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SCDigest Expert Insight: Supply Chain by Design

About the Author

Dr. Michael Watson, one of the industry’s foremost experts on supply chain network design and advanced analytics, is a columnist and subject matter expert (SME) for Supply Chain Digest.

Dr. Watson, of Northwestern University, was the lead author of the just released book Supply Chain Network Design, co-authored with Sara Lewis, Peter Cacioppi, and Jay Jayaraman, all of IBM. (See Supply Chain Network Design – the Book.)

Prior to his current role at Northwestern, Watson was a key manager in IBM's network optimization group. In addition to his roles at IBM and now at Northwestern, Watson is director of The Optimization and Analytics Group.

By Dr. Michael Watson

September 30, 2013

Three Types of Supply Chain Buffers

Your Supply Chain has Variability and Using Three Ways to Buffer It, You Can Choose How you Will Buffer the Variability

Dr. Watson Says:

start have to buffer variability with inventory, capacity, or time...
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I teach a class on operations excellence at Northwestern that covers the principles of Lean.  One of the key ideas that I like to stress is that a good implementation of Lean involves reducing variability and determining the proper buffers.  This point is often overlooked when people study Toyota and the techniques that they used.  People often miss that Toyota worked hard to reduce variability (by fixing manufacturing schedules, for example) and putting in proper buffers (two 8-hour shifts with 4 hours between one, for example).  Wally Hopp and Mark Spearman sum this up well in their book Factory Physics

Hopp and Spearman state that any system with variability (like your supply chain) would have to buffer that variability with inventory, capacity, or time.

When designing your supply chain, you should consider how you will use these three buffers.  If you don’t carefully build your buffers they will be created for you.  Let’s look each buffer.

The inventory buffer is the one we think about the most.  If your vendors have long lead-times and a lot of lead time variability or your customers order very erratically, you may have a large buffer of safety stock.  That way, when orders come in, you can ship them on time and your customers don’t have to worry about your unreliable vendors.

Previous Columns by Dr. Watson

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Learn Python, PuLP, Jupyter Notebooks, and Network Design

EOQ Model and the Hidden Costs of Fixed Costs

CSCMP Edge - Nike Quote: "It is All an Art Project Until you Get it on Someone's Feet"

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A capacity buffer can take many shapes. If your unreliable vendor usually ships to you via ocean containers and you don’t buffer with enough inventory, you can use emergency air shipments when you run out of product.  Think of the air shipments as extra (and expensive) shipping capacity.  Or, if your unreliable supplier is actually your own plant, you can use overtime or extra lines to meet unexpected demand.  The capacity buffer may be more expensive than holding inventory.  But, in a make-to-order environment, it may be a good choice.

The time buffer is usually the buffer you end up with if you don’t create other buffers.  If your supply chain has variability (and it does), and you don’t buffer with inventory or capacity, then when your demand is higher than expected or a vendor shipment is late, your customers simply have to wait.  Even though you promised the delivery in three weeks, it may be five weeks before you ship.  This buffer avoids the expense of extra inventory or capacity, but comes with the big downside that your customers may take their business elsewhere.

Final Thoughts

There are two big take-aways from this discussion.  One, you should pick your buffers so they are picked for you.  Two, if you don’t like the size of your buffers, you need to work on reducing the underlying variability.

Recent Feedback

This is a good point on buffer types, and how they differ from each other. It also states an interesting thing that if we don't pick one type of buffer then it will be on default buffer which is the time buffer. However, I fail to understand the actual meaning of buffer itself.

Bramantyo Priambodo
Tias Business School
Feb, 24 2015

Thank you very much for clearing this up, somehow it was very confusing in the textbooks I am currently studying (MSc).

University of Groningen
Oct, 23 2015

Very helpful. 

Shahzad Zafar
M.Sc. Student
Hochschule Rhein-Waal
Nov, 21 2016

 Thank you for the clarification. 

Middle Tennessee State University
Jan, 20 2018