Page 88 - Orlicky's Material Requirements Planning

68 PART 2 Concepts

FIGURE 4-8

Cumulative production lead time for Part 400 with no stock.
5 Days 7 Days

Part 100 A B C Part 200 D E F Part 300
Purchased Component Parent
PLT = 10 days

Part 50 G E Part 400
Purchased Parent
PLT = 7 days
4 Days
time is greater than 22 days for Part 300 and greater than 19 days for Part 400. In both
cases, the assumption is made that 22 and 19 days, respectively, are reliable lead times. To
have reliable lead times, the suppliers must have excellent reliability, and the internal
lead time approximation must be generous enough to experience very few violations.
However, if customer tolerance is less than 22 days for Part 300 and less than 19
days for Part 400, then this company faces a choice. Either it must compress the lead times
or risk losing customers. Traditionally, this has meant the attempt to forecast the inde-
pendent demand and keep the finish good parts on hand or, alternatively, the processes
within manufacturing must get much quicker. Unfortunately, most demand-driven staff
and consultants would be quick to attack the internal processing times first. While this
can be a valid point, this focus seldom results in an immediately effective significant lead
time compression solution. In reality, the attempt to make major process improvements
instead can bring an increase to customer-related risks in the immediate term. Instead, a
well-designed inventory strategy often will stabilize the manufacturing environment so
that it is easier to work on process improvement. This, in turn, reduces the required
inventory commitments. In many environments, there is a proven sequence to safely,
quickly, and cost-effectively compress lead times. Such a sequence starts with sensibly
placed and properly sized inventories.
Small stocks of the correct inventory can have an immediate impact on lead-time
compression. In Figure 4-9, both parent items can benefit by stocking purchased Part 100.
Figure 4-9 shows the insertion of a stock buffer at purchased Part 100, denoted by the
“bucket” symbol. In the case of Part 300, 10 days of lead time will be removed as the PLT
gets subtracted from the longest sequence. Now the cumulative lead time for Part 300 is
12 days. In Figure 4-10, stocking Part 100, however, removes only eight days of lead time
from Part 400 because the longest sequence shifts over to a path terminating in Part 50’s
purchasing lead time. Part 400’s compressed lead time is now 11 days.
The benefits of the Part 100 position is that both parent item lead times are com-
pressed. In this case, this strategy will work if the customer tolerance times are greater
than 12 days for Part 300 and greater than 11 days for Part 400. In addition, possible sup-
plier variability relative to Part 100 has been removed or minimized.