TABLE OF CONTENTS When suppliers make only enough to cover the fixed period in the short term, this can mean overtime or special freight when changes are made to the schedule within this short-term horizon (this fixed fence is often hours or maybe a couple days at most). In the best examples, the customer picks up charges within this fence. After all, the idea within this time fence is to keep the process variation and associated costs to a minimum. Unneeded inventory is unneeded cost. A common scenario has the supplier focused on exactly what the fixed schedule calls for and stocking only a couple of units (or components for units) over the demand. This gives some flexibility, but for cost reasons is limited within this short period. A company in Mexico that supplied components to Caterpillar had agreements with its customer that the fixed fence would be two days. Even within that short schedule, quantities would change at times. This supplier had a few extra assemblies for all of the most popular items available all the time. A pull system kept this buffer stock filled. Caterpillar knew the buffer quantities, and a handshake rule allowed changes up to the buffer level. This type of agreement works quite efficiently.
This next fence requires a handshake with the supply chain and might allow up to 20% on requirements communicated at the beginning of the period. For example, in...
