Verinata’s Pull Based Replenishment Model-

Drum Buffer Rope

Mike Crowell

Today’s Goal

• To discuss the case on how and why Verinata chose to

implement a pull based replenishment model for our raw

materials and field kit supplies.

• What were the drivers

• How we went about implementing

• Lessons Learned

Agenda

• Verinata Health

• Challenge and Requirements choosing a replenishment

system

• Push vs. Pull 101

• Drum Buffer Rope Model

• How it was implemented

• Inventory System Overview (ERP Model)

• Inventory Control Process

• Buffer Sizing and Management

• Buffer Report Tool

• Requirements for success

• Q&A

Requirements

• Replenishment System had to support

• Raw Critical Reagents, Consumables, and reagent mfg.

• Vendor Managed Inventory levels at the Client Site

• Take CLIA out of the Supply Chain

• Easy and quick to Implement

• Scalable and not overly complex

• Easy to manage with limited resources

• Do it in such a way that we are adding value to the end

customer by effectively balancing inventory investments

with commercial demand.

• and with ZERO production stock outs!

SCM= Optimization of “Extended Enterprise” - Achieving Synchronous Flow to Add Value for the Customer

Push vs. Pull 101

• A PUSH based replenishment system is typically an “MRP”

driven system that plans for expected demand based on

forecasts, historical sales, capacity utilization, and EOQ.

• Most successful when a MFG can decide in advance on how much

to make through a master production schedule.

• Demand uncertainty is relatively small

• A PULL based systems utilizes actual demand (lab

consumption) as the signal to pull needs downstream.

(examples also include: Kanban, LEAN, TPS).

• They are ideal for environments when expected demand is not known.

• Production is demand driven.

Characteristics of Pull Based System

• Because you production process are designed to produce only what

is required, your business becomes leaner, as result of not holding

excessive stock levels .

• No BOM or WO required- Just a simple Item Master List

• Make to Order

• Demand is what shows up on your dock each day (no OM)

• Turn Around Time is crucial

• Relatively easy and quick to implement (no need for MFG Module)

• BOM’s are not reliable rendering MRP suboptimal.

• Leaner environments lead to reduction in waste

• improved quality

• Better fill-ratios

• Less Transaction Processing

• Less storage space!

• Value Add!

Drum Buffer Rope

Verinata decided to employ a PULL based replenishment

system called Drum Buffer Rope (DBR)

• Drum=Current rate of Lab Demand

• Buffer= is considered our optimal inventory required to

reliably replenish.

• The Rope is the signal to release (pull) more materials into

the system.

Suppliers Lead Time Lab Demand

Drum Buffer

Rope

Inventory Systems Overview -How we

Implemented

• Each SKU in the inventory system is treated as if it has

independent demand with specific reorder points known as

the “Buffer Level” value.

• Utilizing the simple Reorder Point Method (Min/Max) a

Calculated Buffer Level Value is populated as the “MAX” or

“Order Up To"in the ROP equation.

• Inventory Replenishment runs 2x a week and creates

purchase orders attempting to fill the buffer level (MAX)

Inventory Control Process-How we

Implemented

• Materials are physically maintained and counted at the

Point of Use in the lab.

• Materials Clerk performs daily counts of active inventory

• CLIA lab personnel are not involved in txns, they just take what they

need allowing them to focus on their competencies.

• Any deficit between inventory records and physical count

are considered consumption and are simply issued in the

inventory control system to the consuming group.

• ~500 SKU’s 2 man hours/day

Systems Overview

Requisitions are

created for any

items below their

Buffer Level

Requisition Buyer

Dispatch PO

to Supplier

Workflow Approval

Supplier

Inventory Module

Receiving

PO Module

Putaway

System On-

Hand Inventory

is adjusted up

Consumption by Clinical Lab, R&D, Commercial, etc.

New

System

On- Hand

Inventory

Materials' Clerk-

Counts and Issues

to consuming group

Replenishment

Process runs,

2 times a week

Buffer Management-Sizing the Buffer

Buffer= (LT+RF)*ADU (Lead Time Days+ Reorder Frequency Days * Avg. Daily Usage)

Example

• Item #000590 ACME Reagent

• UOM= Bottle

• Lead Time=5

• Reorder Frequency = 7

• Average Daily Usage= 2

(5+7)*2=24 Units • Set your Reorder Points as MIN=0/MAX=24

• Want to reduce your inventory by half?

Managing the Buffer

Set it…But Don’t Forget It!

Buffer= (LT+RF)*ADU

(Lead Time+ Reorder Frequency * Avg. Daily Usage)

• Both Lead Time and ADU are subject to variability, Managing the Buffer Level a critical (but simple) activity.

• Buffer Manager (1 hour/day)

Buffer Reporting

• Buffer Split into Thirds

>66%

<33%

>33%-<66%

• Buffer Penetration over time is

used as a tracking signal and

displayed on a buffer report

• Alerts the Buffer Manager

when to take action on

resizing the buffer +/-

• Example: If buffer has been in

red >10 days /30 days you

may want to increase the

Buffer level.

Buffer Target Level

Buffer Levels are managed daily via the Buffer Report

15

..to ensure buffer levels are sized appropriately.

What are the requirements of good pull

replenishment?

• Suppliers must be engaged, responsive and agile.

• Performance metrics with suppliers focus on reducing Lead Time.

• Diligent inventory control to capture average daily usage.

• Daily counting of consumption and lab replenishment.

• Timely demand signals to suppliers so as not to skew

reorder frequency.

• Inventory PO’s should be processed as a priority otherwise

variability will increase.

• In short, PULL based systems require all SCM partners to

be able to quickly respond to actual demand. TEAMWORK

& COLLABORATE!

© 2011 Verinata. Content is proprietary and confidential. 16

Outcome

Achieving a synchronous flow between supply and demand

• Zero Stockouts affecting CLIA production

• 10% increase in inventory turns month over month

• 50% reduction in Inventory carrying costs

• Close collaboration with supply chain partners make for

more effective partnerships/understanding our needs

• Increased Inventory intimacy

• Scrap and Obsolescence reduced 138%

• Best in class Turn Around Time

• Limited Resources required to manage the system (.25 FTE /Material

Clerk and .25 FTE/Buffer Manager)

© 2011 Verinata. Content is proprietary and confidential. 17

Requirements to success

Build a Reactive and Agile Supply Chain

• Invest in a collaborative supplier relationship at all levels

• Share usage and forecast information often

• Use sequestering agreements where possible

• Focus on Lead Time reductions

• Willingness to place more frequent orders for product

• Commitment to managing the buffer levels daily

• Resist the temptation to work against the system

• Issue to consuming group in Purchasing UOM (conversions

are for MRP)

Lessons Learned

© 2011 Verinata. Content is proprietary and confidential. 18

Recap

• Verinata uses a pull based replenishment model called

DBR

• This model reduces wastes as it reacts to actual demand

not “expected” demand.

• It requires agility and responsive action on SCM

• Suppliers become strategic partners in enablement.

• By reducing waste we directly add value to the customer

(customer is not willing to pay for our waste in the SC).

© 2011 Verinata. Content is proprietary and confidential. 19

© 2011 Verinata. Content is proprietary and confidential. 20