Lesson 7: Buffer management and rationing

So far we have pulled stock on consumption, sized the buffers, and cut replenishment time. Now look at the system running day to day.

Demand moves for many reasons: customer preference, promotions, seasons, events, competitors’ moves, even the weather. On some days a warehouse has more to dispatch than it can handle, and some dispatches get deferred.

Pause and think: a warehouse can’t ship everything today. What if the dispatch it defers is for a product about to run out at a dealer?

Nothing: it will go tomorrow
The dealer runs out, even though the supply chain has the stock
The plant will make more
The customer will wait

That is the most painful kind of lost sale: the stock existed, just not in the right place. The question is how to make sure each link downstream is protected on such days.

Buffer management

Track the actual stock of every product at every location against its target, the buffer, and colour it:

Colour	Stock on hand	Meaning
Green	More than two thirds of the buffer	Comfortable
Yellow	One third to two thirds	Being consumed as expected
Red	Less than a third	In danger: the supplying link gives it priority and expedites it
Black	Zero	Sales are being lost now

This is a big shift. Today, dispatch priority is decided by the distance or size of the branch, first-in-first-out, the size of the order, or the salesperson who shouts loudest. With buffer management there is one priority only: the colour of the buffer. Black and red first, then yellow, then green.

The buffer penetration report

Every day, each stocking point gets one simple report. For each product it shows:

Product	Buffer	Stock	In transit	Stock + in transit	Gap to dispatch	Buffer penetration
Item 1	55	0	0	0	55	100% (black)
Item 2	18	5	0	5	13	72% (red)
Item 3	13	2	3	5	8	62% (yellow)
Item 4	168	48	48	96	72	43% (yellow)
Item 5	48	35	0	35	13	27% (green)

Sorted by penetration, the report is the day’s dispatch list. The warehouse works from the top, and nobody needs to phone and shout.

When there isn’t enough to go round

Some days the central warehouse holds less than the branches together need. Take one product: the central warehouse has 120 units, and three branches need 440 to refill their buffers.

The rationing rule:

First, bring every link to the top of its red zone, one third of its buffer.
If stock is still left, bring every link to the top of yellow, then to the top of green.
Hold back whatever can’t lift everyone to the next level. Nobody knows yet which branch will turn red tomorrow. Stock at the centre can still go anywhere; stock sent to a branch can’t easily come back.

In the example, the top of red is 30 for A, 150 for B and 4 for C. That means 20 units to A, 50 to B and 2 to C, a total of 72, and the remaining 48 stay at the central warehouse.

Check your understanding

Answer all five. Get four right to complete the lesson.

1. A product’s stock is at 25% of its buffer. Its colour is…

Green
Yellow
Red
Black

Below one third: red. It ships first.

2. With buffer management, dispatch priority is decided by…

The colour of the buffer
The size of the branch
First in, first out
The loudest salesperson

One priority only: black and red, then yellow, then green.

3. In the buffer penetration report, the “gap to dispatch” is…

Stock on hand
Last month’s sales
The forecast
Buffer minus stock on hand minus stock in transit

Exactly the pull order from earlier lessons.

4. When stock is short, the first step in rationing is to…

Serve the biggest order
Bring every link to the top of its red zone
Fill branches in the order they called
Split it equally

Protect everyone from running out first.

5. Why hold back some stock at the central warehouse?

To save transport
To punish slow branches
Because nobody knows which branch will turn red next, and central stock can still go anywhere
To meet the month-end target

Stock sent to a branch can’t easily come back.