Make to-availability and beyond

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Using market buffers and/or capacity buffers
to enable both growth and stability.
Presented By: Eli Schragenheim, The Goldratt Schools
Date: November 5th, 2007
1 © 2007 TOCICO. All rights reserved.

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• Make to Availability is a commitment to the
market, or to specified clients, to maintain
enough availability at a specific warehouse to
be able to deliver immediately upon request at all
times.
• This definition is different from make-to-stock where
no firm commitment is given.
• A make-to-order environment that requires shorter
delivery time than the production lead-time, calls for
make-to-stock that is similar, but not the same, as
make-to-availability.
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© 2007 TOCICO. All rights reserved.

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• Make-to-stock includes all cases where items are
produced without a specific customer order.
− Manufacturing companies that basically produce to
order usually mix their production with make to stock.
• A typical managerial question in such environments is:
what is available to promise?
− That question testifies to the current state of confusion.
− A company claims it makes to order, but it produces,
from time to time, also to stock, so it can sometimes
deliver faster.
− But, the company’s response time is not always fast,
actually it is usually quite slow, so it cannot commit
to fast delivery at all times.
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• The point in offering a commitment for
availability is to allow the potential client to
rely on getting very fast response whenever
needed!
− It is applicable when the client is able to improve
his business due to the availability provided.
• Difficulty: How strong can our commitment
be?
− There is no way to provide true 100% availability.
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• Provide the operational issues related to make-to-availability
(MTA).
− Marketing and sales aspects are not included.
• Also mentioning issues that in their way highlight
the MTA aspects
1. The concept of the market buffer.
2. The use of capacity buffers as means to quickly
expand the internal capacity whenever there is a
need.
3. When the market tolerance is larger than zero.
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• The real need of the market, for a certain quantity at
a point in time, is not known at the planning stage.
− An assumption: we have much better idea of the
potential demand in the short term.
− The most effective way to forecast the short-term
demand is to assume it’d be similar to the present
demand.
− Thus, very fast reaction to the present demand is a
key in MTA, on top of protecting the immediate sales
by stock buffer.
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1. First of all we protect the availability by holding
enough stock, both at the warehouse and in
production, to cover for maximum demand within
the replenishment time.
− And short replenishment time is an enabler to provide
adequate protection at that level.
2. Then, in the execution phase, we monitor the real
priorities of the production orders as being
expressed by the state of the stock buffer.
3. And the replenishment time is protected by
maintaining minimum protective/excess capacity.
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• Do we have the right stock buffers?
− Dynamic Buffer Management (DBM) is an algorithm that
signals when a change in the buffer is recommended.
− This is based on the behavior of the stock buffers, not
on re-calculating the maximum demand within rep. time.
• Do the operators have an access to the single priority
list and do they really follow the priorities?
− Buffer Management provides the only priorities. Red
orders should be expedited at all costs.
• How do we ensure we have the capacity to maintain
the fast replenishment time we need?
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• Critical realization:
The response time to the market is heavily
impacted by the amount of excess capacity of
the weakest link.
• In manufacturing, where the processing times are
relatively short, and when all the flawed policies
been chased out, the excess capacity of the CCR is
the key factor of the average replenishment time.
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• However, the term “excess capacity” is not
simple to express and measure.
− If a resource is expected to process today 3-day
load, does it mean the resource is a “bottleneck”?
−What is the damage of one day of load being
delayed by two days?
− And if in three days from now, the resource would
have nothing to do, would you still refer to it as a
“bottleneck”?
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• Realization: in order to decide whether the load on
a resource is “too high” we need to consider a
horizon of time where we expect the resource to
respond to a need.
− We need to consider all the demand that is expected to
be delivered within that horizon of time.
− Then validate that the resource has enough capacity to
handle it, including a certain extra for Murphy and going
through the rest of the system.
− This realization constitutes the definition of the planned
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load:

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• Definition: The Planned Load is the accumulation of
the load on the CCR of all the demand that have to
be delivered within a certain horizon of time.
• The concept of the planned load fits make-to-order very
nicely.
− It helps to smooth the load on the CCR and thus on the shop as
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a whole.
− It gives adequate idea whether the committed due-date is safe.
• In MTA environment when a production order is initiated
it has no firm due-date!
− It’s relative priority would be determined by the sales in the near
short term.

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• How we translate the idea of the planned load to MTA,
and get a good measure whether the available capacity
is adequate?
• When we maintain stock for MTA we should have an
idea of the average replenishment time we try to
maintain.
• Let the average replenishment time be the horizon.
• All the replenishment requirements be considered in
the planned load for MTA.
− This means not just the orders that have been released,
but also those that their release was delayed because of
too much load already in the shop.
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• The planned load for MTA should not be over 80% of
the time horizon.
− The horizon being equal to the average replenishment time.
• The 80% line ensures that:
− There is enough excess capacity to be able to expedite when
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needed.
− When the total demand grows the excess capacity gives
management some time to react.
− Either to restraint the sales or to increase capacity.
• Warning: when demand is up then excess capacity
goes down and the replenishment time goes up
exponentially.

