Implementation of the Theory of Constraints in Pharmaceutical retail

As part of its expansion, AGILEA's team participates in the TOCICO conference.

TOCICO is a certification body. And it annually offers a review of case studies and new practices associated with The Theory of Constraints (TOC). AGILEA had the honor of intervening on the Critical Chain and Manufacturing approaches. We invite you to come back to the various presentations that marked this annual conference in the coming months.

During the conference, a company specializing in pharmaceutical products - including a distribution network - shared their feedback on applying the Theory of Constraints solution in distribution.

As a reminder, the TOC Distribution solution is based on several principles:

• Centralization of stocks at a point upstream of the flow
• A replenishment technique based on a flow drawn in Min/Max.

The most challenging point of a TOC application in distribution is not about Min/Max use but about the culture change that the approach suggests.

Most distribution networks are convinced that the further down the chain (in pharmacies) the product is, the more likely it is to be sold.

Unfortunately, the observation made by this company revealed exactly the opposite: the network had 20% of products out of stock. In contrast, these same products were in overstock at another point in the distribution network.

The other aspect is that each distribution point contained 60% of the company's catalog. That is, out of 100 products offered by the company, only 60 are present in one of the distribution points.

When the company repositioned its inventory at the central point and implemented the buffering system, it saw dramatic progress; outages fell from 20% to 2.5%.

This approach is reminiscent of the first step of a DDMRP installation.

By centralizing stocks, stores have had space available to accommodate new products. The consequence was immediate as the product fill rate went from 60% to around 90% in the weeks following implementation.

Direct impact; when there are more products available in pharmacies and especially new ones, they are more likely to be sold!

So sales started to grow significantly to the point of creating a bottleneck in operations.

Therefore, the company has moved on from its TOC path with the implementation of DBR (Drum Buffer Rope) techniques within its picking operations.

The company has shared here the most critical part of this exercise: correctly identifying the system's stress.

At first, she thought that the constraint was at the conveyors' level, but she realized that it was at the level of picking.

This error is often the same: there is a tendency to confuse the bottleneck with the company's core business.

When the company realigned its organization to its system's real constraint it was able to generate a very significant excess capacity; as its picking operations went from 40k lines per day to 93k order lines. 

From an external point of view, it is still surprising to see these levels of improvement.

Nevertheless, we should remember that we use a large part of the capacity to position products at the wrong places in the situation preceding these changes.

By doing this repositioning, it becomes easier to make better use of the available capacity.