Buffer management

as a universal logistics tool.

Reducing transport costs in the agricultural holding

by applying TOC

Boris Starinsky, Managing Partner INTALEV GC, Ukraine

26-27 October 2013, Moscow

www.tocpractice.com

8th International Conference of the

TOC Practitioners Alliance - TOCPA

Boris Starinsky

8th TOCPA Conference

Email: bn@intalev.com.ua

The entrepreneur, manager, consultant

Deming and Goldratt fan

Managing Partner INTALEV GC

8th TOCPA Conference

Project case-study and conclusions

Agricultural holding, Ukraine

storming the hill of USD 1 blnScale

to increase the core business turnover 2.2 times in a year (1)Business task

to optimize the key business process by use of TOC, lean, IT, BSC, KPI, motivation...

Project task

8th TOCPA Conference

There was no direct request to implement TOC from the client

TOC was also used both locally and globally in conjunction with other tools

In particular, to optimize the transport logistics... This project has expanded my understanding of TOC

application In this presentation Id like to share my observations,

thoughts, and findings

Project case-study and conclusions

8th TOCPA Conference

The business situation itself and the project to address it were connected to elevating the constraint:

Additional processing plant being built was to increase the production capacity 2,5 times

Case-study #1.

How many transport units are needed?

Production

+150%...New constraint of the

system: purchase

Potential constraint of

the system: logistics

8th TOCPA Conference

At the moment 80% of the demand is covered by companys own vehicles fleet

Output will be doubled The same number of tanks

should be purchased The cost is about $ 200

thousand per unit

Case-study #1.

How many transport units are needed?

Production

+150%...Potential constraint of

the system: logistics

8th TOCPA Conference

The calculation showed that the above-limit queue occupies 15% of time in the motor-vehicle trains usage cycle

Amount involved is around several millions of US dollars

Case-study #1.

How many transport units are needed?

Production

+150%...Potential constraint of

the system: logistics

How efficiently are vehicles used now?

UDE: shipping queue

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Case-study #1.

How many transport units are needed?

ShippingUnloading

Transportation

Motor-vehicle train return to the base

Queue

15%!!!

Planning Constraints in the system Balanced capacity concept

Queue causes

DocumentsWeighing

1, 2Filling Lab testCheckups

Electronic

document flow

Constraint

actually

remaining in the

system

Theres something wrong here!- the intuition prompted

Case-study #2.

Taking delivery queue

- Do you have taking delivery queue? - YES, there is a queue during the season!!!

- How do you measure?- In kilometers!!!

- How do you deal with it?

- We dont.

- WHY????????????????!!!!!!!!!!!!!!

- We dont pay the carrier for waiting time!!!

What did the intuition imply?

Carriers include their potential losses in the

transportation RATES!!!!

Carriers include their potential losses in the

transportation RATES!!!!

We dont pay for waiting time

But there are losses in the system

During season when there is a lack in vehicles, transport is waiting in the queue

Carriers suffer losses (a shortfall in profits)

Are we sure WE dont suffer losses???

?????

My recommendations

Learn to manage the queue

and significantly reduce it To conduct

negotiations /

hold tenders for

transportation

and reduce the

rate???????????????

???????????? ????????

?????????????

My recommendations

Learn to manage the queue

and significantly reduce itTo conduct

negotiations /

hold tenders for

transportation

and reduce the

rate

Include penalty for

waiting time clause to

the contracts!!!!!

The company's management considered the approach too

radical, but agreed with the overall logic

Learning to manage the queue

Producti

on

In contrast to case-study #1, THE QUEUE IS NECESSARY

Elevator

(supplies

buffer)

Taking

deliveryShippi

ng

Trans

portat

ion

8 a.m. 8 a.m.

6 p.m.20-500 km

There are no vehicles in the

morning, the queue is formed

starting from 2-3 p.m.

Producti

on

Elevator

(supplies

buffer)

Shippi

ng

Trans

portat

ion

8 a.m. 8 a.m.

6 p.m.20-500 km

In contrast to case-study #1, THE QUEUE IS NECESSARY

Learning to manage the queue

Taking

Delivery

Constraint

during season!Queue as

a buffer

Learning to manage the queue

Queue as a buffer before the constraintBut the queue is expensiveTherefore the queue has to be managed

Two algorithms were created: precise primitive

Primitive:

ordering vehicles inclusive of the

taking delivery capacity and

adjusting this amount (in vehicles) in

accordance with the length of the

above-limit queue

Conclusions

The buffer can be of different: Supplies buffer Time buffer Vehicles buffer Ideas Projects Molecules .

Conclusion #1

Dynamic buffer management is a universal mechanism to solve logistical and other tasks.

Conclusions

How to obtain the economic benefits of these improvements is a question of great importance, but is usually solved as follows: Share the effect among the parties involved Develop the Mafia Offer Create a new business

If there is a loss in the system, you need to reduce them.

Despite WHOSE loss this is: "ours" or "not ours. This improves the efficiency and effectiveness of the whole system.

Conclusion #2

Thank you for your attention!

Ready to answer

your questions