Manufacturing lead time accuracy

This article addresses the question of accuracy of planned lead times (PLTs) that are used with a material requirements planning system. Lead time error is defined as the difference between an item's PLT and the actual lead time (flow time) of an order to replenish the item. Three related topics are discussed: the relationship between system performance and average lead time error, the transient effect on work‐in‐process (WIP) inventory of increasing PLTs, and the relative accuracy of three methods of determining PLTs. A distinction is made between available and WIP inventory. The former includes any purchased item, fabricated part, assembly, or finished good that is in storage and available for use or delivery. WIP denotes materials associated with open orders on the shop floor. It was concluded that average lead time error has a considerable affect on system performance. PLTs that are on average too long or too short increase available inventory; and the further the average error is from zero, the more pronounced the increase. Contrary to conventional wisdom, increasing PLTs will increase the service level (decrease backorders), unless PLTs are already severely inflated and MPS uncertainty (forecast error) is small. If PLTs are inflated, decreasing them will decrease the number of setups per unit time in the case of considerable demand uncertainty. Contrary to conventional wisdom, increasing PLTs causes only a transient rise WIP inventory. The fact that the average lead time error has a significant effect on the three areas of system effectiveness mentioned above does not imply that a given order's lead time should be managed in a way that forces its actual lead time to match the PLT. Stated another way, the material planner may use the latest information to manage a given order's lead time; however, if the average discrepancy between the actual and planned lead times is large, system performance can be improved by changing the PLTs to approximate the average flow times. Three methods that have been proposed for determining PLTs are compared. They are historical averages of the actual flow times, calculated lead times based on standard times and historical averages of the queuing time at the appropriate work centers, and the QUOAT lead time proposed by Hoyt. The third was found to perform poorly unless the work content of all operations is identical. With one exception, no differences were found between the first two methods. The simpler historical average method was superior to the calculated lead time in the case where the work content of each operation varies and when considerable demand uncertainty exists. The results are based on simulation experiments employing a generalized MRP/Job‐Shop stochastic simulation model. The program launches orders based on standard MRP logic, reschedules open orders by moving the due date in or out to coincide with revised need dates, moves manufacturing orders through a job shop, schedules the delivery of purchase orders, and updates inventory levels. The product structure tree contained eight distinct items, with four levels and one end item. There is no reason to believe that the conclusions would be any different had a larger system been studied.