Page 413 - Orlicky's Material Requirements Planning

392 PART 4 Looking Backward and Forward

FIGURE 23-1

Critical factors for properly positioning inventory.

Strategic Inventory Positioning Factors

The amount of time potential customers are willing to wait for the delivery of a good or a
Customer Tolerance Time
service.
The lead time that will allow an increase of price or the capture of additional business either
Market Potential Lead Time
through existing or new customer channels.
The potential for swings and spikes in demand that could overwhelm resources (capacity,
Demand Variability
stock, cash, etc.).
The potential for and severity of disruptions in sources of supply and/or specific suppliers.
Supply Variability
This can also be referred to as supply continuity variability.
The places in the integrated BOM structure (the Matrix BOM) or the distribution network
Inventory Leverage and Flexibility that leave a company with the most available options as well as the best lead time
compression to meet the business needs.
Critical Operation Protection The minimization of disruption passed to control points, pace-setters or drums.

that needs to be recognized, calculated, and made visible. That lead time will be a critical
factor in:
■ Understanding how to best leverage inventory
■ Setting inventory levels properly
■ Compressing lead times
■ Determining realistic due dates when needed

The truth is that MLT and CLT are only realistic under two extremes. In more com-
plex manufacturing operations, these two extremes rarely exist. To make MLT a realistic
planning input, all components at every level would need to be stocked and reliably
managed so that they are always readily available. MRP assumes that all components are
available at the time of order release. This assumption is seldom achieved or achieved
only through significantly bloated inventory positions.
Alternatively, the real MLT is much longer as production control personnel attempt
to clear the shortage. In reality, MLT represents a dramatic underestimation of real lead
time. To make CLT a realistic planning input means that no component parts on the
longest leg will be stocked. CLT assumes that components on the longest path will not be
available within their respective lead times but rather require a complete make to order
from the components below. Reality demonstrates that experienced planning personnel
are not so naive. In addition, when the demands of the twenty-first-century competitive
environment are considered, the reality is that the market will not tolerate it.
Stocking inventory for components anywhere other than on the longest leg can
waste capital, space, attention, and possibly capacity. This statement assumes that these
stocked parts are not on the longest leg of other parts. Figure 23-2 illustrates this with a
simple example. In this example, the parent item is Part 101. The BOM and the compo-
nent parts’ discrete lead times (both manufactured and purchasing) are noted with a