Solving the Lead Time Puzzle: ABCQ Segmentation Strategy
Is lead time for your die cut parts important? Most of our customer base here at JBC would respond with a resounding, “YES”
But how important is it? Does one day matter? One week? One month? Can the importance of lead time be quantified?
Those were the questions that we needed to answer as we sat down to put together the product segmentation strategy that we call ABCQ.
In a perfect world, we would have all parts available on the shelf so that our customers could call and get them immediately, with no delay. Unfortunately, that isn’t realistic. We provide thousands of unique die cut gaskets, seals and other parts to hundreds of customers each year. Stocking all of these parts would be unsustainable from a financial perspective.
Hence the segmentation strategy.
We developed ABCQ to prioritize what to hold and when. Not only does it allow us to be more predictable, it enables us to
- hold the right inventory at the right time,
- utilize unused capacity during valleys in production
- taper off production when there are peaks.
So what is ABCQ?
At a very high level, the ABCQ segmentation strategy involves breaking each part provided to a customer into one of four buckets; A, B, C, or Q. Each bucket then translates into a lead time range for JBC to support, regardless of cumulative lead times. As an example, a program could be structured as follows:
- A parts are forecasted weekly with safety stock at the finished goods level to adjust for demand variation. Lead time: 1 week
- B parts are forecasted monthly, with safety stock at the raw material level. Lead time: 2-3 weeks.
- C parts are not forecasted, but safety stock is held at the raw material level. Lead time: 4 weeks.
- Q parts not forecasted and are typically “quote to order.”
A strategy built to YOUR specific needs
For ABCQ to serve its purpose, the program and the structure beyond it need to be individualized for each customer based on honest conversations about true needs. As an example, if a part has a 10-week cumulative lead time, but one-week turnaround from time of order is required in order to prevent adverse harm to the business, then we will set it as an A and create a strategy have it on the shelf at all times. However, if a part has a two-week cumulative lead time and the customer has line of sight four weeks out and is comfortable with a four-week lead time, then we set it at four weeks. This alignment to each customer’s actual need allows us to invest our inventory in the right place and improve on time delivery percentages for our customers.
A plan for every part
Once we understand what our customer wants, we can then translate the ABCQ into an actual PFEP (Plan for Every Part) strategy in our ERP system. This translates into forecast frequency, safety stock levels within various points of the bill of materials (BOM) structure, reorder points, and lot accumulation. Each part’s usage is reviewed monthly in our SIOP meeting between our supply chain and sales teams to determine if inventory levels are accurate for our customer’s needs in the future.
There’s a lot that goes into how we execute our ABCQ methodology, but from a customer’s perspective the parts in which we have implemented ABCQ, we have seen an increase in on time delivery, a reduction in stockouts, a decrease in lead time, all with the added benefit of not increasing our overall inventory position.
JBC understands that there’s more to your project than just die-cut parts. Our innovation-driven capabilities allow us to understand your needs and deliver solutions like this one that optimize your supply chain process and yield the lowest cost to deployment possible. Contact us today to learn more.