Cycle Time

To reduce the number of days we have material on hand, be can implement Goldratt’s Theory of Constraints Demand Pull[1] solution. We know from Demand Pull that historically we compensated for not having a good scheduling system and for our customers providing ever moving but always wrong forecasts by holding more raw material than we actually need. And still there would be situations when we had too much of some raw material, but not enough of what we needed. By implementing DBR Scheduling and Demand Pull, there will be an overall reduction in the amount of raw material we need to carry, and a higher probability that we will have what we need, when we need it. We also know that our ability to reduce the amounts of raw materials we carry is directly related to the time it takes us to reliably replenish.

Continuing our example from yesterday:
Our vendors have not implemented DBR Scheduling, so it takes them about 21 days to replenish us. So, for our example, let’s say that the mean time we have raw material on hand goes from 90 days to 30[2] days. Now our cash-to-cash cycle time is down 60 days to 55 days (115 less 90 days plus 30 days).

[1] To learn more about Demand Pull see the interactive program, The Insights by Goldratt
[2] We are allowing 3 days of transportation time and 6 days of buffer in addition to the 21 days to replenish.

By Dr Lisa Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

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