Analyzing time and inventory
To help understand the relationship of time and inventory it
is useful to be aware of the concept of activities that add value to the supply
chain and those that do not add value. An activity that adds value is one that
provides a positive benefit to the product or service being offered. This can
be assessed in terms of whether the customer is prepared to pay for this
activity. An activity that dose not add value is one that can be eliminated
from the supply chain process and will not materially affect the finished
product as far as the final customer is concerned. The analysis of supply chain
activities in terms od the extant to which they add value to a product has thus
become an important factor in the assessment of supply chain efficiency. The
aim is to identify and eliminate those activities that add cost but do not add
value. The holding of inventory within a supply chain is one such activity and
many companies are now trying to eliminate unnecessary inventory from their
supply chains.
One method of highlighting unnecessary inventory is through
the use supply chain mapping. This technique enables a company to map the
amount of inventory it is holding in terms of the lengh of time that the stock
is held. An example of this technique is provided in Figure 13.3. This is an
example from the US clothing industry. It shows:
·
Value adding time which is represented along the
horizontal axis. This shows the total of the manufacturing and transport time
for the whole supply chain process from the initial raw material fiber to the
supply of the finished product to the end user. It is value adding because the
product is changed either through a production process or through a movement
process. It amounts to 60 days.
·
Non value adding time which is represented by
the vertical lines that rise from the horizontal axis. These show the various
occasions when the part prepared or finished product is held as some from of
inventory. This is adding no specific value to the product. This amounts to 115
days.
·
The total time or pipeline time which is the
addition of the value adding horizontal time and the non value adding vertical
time. This there fore includes all the time that it takes through all the
different manufacturing storing and transport processes. This is a total time or
volume of 175 days.
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