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"There are some people who live in a dream world, and there are some who face reality; and then there are those who turn one into the other."
-Douglas Everett
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Issue 362008
For this issue, we address how to better manage purchasing schedules to reduce production delays and prevent inventory from sitting on the shelf unnecessarily.
Please click the "ManEx Case Solution" link for the method recommended by ManEx.
As always, We look forward to your participation and feedback as you gain new insights and become a more effective provider of Electronic Manufacturing Services.
Sincerely,
David Sharp
ManEx, Inc.
Business Case - Material Requirements Planning
Production Offset
North Eastern Company* (N.E. Company) recently won a $20 Million contract they have been pursuing for almost two years. This single order is about one-third of their total revenue last year and is a major step forward for this growing company. They are excited for the opportunity and the growth it will bring.
As expected, the opportunity is also a challenge. The new business is a full box-build assembly and will take nearly six months to complete. Because materials represent around eighty-five percent of the cost, NE Company must carefully control the material stream to ensure they can fund the growth and maintain their cash flow. If they bring the material in too soon, their cash will be tied up in inventory long before they are able to ship. Conversely, if they bring it in too late, they won't be able to ship and invoice for work already completed. Fortunately, the multi-level assembly provides an opportunity to stagger the material delivery schedule and reduce the impact of the order size.
To set their schedule, NE Company must ask themselves: What is the best way to handle this material schedule adjustment? How will they decide which parts to delay and which to bring in early? How will they communicate this adjustment to purchasing and to the suppliers? Will MRP allow this adjustment, or will buyers have to manage it outside the system?
Business Case Solutions
- Excel Spreadsheets - Creating a list of parts that must be brought in earlier, or later than the balance can allow the buyer to schedule accordingly and reduce financial strains from this order. However, anytime a user employs a method outside the standard process opportunities for error increase. Even if errors are avoided, the buyer must then disregard MRP messages to adjust the due date. Once buyers start ignoring MRP action items they increase the likelihood of missing a valid and important action.
- Sub assemblies- Creating sub assemblies allows users to better control MRP suggestions for delivery. They can use the production lead time to increase the total lead time for the parts forcing MRP to bring those parts in before the rest of the assembly. This allows the components to have accurate lead times from the supplier because it uses the production lead time to control the needed offset not the component lead time. However, this only works in one direction and requires users to schedule starting with the last part needed and work backwards from there. It can also make a mess of the inventory and assembly lists depending on the volume of parts and offsets.
- Loaded as Consigned Inventory - moving the inventory to consigned inventory would ensure MRP does not try to replenish the parts, but it may make it difficult to use the parts until they are gone.
- Smaller Production Quantities- Reducing the production Work Order quantities would reduce the impact of carrying inventory longer than needed because it reduces the amount of inventory at a given time. However, some components may have a minimum order or delivery quantity that will reduce the effectiveness of this method. Additionally, without careful monitoring in production, this method may create additional setup processes further reducing the benefit.
* Company name has been changed.
ManEx Case Solution
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