Order Penetration Point: Just a Stock within Production?

Abstract

Nowadays, for customers the logistical performance of industrial companies is as important as the price and quality when buying decisions have to be made. It can be observed that considering the KPIs of logistical performance as quality figures, similar to the product quality, becomes quite popular within national and international markets. Two logistical performance key figures that can be pointed out in that context are short lead times and high schedule reliability. The delivery times demanded by markets often are shorter than the realizable lead times of products or the replenishment time of raw materials or purchased parts. In order to deliver the products in time, companies have the opportunity to implement so called order penetration point (OPP) within their productions. The OPP specifies the point within a production which connects upstream processes linked with work orders and downstream processes link with costumer orders. The OPP is often built up as a stock of unfinished goods. Currently companies position their OPP only with the goal to satisfy the demand of short lead times set by the market. Other logistical targets such as a low work-in-process (WIP), high schedule reliability or a high utilization are usually not taken into account. Hence, due to the complexity of positioning the OPP companies underestimate the logistical potentials that can be achieved by positioning the OPP optimally. In this publication the fundamental determining factors which both influence the position of the OPP and are influenced by the selected position of the OPP are presented. In particular the dependencies between the four logistical targets, lead time, WIP, schedule reliability and the grade of utilization, and the position of the OPP are discussed. Exemplarily the correlation between the position of OPP and the schedule adherence at the end of the supply chain are presented. It can be assumed that the schedule adherence increases by moving the OPP towards the end of the supply chain. Possible reasons that explain this particular effect, like the reduction of lead time variation, will be discussed in detail.