At a Glance
Reduced lead time from 3 months to 6 weeks
MedicalDevicesCo used a Chinese contract manufacturer (CM) for one of its RUO (Research Use Only) instrument lines. The lead time for this instrument line was 3 months, requiring the company to issue purchase orders (POs) a quarter in advance, which often resulted in under- or over-supply due to the unpredictable demand for this particular instrument line. Furthermore, when there were over-supply, this also increased warranty cost as the instrument units sat in MedicalDevicesCo’s warehouses. Reducing manufacturing lead time was critical for this line, as the plan was to also develop a clinical version with FDA approval within the next year or two, further increasing the demand volatility.
The best way to reduce manufacturing lead time for any product involving a third-party vendor is to find a win-win solution.
As there had been multiple discussions already via email and phone, we decided to take a trip to China so that we could have discussions face-to-face. While having good personal relationships with suppliers is always a good thing, this is actually critical for many Asian businesses, such as those in China.
We first seek to understand the Chinese CM’s objections to shorten the lead time. Showing respect in our face-to-face meetings, the CM’s personnel finally stopped just shaking their heads and saying “no” and started to open up about their own manufacturing challenges encountered for this particular product line. They said that while they would like to be more accommodating, some of the parts just had a very long lead time. If they had all the parts available, they could produce the instruments in just about 3-4 weeks.
We then analyzed the long lead-time parts together. We explored various production options, from alternative parts to alternative suppliers. While we had come up with some good solutions for some of these parts, there was a critical long lead time item from Japan that we couldn’t resolve. This part was expensive, had very tight tolerances, and couldn’t be produced by anyone else (not easily anyway).
With trust built up over the last couple of days, we tried to find win-win solutions that would be acceptable to both parties. From the MedicalDevicesCo’s point of view, they would like to have a lead time of just 4-6 weeks. However, the Chinese CM did not want to front all the money for the parts without having a PO in hand for the instruments since that would mean that the CM carried all the risk. We eventually settled on having a PO for instruments with just a 6-week lead time, but that MedicalDevicesCo would also issue a separate PO for the Japanese critical part a quarter in advance based on their best sales projection so that the Chinese CM could stock this item sooner. This arrangement saved the Company 90% of the money by not having to purchase the entire product a quarter ahead.
The manufacturing lead time reduction project resulted in shrinking the lead time by about 50%, from 3 months to 6 weeks, allowing MedicalDevicesCo to adjust the purchase order halfway through the quarter based on current sales. This newly added flexibility built scalability into the product line, and positioned it well as it transitioned to a clinical product. A problem that had plagued the company for over six months was resolved in a business trip of less than a week. Not a bad ROI.
- S. Wallace