Go on I hear you say, that’s a ridiculous claim! Not if you follow the thinking of the world’s most successful manufacturing companies.
Six Sigma lead time is a measure used and operated by many forward thinking companies due to the huge benefits it brings. This will often include, but is not limited to, reduced inventory costs, faster turning inventory, less capital investment and increased profit margins. Many of these benefits are hard to demonstrate and accurately cost but they have been proved time and again. Running through these in a little more detail…
Reduced Inventory Cost
When companies acquire too much inventory the items can sit in their warehouse or storage location collecting dust. The inherent value that is in these parts cannot be pulled out until they have been used in the production process. The longer parts sit, the more likely it is that they become obsolete due to changing processes, and often, they can simply be forgotten.
Faster Turning Inventory
Faster turning inventory overcomes most of the above and delivers further benefits. It is easier to control, to count, to store. It gives you the flexibility to respond quickly to changing market trends and new entrants to your supply chain.
Less Capital Invested
This one is crucial in times of financial stress. It makes the company more profitable, it gives the opportunity to create a greater cash flow and even pay down debts or stay solvent. If a new business venture appears then it can be acted upon when cash is available to take advantage of it.
Increased profits are the main goal for manufacturing companies. To stay operational, they must make a profit. When other expenses that subtract from profit margins are reduced or eliminated, it raises the bottom line. Each dollar that can be added back goes straight to profits. Even if one cannot see the profits right away, they are there and will show in the bottom line over time.
Mining companies have got used to poor service from suppliers and changing this is key for survival. Can you imagine a car production facility having to hold three months stock of parts? Of course not! Just In Time cured that back in the 1980’s! Yet that is exactly what many global miners are doing today. Invest a small amount of time on your supply chain and you won’t regret it.