Question On Optional Components | Arvind Janarthanam

“Greetings! First of all, I am thankful to this blog. It has helped me out with my queries.

I’m working as a scheduler and we are facing sudden change in the optional parts that we supply to our customer. The reliability of the forecast we have is coming down. Most of our parts being imported is affecting our cost due to last-minute freight. Can you please suggest an approach to arrive at the minimum number of stock we could maintain against each options(based on past data) so that we strike a balance between the inventory and availability.

Arvind”

Michel Baudin‘s response:

Dear Arvind:

You tell me you are a scheduler, but many of the actions that can improve the procurement of optional parts are beyond the range of what a scheduler can decide. You are also asking a generic question, to which there is no generic, universal answer. All I can do is lay out a few possible courses of action.

For each item, analyzing past consumption data certainly is an appropriate starting point. You need to check volume trends, cyclicality, and stability, as explained in Lean Assembly and Lean Logistics. Then you need to make decisions based on what you find, but these decisions may require more authority than you have.

Often, Marketing offers many options as a way to differentiate the company from competitors, without due consideration of Manufacturability. If too difficult to make, the options may do more harm than good to the business and should be terminated. This is a call for top management to make.

For the options you retain, you may decide to delegate the procurement of imported to components to a trading company that sets up a logistics center near your plant and acts like a local supplier. Then they worry about stocks, transportation costs, customs, etc. You pay them to do it, but, presumably, as it is their specialty, they are better at it than you can be, and you don’t have to worry about it.

In your warehouse, you may also physically separate the optional components from the components used in your standard products, to make the stock levels easier to monitor.

Another option is to buy generic materials and make the optional components in house as needed. In some cases, you may not have the resources to do it, but, in others, it may be the only way to promptly deliver products with options.

#Logistics, #LeanLogistics, #OptionalComponents, #ImportedComponents

One comment on “Question On Optional Components | Arvind Janarthanam

  1. Arvind, you are balancing the cost of expedited freight, carrying inventory and missing sales. Make a hypothetical (be prepared for 20% over forecast) and calculate the cost of carrying it vs the cost of expedite. Take several values and “sell the idea” to the decision maker. Each level has different costs and risks, your job is to calculate and communicate the options and the risks (make sure you communicate the risks of excess or obsolete inventory as well as expedited freight).

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