A fact of life for many manufacturers is that there are customer orders or forecast for products that are going to be late because one or more of the components will be received late from the supplier. In many cases, the components that are not late are received from the suppliers and held in inventory and the suppliers are paid or in the process of being paid. Furthermore, there may have been sub-assemblies built and sitting in inventory awaiting the late component(s) from suppliers.
Since the end products cannot be built and delivered until all the components are received, there is excess inventory being carried. The obvious first approach is to fix the situation with the late supply, but a lot of times this cannot be accomplished. Many different strategies are in place at some manufacturers to mitigate this type of situation, such as: vendor managed inventory, lean manufacturing, schedule sharing with suppliers etc. but, regardless, I have seen at many of the customers I have worked with a lot of late and past due end product demand.
So when late supply, and therefore late end product demand is inevitable, what is the best way to deal with this situation and reduce inventory? From my point of view, to effectively plan and reduce inventory, there are some key capabilities required:
- Ability to identify the gating components and determine when they will be available. Required here is a tool to easily identify gating components as well as an effective way to collaborate with and get reliable commitment dates from suppliers.
- Visibility into the gating components far enough in the future to reschedule the end product demand so that purchase orders and production orders on other components can be delayed in time to realize inventory savings.
- Capability to determine if the rescheduling of demand is worth the inventory savings given the administrative effort involved, as well as the change and disruption at the suppliers. This implies an ability to simulate the change and calculate the potential inventory savings as well as the amount of rescheduling that will need to be executed.
I would like to know your thoughts on this subject. If this situation is applicable to your manufacturing operations, how do you deal with it? What tools or applications do you have that assist you in effectively managing late supply against customer satisfaction and inventory levels?