Lead-time components

Ironically in many cases, an upward move in sales brings higher unit costs. This is frequently due to inflexibility in the supply chain and is particularly common when there is dependence on engineered, long lead-time components. Each company in the supply chain likely has a V-shaped cost curve with the lowest cost centered on an optimal cost. Production above or below that range results in increased cost. 

LT (Lead-Time) Time from placing an order to the time we receive the material and it is ready for consumption. There is one lead-time for each material type. Lead-time components include order processing, delivery, inspection, and manufacturing time. 

A key success factor for reducing the costs and lead times for vehicle manufacturers, for example, is the degree of integration of the suppliers within the product development process. This is seen as a natural extension to concurrent engineering principles (Wyatt et al., 1998). For many years, in engineering companies, a substantial proportion of the finished product, typically two thirds, consists of components or subassemblies produced by suppliers (Noori and Radford, 1995). 

This was accomplished by the invention of machines that were used to cut and shape the necessary closely fitted parts and, particularly, by the development of gaskets and packing. Since that time, components such as valves, pumps, actuating cylinders and motors have been developed and refined to make hydraulics one of the leading methods of transmitting power. 

An assemble-to-order (ATO) system is a hybrid model of biuld-to-stock at the component (subassembly) level and assemble-to-order for the end product. In an ATO system, typically, the components take a substantial lead time to buUd, whereas the time it takes to assemble all the components into the final product is often negligible. Hence, keeping stock at the component level improves responsetime performance, whereas not keeping any end-product inventory reduces inventory cost and maximizes the flexibility for customization. A good example of an ATO system is the production of a PC (personal computer). Other examples include fast-food operations and many mail-order or e-commerce services. 

An optimal FES system should have the following fundamental characteristics. It should (1) provide both stimulating and sensing capabilities, (2) be fuUy implantable, (3) be minimally invasive, (4) have real-time communication capability, (5) allow a practically unlimited number of stimulation and sensing channels, and (6) function without external equipment or interconnected leads between components. 

Notice that the equation above is Litde s law, which states that the average number of units in a queue is the demand rate times the average lead time. Little s law links lead time to work in process inventory. In our case, the inventory in transit is work-in-process inventory between the component plant and the assembly plant where it is required. Once we get the average in-transit inventory, we merely have to multiply it with the holding cost per unit per unit time to get the holding cost associated with the in-transit inventory. 

One key component of Toyota s supplier selection is frequent interaction with suppliers. Over 85% of the suppliers in Japan are located within fifty miles of the assembly plant. In the United States, over 80% of the suppliers are within a three- to five-day lead time, with sequence suppliers (those that adjust their components to match specific requirements in a car such as seats, dashboards, etc.) located close to the assembly plant. This frequent interaction not only coordinates supplier production with Toyota s requirement, but also permits visibility and quality control. 

It is obvious that the difference between the two models is considerable in this case. Equation (9.111) leads to the same result as the foregoing consideration if is replaced there by the sum + Td. This is also true if additional waiting times are to be taken into account, for example caused by the unavailability of a person for carrying out the repair. Hence we can replace in Eq. (9.111) by the sum of all times leading to component unavailability for whatever reason, which is simply called downtime . ... 

Agarwal et al. (2007) review the literature on supply chain agility, touching some of the components of DDSC like lead time reduction, market sensitiveness, new product introduction, and propose to apply Interpretive Structural Modeling (ISM) to show the interrelationship of different 15 variables to supply chain agility. 

The Make-to-Order (MTO) firm has designed a set of standard products, but the firm has not made the components in advance. Once a customer order is received for one of its standard products, the MTO firm begins to manufacture the product and ships the order when it has completed it. An example of a firm in this type of business might be one that produces cables and connectors for the computer industry. This type of firm would have a large catalog of standard cables and connectors. Its customers would call and place an order for a particular type of cable or connector. Once it had this order, the company would then manufacture and ship the product to the customer when completed. This firm has a much shorter lead time than the ETO firm. An advantage to the firm is that it does not carry any partially assembled product and does not have to forecast customer demand for specific end products. It manufactures only those products for which it has firm orders. 

The Assemble-to-Order (ATO) firm has designed a product which is manufactured from a variety of components. These components can be assembled into a wide range of products. The company stocks the components, but does not assemble the product until it receives a customer order. The customer is allowed to select from a variety of standard options, which are then assembled into the final product at the factory. A current example of this type of product is a computer manufacturer who waits until an order is received from a customer over the phone and then assembles the computer to meet the customer s specifications. This type of product has a fairly short lead time, but it still allows the customer to customize the product to suit his/her own unique needs. The manufacturing firm limits its risk to the amount of inventory that is stored as components for assembly. 

Cycle stock—One of the two main conceptual components of any item in inventory, the cycle stock is the most active component, i.e., that which depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received. The other conceptual component of the item inventory is the safety stock, which is a cushion of protection against uncertainty in the demand or in the replenishment lead time. 

Material requirements planning (MRP)—A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. Time-phased MRP begins with the items listed on the MPS and determines (1) the quantity of all components and materials required to fabricate those items and (2) the date that the components and material are required. Time-phased MRP is accomplished by exploding the bill of material, adjusting for inventory quantities on hand or on order, and offsetting the net requirements by the appropriate lead times. 

MRP requires that each end item have a BOM, which clearly identifies the components needed to make the end item. As explained in Chapter 9, the BOM can be represented in two different ways. One method is to show it as a hierarchical table as shown in Table 15.1. The other is to show it as a product structure tree as in Figure 15.6. Both of these represent the same BOM. But, note that the table has more information than the product structure tree does the table includes the lead time needed to either manufacture or purchase the item within the BOM. 

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