Setting procurement safety lead-times for assembly systems

Abstract

This paper describes a practical method for setting safety lead-times for purchased components in assembly systems with uncertainty in the supply process. The approach is specifically designed to be used in an MRP procurement environment. A two-stage production model in which suppliers were uncapacitated with stochastic lead times was developed. Then, a combinatorial optimization method that took advantage of structural properties was developed to produce an optimal integer solution of safety lead-times. In addition to yielding a practical lead-time setting tool, the model led to some interesting policy insights: (1) the flexibility achieved by bringing parts in early may have value even in situations with ideal suppliers; (2) purchasing components in batches offers some of the same protection as does safety lead time, but is less precise and subsequently more expensive; and (3) ignoring the complicating issues of MRP procurement results in far from optimal results.