Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance نسخه متنی

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Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance - نسخه متنی

Daniel L. Gardner

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Work in Process

The scenario in raw materials quickly trickled into work in process. In view of the characteristics of the build-to-order model, work in process should be at a minimum at all times. Unfortunately, the quickest way to increase work in process is to begin a production run and half way through it realize that certain necessary components are not available. Inventory accuracy contributes to this situation, but unstable lead times also can create problems for the timing of scheduled receipts. The quick fix is to stop the lot, put it aside and begin production of another order until the necessary parts come in. When parts are coming in from a variety of sources around the world, the wait time can be long, with inventories building at a constant rate.

Work in process is the most dangerous of inventories because as raw materials enter into production, both direct costs and overhead expenses are applied to the goods. As work-in-process inventories lay around gathering dust and taking up space, their dollar value on the balance sheet increases. Again, the solution to this problem speaks directly to inventory accuracy and lead time stabilization. If a production planner cannot rely on the accuracy of raw materials inventory, the buildup in work in process is inevitable. Likewise, if that same planner cannot count on scheduled receipts coming in when planned, the result will be the same, if not worse. This situation, coupled with the inspection-related issue alluded to earlier, created a dangerous situation for NikoTech and its $165 million (25%) in Y2 work-in-process inventories.

Hopefully, the increase in inventory accuracy brought on by the cycle-counting policy will let the plants know exactly what they have in raw materials. From there, and assuming the work-in-process orders are still open, they can get product onto the manufacturing floor that will allow the completion of those orders. For future sales, the combination of stabilized lead times and inventory accuracy will permit planners to not begin a production run unless they are absolutely sure that the goods are in stock or will arrive in time to go into manufacturing.

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