Transition Prototype to Production
by Kim H Pries
When we are engaged in prototype development during the early to late middle phases of our new product delivery process, we usually purchase components through maintenance, repairs, and operation (MRO) purchasing. This type of purchasing is managed on an as-needed basis, and often, is not automated. We purchase the parts we need in relatively small quantities because we are not yet in production. At this point in our process, this approach is reasonable and effective. The part cost is high but we are not at risk of having any parts we need to throw away.
As we move through the process, however, we reach a point where we begin to transition from prototypes to sellable products. For these products, we most commonly use manufacturing resource planning (MRP) purchasing, which is nearly always automated. As developers, we have seen huge discontinuities in delivery when shifting from MRO to MRP purchasing. MRP purchasing has some different characteristics:
• Lot sizes are usually based on some algorithm for economic order quantity (EOQ) to get the best purchase price
• Lead times are part of the database
• Reorder points are also part of the database
We run into trouble with our transition when we suddenly step from small part purchases to triggering orders for 10,000 pieces of some component. Our experience suggests that a better solution is to treat our initially-launched product as if it were a final prototype and set the MRP quantities below the EOQ amount and use substantial safety lead time (but not large amounts of safety stock). We suggested a model for this problem in our book Project Management of Complex and Embedded Systems and we think it is still valid. The only likely bone of contention would be common parts, but if the parts are common, they will be used on another product eventually, so the risk is much less than with unique components. Customers will begin asking for changes within the first six weeks to six months and we need to be prepared for this eventuality by proactively managing our parts control system. We may even see some initial negative margin–a situation of which our customer should be aware as we stun them with our ability to provide satisfaction.