The implications of the theory of constraints on inventory buffers

Abstract: Good inventory management can lead to high organisational performance by minimising inventory holding costs and improving customer service across the supply chain. The management of inventory remains a major challenge for many organisations as continuous changes in the supply chain occur. According to the CSIR (2014), investment in inventories across South African supply chains is significant and it is difficult for South African companies to compete with mature economies on a cost level due to the relative high costs of logistics transportation in the country. Inventory control is often seen as one of the lowest areas of competitive advantage, however it can be the largest single investment in assets for most organisations. From a theoretical point of view, the Theory of Constraints (TOC) seems to offer a solution to inventory management challenges. The TOC is a scientific methodology that is designed to assist organisations in identifying and solving critical process based problems following a continuous improvement approach. The TOC also unifies and simplifies the inventory quantity of an organisation into a single value called the buffer quantity. One of the clearly stated advantages of the application of TOC according to literature, is a reduction of inventory levels. This study attempts to support existing literature on the impact of the TOC on buffer levels by means of a case study of an organisation that has undergone a TOC application in South Africa. The primary objective of the study was to provide a case study implementation of the TOC to corroborate the theory that a successful implementation of the TOC can reduce inventory levels in a South African organisation without adverse effects on customer service levels. A case study of an envelope manufacturer which had implemented TOC principles was conducted through a literature review followed by empirical research to determine the impact of the TOC implementation on the organisation’s buffer inventory levels. The selected organisation provided an opportunity to investigate the scenarios before, during and after a TOC implementation. In-depth, semi structured interviews were conducted with...M.Com. (Business Management