To understand the opportunities and mitigate the risks associated with manufacturing and delivering a product on a schedule, it is necessary to understand the supply chain and the manufacturing process.
Manufacturing Scheduling and the Supply Chain
Once the material and material sources have been identified and the components have been defined, the manufacturer can start the supply chain moving.
It is a lot like getting a train up to speed; initially, it takes a huge effort to get moving. Once moving, it’s easier to keep it going steady, and not difficult to speed it up or slow it down. And just like a train, to stop it, you need to think ahead. Of course, you can just derail it to stop it quickly, but it tends to be expensive to clean up. It is the same in manufacturing.
The critical path on the schedule is almost always the raw material and components necessary to build the product. Therefore, it is important to have a complete Bill of Material early in the process so that the supply chain can be started. It is common that the procurement cycle takes 12 weeks, and that is for material with normal lead times. Sitting here in Q3 of 2021, there is material we need with a 52-week lead time, and some material that the supplier cannot guarantee delivery at all. Let’s just say we are quite busy specifying alternate components.
By the time the last of the material is rolling in, the manufacturing process can be designed, and validation can be underway. This is typically not on the critical path except to say that it can’t be completed until the material is all present. This is an exercise that only needs to happen once with the first order, however. For a re-order of the same product, this exercise is not necessary. That’s not the case with the procurement, however. If a new PO is not placed until the current PO is near exhausted, the procurement cycle (at 12++ weeks) could cause a gap in production. Even if that gap can be bridged by using alternate sources or material, it is stressful on the team and risky.
This shows the advantage of a Supply Contract where the manufacturer is authorized to procure material a year or 18 months ahead of time. Economic order quantities can be purchased and scheduled, and once on order, the material can be rescheduled to suit the schedule. We recommend a Supply Contract that allows us to buy 18 months in advance based on a forecast sent monthly by our customer detailing the weekly shipments expected within 60 days, and a monthly schedule after that, for the next 18 months. As the schedule shifts, especially beyond 6 months, it’s easy to update the supply chain and keep inventory levels proper. Inside the 60-day window it is more difficult to shift, but if we can shift it around, we try to accommodate the schedule.
Another tool to de-risk the supply is to identify the few components that are difficult to get on short notice (aka long lead components) and keep a safety stock of those components on-hand so that we can ramp up faster in the short term. There are usually only a few of these components on the BOM so it is not expensive to hold extra inventory. Keeping a safety stock of these items can bridge the gap in material until the supply can catch up and replace the safety stock.
We usually recommend a PO be placed for a few months’ worth of production to start, and as that process is being ramped up, we put a supply agreement in place that addresses the long-lead material and sets safety stock levels. The parameters are reviewed periodically to see if they are adequate and ad hoc changes can be made when necessary.
In many cases, especially when starting out, there is a need to get some product immediately or ASAP. This would entail ordering the components, or at least some of them for quick delivery. The more complex the product, the more components need to be ordered quickly, the more difficult the task, and the more likely that one or more of the components cannot be expedited. You may have heard the adage that “Of the three – Low Price, Quick Delivery, High Quality – you can pick two”. In other words, you can control two of the three but not the third.
We strongly recommend that you do not compromise on Quality. Buying a lesser product because it is cheaper and faster, will always come back to hurt you or your reputation later. This leaves paying expedite fees to a company to speed up the delivery. This can be done, but there are some subtle impacts.
Consider machined parts. There are shops that offer quick delivery on machined parts, but they charge significantly more for that service. When pricing a product on a schedule, the best price does not usually come from the quick delivery shop, but from a standard, higher volume shop. These shops make money be minimizing the setup, so they want to run the parts all at once, or in a few runs. Adding a quick run will cause the shop to order the material – likely all of it – for expedited delivery, which will drive up the cost of the entire order. With all that expensive material laying around, they will want to setup and run as much as they can. If your part requires plating, anodizing, or other chemical surface treatments, the machine shop will typically send it out to a plating shop. These shops charge by the batch (due to the setup costs too), which further drives up the cost. Expediting a few pieces can have a significant impact on the price of the entire order. Ordering some from a quick turn shop and the balance from the higher volume shop may be a compromise but consider there may be two different companies supplying parts and it is not trivial to switch suppliers, especially when you are in a hurry.
This same issue affects PCB Assembly, Injection Molding (think – two molds at different facilities!), sheet metal, etc. This can be done, but it is not a simple matter of having a company “rush” through a dozen of the product for you as a favor.
For parts in distribution, it may be easier to have a few shipped in early, but some COTS components are not inventoried, but built to order. In those cases, we have found that there are usually some that can be found by talking with the supplier, but sometimes there are none, and the company has to setup to build them. In that case, you may have to take the entire production run early – if they will even agree to run them.
Now imagine going through this effort with, say, 200 parts. You get everyone on board to deliver some product early, but there is that one part that simply cannot be found or made quickly. Now the risk is to attempt to hit the expedited schedule, knowing you have a missing part, and hoping that something will break your way by the time you must have the part to hit the schedule. This is risky, but if there is only one or two parts in this category, you can usually find a way to make it happen. And still, one supplier failing to deliver on time can jeopardize the whole delivery.
It seems easy to rush the delivery on a small batch of a product, but consider you are thinking of the 90% of the items where it is easy. It’s the other 10% of the parts that take 90% of the expediting effort and that is where the cost and risk lie.