Page 94 - Orlicky's Material Requirements Planning

74 PART 2 Concepts

FIGURE 4-17

Part 300 and Part 400 cumulative lead time—without Part 200.
5 Days 7 Days

Part 100 A B C D E F Part 300
Purchased Parent
PLT = 10 days
Part 50 G E Part 400
Purchased Parent
PLT = 7 days
4 Days

In this one very simple example, a number of different potential scenarios were con-
sidered. Obviously, as the complexity of the routings and BOM structures increases, the
more potential scenarios there will be. The answer is not to simply place inventory every-
where. This is often unnecessary and can be extremely wasteful. The important thing to
note is that the right answer is based on several different factors that vary from compa-
ny to company and can change over time. Developing the best inventory strategy is an
ongoing process with sales, operations, and financial implications. It is an ongoing
closed-loop process as conditions relative to the factors named earlier change.
This example began by using manufacturing and cumulative lead times as factors
for determining the right position. Within the example, however, a critical point can be
realized; there is actually another type of lead time that needs to be recognized, calculat-
ed, and made visible. This lead time will be a critical factor in:

■ Understanding how to best leverage inventory
■ Setting buffer levels properly
■ Compressing lead times
■ Determining realistic due dates, if needed
This new lead time, called ASR lead time (ASRLT), is defined and incorporated into
an extensive example in Chapter 23. It represents a dramatic leap forward for positioning
and planning visibility.

Inventory Positioning in Distribution Networks

This book is focused on manufacturing inventory. However, the current manufacturing and
supply landscape dictates a discussion about the entire integrated supply chain. Part of that
supply chain is the distribution network. Most distribution networks have regional and/or
local warehouses holding stock. These locations are constantly attempting to balance
between the critical requirement to have what the market requires within the time frame it
requires it (usually instantly) and the need to turn or convert inventory into cash/profit