September 2012
Advice and Assistance for Manufacturers
Inventory is always a topic of interest for manufacturing people – there’s always too much overall, never enough of what you really need when you need it, and inventory ties up a lot of the company’s cash so it has the attention of executive management.
Inventory management has been particularly challenging in recent days because of the uncertainty of the economy and the sudden changes in markets (demand) that have affected nearly every industry segment. Since inventory levels are usually dependent on forecasts, when forecasts change or are proved wrong, inventory is no longer in line with needs.
The default answer to this problem is to forecast better – always easier said than done, and especially challenging in the current environment. A more effective strategy is to increase flexibility by reducing lead times. Shorter lead times also improve forecast accuracy since your forecast is inherently more accurate the closer it is to the current day.
Shorter lead times allow you to react more quickly to changing requirements. With shorter lead times, you can have less inventory overall and maintain the same service levels (risk of shortage).
What many companies don’t realize, however, is that not all lead times are created equally. Only lead times on the “critical path” have a direct effect on total lead time for a part, assembly or product. Reducing lead time on a part or process that is not on the critical path has little or no benefit.
Once you figure out the critical path – and the best way to do that might be a simple diagram – identify the longest elements and work on reducing them. These long lead time elements could be purchase lead times or manufacturing times. For purchased lead times, work with the supplier, seek alternate suppliers, in-house or more local sourcing, and/or redesign for more available parts or materials. For manufacturing lead times, look at the individual processes, scheduling wait times, batch sizes, equipment changeover times, and stocking levels (bill-of-material levels).
Be aware that the critical path will move. Once you have reduced an element of the critical path, it may no longer be the longest cumulative lead time. You will need to re-assess the critical path after each significant change in lead time. There are lots of opportunities to reduce lead times and increase flexibility. Just make sure that you put your efforts where they will do the most good.
