So would shutting down the line with every delivery kink and supplier part disruption. A thirty day supply on a new startup isn't unreasonable. After the suppliers have show they have worked out their kinks, THEN you can reduce the inventory.
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- Thread starter goofyone
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slinches
Elio Addict
The room for it wouldn't be a huge issue with all the extra space they have at the Shreveport plant, but the costs would be insane. Total would be something like $100 Million sunk into hardware for the complete BOM of that many vehicles on top of the plant spool-up and tooling costs. Maybe 1/3 of that number might be reasonable, but a full 30 days buffer at max production rates isn't within scope.
Could that be why he's looking for the $280m? All of what you mentioned would be covered.
Of course the initial production rate is half that, but they have to be produced anyway and storage is not apparently a significant extra cost item at this time with the extra space available already.
But ignoring the cost of shutting down the final assembly line for every problem along the entire supply system doesn't make sense either, particularly with no experience with the bugs that always occur.
Production of parts needs to precede final assembly with some cushion for the inevitable problems. Suppliers will have their own bugs to work out.
I think we are off track between mature lead times and start up lead times.
Reading the chart:
Day 1-10 10 units/day = 100 units
Day 11-20 25 units/day = 250 units
Day 21-30 45 units/day = 450 units
Total first months production = 800 units
Day 31-40 150 units/day = 1500 units
Day 41-50 300 units/day = 3000 units
Day 51-60 375 units/day = 3750 units
Total second months production = 8250 units
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slinches
Elio Addict
Ramp up will definitely help limit the need for massive quantities of parts on hand before production actually starts, but per the "total units" line in the pictured schedule it would be 600 in the first 30 days and 6500 in the second 30. That would mean that just to cover the second month, they'd need over $33Million in cash to maintain the 30 day stock (6500*$5800-600*$6800) even considering revenues from the previous months sales.
It's not impossible really, it just seems like they wouldn't want to have that much money tied up in stocked parts that could be put to better use building out the retail location network and marshalling centers, advertising, hiring/training the second shift for the plant and beginning to lay out globalization plans and designing the next model year Elio.
It's not impossible really, it just seems like they wouldn't want to have that much money tied up in stocked parts that could be put to better use building out the retail location network and marshalling centers, advertising, hiring/training the second shift for the plant and beginning to lay out globalization plans and designing the next model year Elio.
I agree you will eventually want to reduce inventory. But at startup, the $, though high, is less than shutting down the line which is LIKELY if there is no inventory. I can almost guarantee there will be unexpected supply glitches and it shouldn't shut down the production line without warning. A months supply of production at the suppliers will give them a jump on trouble shooting their glitches without compromising the final production.
slinches
Elio Addict
True. Another thing that will cut into the cost is that they could fairly safely limit the full 30 day stock to new design hardware. All of the existing, off the shelf, parts should be able to be ordered and delivered on a timely basis (maybe 10-15 day stock)
Good point and there is also the possibility of sharing the inventory cost with the supplier until their bugs for newly designed components are worked out. Throw in existing parts without high production rates while we're at it as they ramp up production.