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07/10/2012 09:27 AM
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I would like to understand how shorter material lead time will be able to benefit a company.
For example:
I need to plan demand based on the forecast provided by the customer.
Current max component lead time is 9months. This means that I need to input the demand for at least 9 months to meet customer's forecast so that materials will be purchased on time. Once upload into the system, the MRP will drive the purchase of the materials.
What is the benefit if I can reduce the lead time from 9 to 7months. If possible how to convert the reduction in the lead time to dollar and cents so that this can create an impact on the management.
Thank you.
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07/10/2012 12:31 PM
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Samuel,
Your specific question deals with supplier lead times so I'll limit my comments to the effects of reducing them.
As you've correctly stated, if the longest lead time item on your Bill of Materials is 9 months, you need to forecast your needs out at least 9 months. Simple, right? Not really. If you look at the National Weather Service 10 Day Weather Planner, it forecasts what is supposed to happen for the next 10 days. How much faith do you put in the first couple of days? Probably a pretty reasonable amount. How about days 9 or 10? Probably not so much. And that's only 10 days out and it's driven by all sorts of scientists with supercomputers. So the accuracy of a forecast is directly proportional to the forecast horizon. The further out you try to forecast, the less accurate they become.
Where this relates back to scheduling, MRP systems etc. is that simply putting a forecast with a 9 month horizon into any system and assuming that everybody will live happily ever after rarely happens. Now, if you had a longest lead time buy item with only a 2 month lead time, how much more accurate would your planning be? How about 1 day?
The other place lead time comes into play is pipeline inventory. If you have a 9 month lead time, you will have at least 9 months of inventory heading your way sooner or later. It's like draining a garden hose. The longer the hose, the more water you have to drain. Now if you have a 2 month - or 1 day - lead time, think of how much less inventory liability you'll have.
I could open a whole new discussion on how to reduce supplier lead times, but that's another thread.
Tom
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07/11/2012 11:04 AM
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Hi Tom,
Thank you for the reply.
For example there are a total of 200 components and 10 components have 9months lead time while the rest have 7months.
Target is to have all components to have the same Lead time of 7months.
Am I right to say that the dollar amount liability for that project will be reduced by 2months?
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07/11/2012 04:27 PM
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Originally posted by: SamuelLim
Hi Tom,
Thank you for the reply.
For example there are a total of 200 components and 10 components have 9months lead time while the rest have 7months.
Target is to have all components to have the same Lead time of 7months.
Am I right to say that the dollar amount liability for that project will be reduced by 2months?
Samuel,
All things being equal, that would generally be a correct statement. Unfortunately, raw material lead times are not the only variable here. For instance, your Procurement / Purchasing organization might have ordered more than the amount required by the BOM because of a volume discount, a lifetime buy or any of a number of other reasons. They may have also purchased less for different reasons.
I'd suggest that your bigger problem is that your lead time is measured in months instead of weeks or days. Lead times of the magnitude you mention are very common with electronic components though. Oddly enough, these components go into products with some of the shortest product life cycles on the planet. This leads to all sorts of waste no matter how well you plan.
Tom
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07/13/2012 11:35 AM
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Originally posted by: SamuelLim
Am I right to say that the dollar amount liability for that project will be reduced by 2months?
Hi Samuel,
I'm not sure exactly what your product is and if it's a repeat part used on a repetitive basis or a custom assemble to order item. Not that it matters to me, but if you are assemble-to-order, is the lead time significantly shorter to the customer than it is from the vendor?
Back to your original question - "how shorter material lead time will be able to benefit a company?"
Other ways your organization might be impacted by longer lead times:
A. Have you ever lost a sale due to a competitor having shorter lead time?
B. Have you ever had to delay an engineering change that would benefit your company due to the extended time it takes to work parts through the system?
These are benefits that can be tough to quantify, but can be used to gain support to drive changes.
If these do occur, wait until sales is whining because lead time is too long and you lost a nice order or customer. Or wait until manufacturing / engineering / sales are whining that a change can't be made for several months due to the wait associated with the lead time.
Sometimes timing of the proposal is key to making change happen. Not everyone wants to change to be proactive, but often they want to help lead the change in order to put out a fire.
Brian
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08/31/2012 10:06 AM
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Shorter lead times can be quiet advantageous, when stock is not held in advance. If you increase frequency of your schedule, you can easily reduce the amount of time an order waits before being launched to manufacture. You cannot store the finished product ahead of time, so the lead time is of critical importance.
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