| 1. ManEx Minute - 382008 - Providing Production Flexibility |
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"Things turn out best for those who make the best of the way things turn out."
-Jack Buck
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Issue 382008
Greetings,
Last week, I read an interesting article found here from CNN Money about manufacturing returning to the US. One of the reasons for the return was greater control of the supply chain and how this offsets some of the cost increases. So, this week, we will cover a reader submitted case to show methods for providing greater flexibility and control to your customers while keeping costs in check.
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 - Value Added Services
Providing Ordering Flexibility to the Customer
One of North Eastern Company's* (N.E. Company) customers has requested the ability to receive immediate delivery of up to 400 units of their assembly, and be able to double that quantity within a 30 day window. This is an important value-added service for this customer and one that N.E. Company should be able to offer with appropriate processes and agreements.
Some of the factors to consider are: the production lead time to actually complete the assembly, the time required to purchase and receive the parts, and the overall value of the inventory and completed assembly.
How can N.E. Company ensure they can get all material in time for a doubled order? How will they ensure they have enough of the finished assembly on hand at a moment's notice? How can they fulfill this request and maintain their cash-flow?
Business Case Solutions
- Full Purchase Orders- requiring customers to place purchase orders for the full quantity required and with sufficient lead time to produce the board will allow for complete production, but does not give the flexibility required by the customer. Some customers need the flexibility and will pay accordingly.
- Assembly Safety Stock- Establishing an assembly safety stock will ensure that MRP always has sufficient qty on hand to fulfill the 400 piece order and small spikes in demand. However, the component lead times may require material safety stock to allow for an unexpected increase in demand. This safety stock level should be regularly monitored and adjusted if needed to maximize efficiency and cash flow.
- Material Safety Stock- Setting material safety stock will provide enough components to meet current demand and potential spikes in demand. However, the manufacturing lead time for the assembly may require assembly safety stock to satisfy immediate demands. Additionally, this will tie up cash in inventory and should be accounted for in the agreement with the customer liabilities.
* Company name has been changed.
ManEx Case Solution
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Here is a list of upcoming topics. Please email your thoughts, comments, and suggestions to mym@manex.com
- PO Notes
- Part Shortage Tracking
- MRP by BOM
- Excess Inventory
- Order Status Updates
If you have any topics you would like to see addresses in future newsletters, please send them to topics@manex.com.
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©2008 All Rights Reserved.
ManEx Minute is a weekly email distributed by ManEx, Inc.
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Developing with YOU in mind!
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| 1.1. ManEx Solution - 382008 - Production Flexibility |
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ManEx Case Solution
Using safety stock for assemblies and components should allow purchasing and production to meet current and future demand. This is true even if the finished assembly contains a subassembly.
This level of flexibility necessitates contractual agreements for excess material purchased and produced, and preset time frames for when and how to adjust safety stock levels and invoice for undelivered product and materials. As long as both parties understand the requirements, possible changes, and associated costs, this can be an important value-added service strengthening the relationship between the companies.
NE company is able to assemble the product in about 3 days, so the production lead time is not a factor in meeting customer demands. They set their assembly safety stock at 400 pieces and always have enough on hand for standard requirements.
Package minimums offer some protection against order increases, but NE Company must still be prepared for dramatic increases in demand. NE Company uses component safety stock levels to allow for these increases. They set safety stock levels according to maximum demand potential and order minimums*. The customer agreed to this method and is responsible for all components purchased accordingly.
*One method to calculate safety stock levels is with the following formula: MD X QTY X LT/4. MD is the maximum number of assemblies required in a single month (in this case 800). QTY is the number of times per assembly the part is used. LT is the purchasing lead time in weeks.
EXAMPLE: Using this formula, a part placed twice with a twelve week lead time would have a safety stock of 4,800 (800 X 2 X 12/4 = 4,800) or 5,000 if purchased on a reel.
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