Buffer Inventory

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  Imagine a smooth flowing process.  The work is easy, employees are happy and inventory seems to flow like a stream of water.  Now, think what would happen if just one operation in the process couldn’t keep up with the others.  Or, a machine breaks down.  Now your flow is halted and a lot of waiting occurs.  Many traditional manufacturers in these cases rely on inventory buffers to prevent a complete line stop and keep lines running.  So, what is an inventory buffer?

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  Buffers are very similar to decoupling points.  The main difference is that a buffer as noted in the theory of constraints includes both material and time buffers.  In a practical sense a buffer ​​lessens or moderates the impact of something.  In the case of inventory management a buffer is extra inventory of either raw material or final product a company maintains as a protection against unforeseen circumstances.  Here’s an example.  You go into your favorite pizza shop and they have cheese, pepperoni and sausage hot and ready for the customer to grab at a moment's notice.  These are a buffer at the end of the line.  Many times a buffer is not yet complete and simply awaiting further processing.  This allows an organization to have specific hold points where they can use the unfinished goods to level a process or prevent a stop in the line.  In simple words, we can say it is the excess inventory that a company keeps in reserves to protect itself against an uncertain future.  As noted earlier, buffers can be maintained as material buffers or time buffers.  These buffers in both cases are best placed at constraint points or any point in a process where the operation may need a little extra support.  These could be shipping points, convergent points or divergent points.  Simply put buffers are placed where a process needs help. 
What are the advantages and disadvantages of Buffers?

• Some advantages of this technique are: protection against fluctuations in the supply and demand, minimization of any disruptions that may occur in production, more stable revenue flow for a company and inventory can lower the impact of lost opportunities by having the inventory readily available.   Of course with every advantage there are disadvantages that you may need to consider as well.  Some of the disadvantages might include: maintaining buffers can tie up resources and increase overhead costs, maintaining buffers also uses up more space and finally maintaining buffers only solves the symptom but does not address the root cause of issues like late deliveries, broken machines and unbalanced or slow operations.  So, let’s say that you’ve weighed the advantages and disadvantages out and you’ve decided you will hold some buffer stock.  How much should you hold?

How Much Buffer Inventory Should You Hold?
It would be great if there was a set amount that everyone could go off of.  But, the reality is that there isn’t.  Setting a buffer has its risks but there are a few best practices that you can use to establish your inventory buffer.  We will mention them briefly and cover them more in later posts. 

1. First and Foremost is fixed inventory buffers.  This one is pretty straight forward.  In this, the organization uses the support of experienced employees like planners. There is no formula.   Instead, you decide on the buffer amount based on maximum daily usage in a certain time period. Your buffer will stay the same until it is reviewed again and revised. 
   
2. Next is a time based calculation.  In this, the buffer stock is calculated based on future expectations.
   
3. Finally we have formula based calculations.  A popular formula that is frequently used to calculate the buffer, is based on the average safety stock that a company will need in case of a stockout. This formula, however, does not take into account seasonal fluctuations of demand.

Example From Legacy Definition:
  When you buff a car you place a thin layer of wax on the paint of the car.  This glossy wax helps protect the car's paint and body against elements like wind, weather and changes in environmental conditions.  Similarly buffer inventory is meant to help keep productions lines steady when changes in demand occur.  Some common examples of buffer inventory are:

1. Raw materials.
2. Semi finished goods.
3. Backlogs strategically held in different centers.

And that’s it Buffer Inventory.  Remember, we will cover more about buffers in later posts.  This will include everything from formulas to templates and more. 
Challenge:

• Have you used buffer inventory? If so, how does it work? Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

References:

1. Apics Dictionary 14'th Edition