Page 421 - Orlicky's Material Requirements Planning

400 PART 4 Looking Backward and Forward

Part 101
$575 total direct material cost
ASRLT reduction 6 days/19 days (31.5%)
Average on-hand position goes from 100 to 80
Total savings $11,500
Part 1HO1
$400 total direct material cost
CLT reduction 5 days/12 days (41.6%)
Average on-hand position goes from 176 to 130
Total savings $18,400
Part 20H1
$200 total direct material cost
ASRLT reduction 2 days/8 days (25%)
Average on-hand position goes from 220 to 180
Total savings $8,000
Part 20Z1
$400 total direct material cost
ASRLT reduction 4 days/12 days (33%)
Average on-hand position goes from 95 to 70
Total savings $10,000
Total parent-part average on-hand inventory savings $47,900
However, this end-item inventory savings does not come without an investment. In
this case, in order to support the end-item activity, the average on-hand position of 501P
is 220 units. This represents an average cash commitment of $27,500. This means that
there is a net average cash savings of $20,400. Remember that leveraging these strategic
stocking points is not just about lower working capital; there are other advantages to
stocking 501P. Most companies would acknowledge a benefit associated with compress-
ing lead times above and beyond the working-capital reduction. The manufacturing
schedule is now less susceptible to supplier disruptions associated with 501P. If there is a
critical resource that 501P feeds, then the benefits of this lower susceptibility is further
amplified. In summary, the company gets compressed lead times with less disruption for
less investment.
Identifying 501P as a stocked part will alter the ASRLT chains. The change in the
ASRLT paths has been reflected in an updated matrix BOM in Figure 23-13.
This updated matrix BOM demonstrates how stocking a critical shared component
part will shift the chains to different paths. By stocking 501P, three of the paths shift to
entirely different legs of the BOM. This shift is illustrated in Figure 23-14. In this exam-
ple, there is not another shared component that is common to more than one end item
and that is a factor in the ASRLT chains of each end item.