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7/30/2019 Managing Lead Times
http://slidepdf.com/reader/full/managing-lead-times 1/24
Mr. Julius S. Kabiling
Course Instructor
7/30/2019 Managing Lead Times
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Time = COST
1. Extended lead times = cost The longer the logistics pipeline the higher the holding
cost of the inventory
2. Extended lead times = customer dissatisfaction Slower response
Irresponsive logistics
High cost + lack of responsiveness = POOR LOGISTICS MANAGEMENT
7/30/2019 Managing Lead Times
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Customers are very Price-sensitive The cheaper the product of the perceived same quality,
the higher the purchase posibility
Customers are very time-sensitive Customers always have second options
Suppliers with shorter lead times add up to the quality of their customer’s product
Although price is co-important, COST OF TIME is onemajor determinants of choice
7/30/2019 Managing Lead Times
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1. Shortening Product Life Cycles
2. Customer’s drive for reduced inventories
3. Unpredictability of the Market makes reliance onForecasts Dangerous
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The story of cell phones From analog (five years life cycle), to texting (3 years),
to polytones (2 years), to camera phones (1 year), to
smart phones, androids, tabs, notes (with a life cycle of approximately 1 MONTH!!!
Time needed to develop, introduce, and to meetdemand of the market has reduced significantly
Need to fast track product development,manufacturing, and logistics
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The time for the new product to reach the market isNOT the only important aspect
Your ability to respond to demands
Your lead time to re-supply the market Exploit the demand during the life cycle
Suppliers with lesser order-to-delivery cycle has betterstrategic advantage over slower competitors
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S A L E S
TIME
Introduction
Growth
Maturity
Saturation
Decline
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S A L E S
TIME
Late Entrants
Obsolete Stocks
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Logistics of suppliers upstream have been affectedpositively by more active consciousness on inventory costs of their customers downstream
JIT has become important among suppliers Effectiveness in the delivery is a number criterion in
winning the competition
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Challenge = inaccuracy of forecasts
Despite different forecasting techniques, market is very volatile making forecasts wrong
The root cause: Forecast error increases as lead timeincreases
Competition, marketing and promotions, and pricechanges makes demand volatile
ALL FORECASTS ARE PRONE TO ERRORS The longer the horizon, the higher the possibility of
error
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Automation helped shorten time required to produce But this resulted to inventories in their warehouses
Other companies think that long lead times produce
security and cover against uncertainty Demand could have shifted by the time the product
reaches its destination
Short lead time means more time to make adjustments
The requirement – look at every stage in the supply chain and fined opportunity for total lead timereduction
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For Customers:
The time it took fromorder to delivery
For Suppliers:
The time it takes toconvert an order intocash
The time that workingcapital is committedfrom procurement of
materials to customer’spayment of orders
Cash to cash cycle
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The Order Cycle Time (OCT)
Short lead time strategies offer good competitiveadvantage But suppliers need to be reliable and consistent on this
Each steps of the OCT will require time
Bottlenecks, inefficiency in the processes, andfluctuations in the volume of orders adds up to variations in the required time for each steps
CustomerOrders
OrderEntry
ProcessOrders
Productionof Orders
TransportOrders
CustomerRceives Order
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Question among companies: “How long does it take toconvert an order into cash?”
How long is the whole system from sourcing of rawmaterials to production of the finished product? Throughout the system, resources are being consumed
and working capital needs to be financed
The true scope of lead-time management is to control
the WHOLE pipeline The longer the pipeline from source of materials to the
final user, the less responsive to changes in demand
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Process linking manufacturing and procurement leadtimes to the market needs
It seeks to meet the competitive challenge of increasing the speed of response
Goals of Logistics Pipeline Management:
1. Lowering costs
2. Higher quality
3. Better flexibility 4. More responsive management to demands
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Each step incurred creates benefit to customers These benefits are something that the customer is ready
to pay for
Any activity that contributes to the achievement of the
“main goal” could be classified as value-adding In other words, Value-Adding time are those that are
NECESSARY and/or ESSENTIAL
Unwanted processes MUST be eliminated
Brainstorm among key officers and agree on whichsteps are TRULLY value-adding Beware however, agreements may not be easily achieved
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The Challenge to Logistics Managers: Find ways to improve the ratio of value-added to cost-
added time within the pipeline system
Value-added time_______
End-to-end pipeline time Remove problems along the pipeline
Examine in details the interfaces between thecomponents
X 100
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Normally implies forecasting Although accuracy is almost always less than perfect
Mistakes in forecasting end up as inventory problem
Managers should seek for the perfect match between thelogistics lead time and the customer’s required order cycle Gain earlier warning of requirements through improved
visibility of demand
Procurement Manufacturing Delivery
Customer’s Order Cycle
Logistics lead time
Lead-time gap
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Processes may be inefficiently performed along thelogistics system
Sub units within the system may NOT be concernedabout their impact with the others
Managers must identify opportunities for reducingend-to-end pipeline time
Essential starting point = construct a SUPPLY CHAIN
MAP
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Time-based representation of the processes and activitiesinvolved in the system
Highlights the time consumed by inventory
The map distinguishes the “Horizontal Time” and the“Vertical Time” Horizontal Time: time spent in process
Vertical Time: non value-adding, cost-adding time
Non value-adding time may be self-inflicted (e.g. inventory
rules visible within the system) The basic principle: every hour in the pipeline is directly
reflected in the quantity of inventory in the pipeline, whichaffects the time it takes to respond to market requirements
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Logistics processes can only be optimized by focusingon the total time
Attempt to optimize individual elements in theprocess leads to less-than-optimal result overall
The Theory of Constraints [Optimized ProductionTechnology (OPT)] Activities categorized as “Bottlenecks” or “Non-
bottlenecks” Focus on bottleneck activities to speed up total system
output
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Extend the customer’s order cycle Seek to obtain early warnings of customer requirements
Look at the Demand Penetration Point Occurs at the point in the system where real demand
meets the plan
Upstream is driven by a forecast
Downstream responds to customer demand
Logistics management should seek to identify ways topush the demand penetration point as far as possibleupstream
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Information exchanges within the logistics system
Gain early notice of customer requirements The Feed-Forward
The “Tip of the Iceberg” philosophy
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Purpose of Supply Chain is to Balance the Supply andDemand, achieved through: Forecasting ahead of demand Creating inventory against the forecast
Additional capacity may be maintained if demand isgreater than forecast
There MUST be sufficient capacity/inventory to meetanticipated demand
Ideally, the fulcrum should be closer to demand. To do this, improve VISIBILITY of demand while
enhancing VELOCITY of the supply chain
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