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• A producer of towels has an average replenishment time
of 5 weeks to reach its plant warehouse.
− The planned load to process all replenishments should not
be more than 4 weeks.
− It is possible to expedite a minimum batch in mere 4 days.
− But, that is only in case of emergency.
• What would happen if the total demand grow by 10%?
− The planned load would fluctuate around 4.5 weeks.
− The number of orders to be expedited would grow
substantially.
− Some buffers might be signaled for increase. This would
add even more load on the system.
− If we did not have substantially more excess capacity than
10%, such a sudden increase could cause losing the
availability and credibility.
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ccccccccaaaaaaaappppppppaaaaaaaacccccccciiiiiiiittttttttyyyyyyyy????????
• One option is: let it be.
− Let the CCR be actually idle for about 20% of the time when
we review the long term.
− Another option is letting the CCR “waste” this capacity by
processing very small daily batches.
• Another option: finding something the CCR can do with
its spare capacity.
− Necessary condition: Whatever the CCR would do in those
20% of capacity has clearly less priority and will never
cause a delay in production for the MTA market.
− Thus, it cannot be a market for which we have any
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commitment.
− Naturally it won’t be a very lucrative market.

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• Definition: Market Buffer is a well defined segment
of the market where no commitment is made, but
if the items are produced to stock it’d be possible
to sell them for positive T.
• The idea is to take advantage of the CCR limited
capacity in such a way that would not harm the
performance for the commitment market.
• The Market Buffer is not really a buffer, it is a way to
exploit the secondary constraint.
− The main constraint is the lucrative market.
− It uses the “excess-capacity-buffer”, the 20% of excess
we must keep to keep the MTA intact, in a way that pays
back the cost of the buffer.
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• The market segment is for standard items that many
suppliers offer.
• In spite of the competition, either the market demand is
very large, or the reputation of the company ensures
that it would be sold for good enough price.
• The items of the market buffer use the CCR time.
• The maximum amount of items produced for the market
buffer would not generate a new CCR.
• The raw materials for the market buffer are routine and
do not pose any additional problem.
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• A clear set of rules have to be defined for
production execution to determine when a
production order for the market buffer be
initiated.
− Notifying Sales when such an order is released to
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the floor.
− Note, the decision to generate a market-buffer
production order should lie with the execution.
• Monitoring the total load, checking that it is still
at or behind 80%, before orders for the market
buffer are generated.

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• The term “capacity buffer” appears in several fields in
TOC. The use here is different:
• Definition: A capacity buffer is maintaining
optional capacity, which is not part of the fixed
costs and can be used whenever necessary, but
costs extra truly-variable-costs per usage.
− For instance, overtime and extra shifts.
− Outsourcing.
• The capacity buffer is a real buffer protecting the
performance of the organization from occasional lack
of capacity.
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• The internal CCR can be safely used to 100%, as long
as there is adequate amount of the capacity buffer
left.
− The real excess capacity is how much of the capacity
buffer is not used.
− Thus, when we recommend only 80% maximum
utilization of the CCR – it includes the full capacity
buffer.
• Warning: Using the capacity buffer just for the CCR
would elevate the CCR, and then the CCR might move
to another resource.
• Maintaining capacity buffers makes growth to be
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smooth and stable.

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• The essence of buffer management is to fix the
red-line – the point where there is a threat to the
protected area.
• The market buffer actually uses the excess-capacity
capacity buffer. Thus, the red line is a minimum
quantity of production for the market-buffer in a
period.
− Producing less than that quantity for the market buffer,
signals too low excess capacity for the main market.
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A Content Buffer
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• In cases of make-to-order where the required response
time is shorter than the production lead-time, then:
− It is possible to make-to-stock to cover for the time
difference between production lead-time and the industry
lead-time.
− This is not truly MTA, because availability is neither
maintained nor committed.
− But, the stock is used to ensure fast enough delivery.
• In such a case the protection on the delivery is made
up of a combination of two buffers:
− Time buffer: the tolerance time of the customer.
− Stock, the amount of stock in the system (above the net on-hand
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orders).

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• Any incoming order initiates a production order for the same
quantity.
• A target level of stock is maintained on top of the customer
orders.
• There should be enough finished goods stock, at any given
time, for all orders to be shipped within 1/3 of the production
lead-time.
− If this is not the case, then the oldest order should be RED
and expedited.
− When the production lead time is 3 times longer than the
customer lead time – move to full MTA.
• The green situation means all open orders can be shipped
from the finished goods stock.
• According to the time spent in the red or green, rules to
recommend changing the stock buffer can be developed.
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I believe TOC will eventually become the
norm of how to manage.
I believe we just scratched the surface of
what could be developed by using the
TOC concepts, guidelines and tools.
I’’m personally interested to develop
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Eli Schragenheim as an
optimistic young person
ready to conquer the
world
further:
1. Dealing with common and expected
uncertainty.
2. Management Accounting: considering
the right financial ramifications.
3. Learning from Experience: making the
right conclusions.

Make to-availability and beyond

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