Minimize Costs By Reducing Lot Sizes

The traditional belief is that customers should be encouraged to purchase products in large quantities by offering price breaks and quantity discounts.

QRM Principle #7

Educate customers about your QRM program, and negotiate a schedule of moving to smaller lot sizes at reasonable prices.

The customer's behavior of ordering larger batches will deteriorate a company's delivery performance. Strategic partnerships can be formed with customers by showing them how QRM will allow them to receive smaller quantities at a lower cost. Customers need to be patient while an organization implements QRM, and not continue to order larger lots.

The customer can still be offered quantity discounts, using the concept of a "blanket order", where the customer guarantees a certain quantity over the course of a year, but orders the parts in smaller batches. The quantity discount can then be based on the size of the blanket order, rather than the individual batch size.

If a customer insists on ordering a large batch, the order can still be produced in several small batches. Although producing a large order may save money on setups and provide a higher profit margin, it can tie up critical resources and create dissatisfaction for the rest of the customer base. Large lots can also increase costs of scrap, rework, and expediting that, in the long run; can exceed the costs of multiple setups. As a company progresses down the QRM path and its lead times get shorter and more reliable, its customers will feel more secure about ordering small batches.

AEC Presents at QRM International Conference

The Sixth International Conference on Quick Response Manufacturing "Keeping Manufacturing Strong" will be held June 5-7, 2006 at Monona Terrace Convention Center in Madison, Wisconsin. Two employees from Alexandria Extrusion Company will be presenting on the topic "Reduce Bottlenecks, WIP, Shop-floor Congestion and Lead Time with POLCA: A QRM Material- and Production-control (push/pull) System".

Alexandria Extrusion Company has been a member of the QRM Center since 2003. For more information about Quick Response Manufacturing and the conference, please log on to www.qrmcenter.org.