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Introduction
Dynamic Buffer Management (DBM) is a tool of the Theory of Constraints, which allows
to effectively manage the enterprise reserves by focusing on the actual consumer demand.
DBM implementation enables to always have the right product in the right place at the right
time.
It works by understanding average rates of consumption for a given item, variability in
consumption and the different types of lead-time involved in moving the item, from its point
of production through to its point of consumption
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Introduction
3
The buffer status signals whether the target level is too large or too small and this can be
used to signal automatic adjustments.
The levels or quality of inventory is divided into four zones: Blue-Excess, Green-Optimum,
Yellow-Watchful and Red-Shortage.
These levels are then monitored for a pre-
determined period and target levels are then
re-adjusted to ensure that the right amount of
inventory is held. For example, if an item is
constantly falling in the blue (excess) zone the
target is decreased by 33 percent to ensure
that the item stock falls in the green zone.
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Buffer – Target Inventory Level
4
The buffer is the target inventory level calculated on the basis of recent
historical demand, which ensures no shortage and to find the appropriate
size of the initial target level the following 5 parameters must be
considered:
• The average rate of consumption.
• The variability of consumption. We need to know how much demand
we might have to fulfill.
• The average replenishment time.
• The variability of replenishment time, how reliable is our source of
supply? We need to be reasonable certain that our replenishment will
arrive before we have a stock-out and miss sales.
• The service level to customers we want to achieve.
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Eliyahu Goldratt’s Target Level Management Rules
5
• When a penetration into the red zone occurs monitor how deep the penetration is. If the
penetration is too deep or it persist for too long then the target level should be increased.
• If the stock rises excessively or it has remained in the blue zone for a whole replenishment time
period then the target level should be decreased.
• Every time you increase the target level wait for a replenishment cycle before starting to check
again.
• Every time you decrease the target level wait for the inventory to get down below the new green
level and only then start to check again for the conditions to decrease the target level further
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Working
6
Observation for a week with initial buffer targets Observation for 2nd week by increasing buffer target as inventory falling in red zone
Observation for 3rd week by increasing buffer target further
Buffer falls in risk
zone after
replenishment
Buffer again falls in
risk zone even
after increasing
target
Buffer hovers in
watchful zone
after further
increasing targets
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Conclusion
11
73.7
25.3
50.8
63.7
2 2
3
3.5
3
0.9
2
2.5
0
1
2
3
4
0
10
20
30
40
50
60
70
80
Example 1 Example 2 Example 3 Example 4
Days
Rs
Thousands
Axis Title
Analysis
Daily Avg. Inventory Buffer Target days Actual Coverage days
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Conclusion
12
the inventory through dynamic buffer management that provides sufficient information for
the supply of materials and shows the priority color of each reference, thereby avoiding
reaching the blue zone or too much stock and going below red zone or loss zone. A target
inventory level is ensured and has a management model, dynamic in time allows keeping a
tight control of the money invested.
