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Chapter 13. Total Supply Chain Accelerat... > PART C: THE DOWNSTREAM PULL SYSTEM

13.3. PART C: THE DOWNSTREAM PULL SYSTEM

A vital input to the sales and operational planning process is a system that institutionalizes the measurement of real demand: the downstream pull system. If we can radically reduce the lead time of the factory, the amounts of inventory held downstream of the factory can be reduced while improving service levels.

A lot of money is wasted in carrying finished goods inventories in company warehouses, in consignment inventories, and by the hapless distributor or dealer who has invested money in slow-moving inventory. As an example, a wall-covering client spent 4% of revenue in company-owned warehousing facilities, including personnel, rent, and 10% cost of capital on PP&E and inventory. This did not count the obsolescence cost, which was not being measured and written off. These costs exceeded the cost of direct labor to produce the product. This slow-moving inventory is subject to the same obsolescence, damage, and rework issues as WIP within the factory. On the other hand, there are valid reasons for carrying inventory that are related to meeting customer lead time demands. The downstream pull system provides a rational means of ensuring a high level of service with minimal inventories.


  

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