We must first understand how the relationship
of customer lead time to the logistics pipeline impacts our
manufacturing policy. If we stay close to the ideal world, we
have the situation shown in Figure 5. In this illustration, the
customer lead time is overlayed on the cumulative lead time and
delivery lead time. The customer (and competition) allow us
plenty of time between order receipt and expected delivery to
buy material, build, and deliver the product. We only need to
carry minimal inventory, if any. The requirement for
sophisticated material planning systems is minimized, and
inventory consists primarily of work-in-process.
This view is typically used to characterize
the Build-To-Order environment, where the product is
non-standard; engineered and built to customer specifications.
This usually implies a job shop, and associated long lead times.
Look at the time line in Figure 5. Does it
represent days or weeks? Actually, it doesn't have to be either.
It could be minutes, hours, or months! The important point in
this illustration is the relative comparison of customer lead
time to cumulative lead time and delivery lead time. Figure 5
does not have to represent the traditional build-to-order
scenario. Imagine the time line representing A0«r,y. In that
case, we could build stow/an/ products after we received
the customer order! Inventory would be needed for long lead time
items, and safety stock could be kept at the lowest level based
on end item forecasts.
However, constraints (and competition) may
exist. Our time line may represent the situation shown in Figure
6. Here, customer lead time doesn't allow us time to build the
product from scratch after receiving an order. We need to buy
and manufacture certain materials and subassemblies based on a
forecast of customer demand. We need better forecasting and
planning systems, and we need to carry more inventory. We still
don't have to stock the finished product, however. We have the
luxury of offering product options to our customers. We can wait
for an order, assemble the product based on customer selections,
and meet the customer's expected delivery date.
We usually associate this scenario with
product options, in a final-assemble-to-order environment, but
it doesn't have to be. It can be applied to standard
off-the-shelf products also. If customer lead time covers our
final assembly and delivery time, we can eliminate the shelves
and the inventory that would sit on them!
Again, today's reality may dictate a
different scenario. Figure 1 illustrates the
Make-To-Stock environment. Here, because our
delivery lead time is equal to the customer lead time, we have
to have the product available to ship when the customer order is
received. What we're really doing is shipping from stock, and building
If the delivery lead time in Figure 1 is
longer than the customer lead time, we face another challenge.
We would need to shorten the delivery time, maybe by improving
the process, using faster modes of transportation, or holding
inventory closer to the customer in an expanded distribution
This simple illustration gives us quite a bit
of insight into how we manage this product:
• We need to develop and monitor forecasts
• We need to buy and build in anticipation of demand
• We will need to carry lots of inventory (or at least more
than we want to)
To be Continued
stay current on bullet-proofed manufacturing solutions, subscribe to
ezine, "The Business Basics and Best Practices Bulletin."
Simply fill in the below form and click on the subscribe button.
also send you our free
Special Report, "Five Change
Initiatives for Personal and Company Success."
personal information will never
be disclosed to any third party.
leaders have a responsibility to educate and train their team
members. Help for developing a self-directed, World Class
Manufacturing training program for your people is just a click
are welcomed to print and share this bulletin with your
manufacturing teams, peers, suppliers and upper management ...
better yet, have them signup for their own copy at:
the escalating spam-wars, it's also a good idea to WHITELIST
our bulletin mailing domain via your filtering software or
This will help guarantee that your bulletin is never deleted
Knowledge you’ll not find at offsite
seminars nor in the books at Amazon.com
Lean Manufacturing - Balanced Scorecard
ISO 9000:2000 - Strategic Planning - Supply Chain
Management - MRP Vs Lean Exercises - Kaizen Blitz
Lean Six Sigma - Value Stream Mapping
All at one Website: Good
Six Sigma Training Thinking
Out of the Box
Supply Chain Inventory Management Total
Quality Management Principles
Manufacturing Implementation Lean