Determining Base Manufacturing Costs across Foreign Sourcing Locations
Base foreign manufacturing costs hinge on automated machine cycle times, localized substrate procurement, and tariff transformation rules rather than labor rates.
Buffer Inventory Holding
Meaning
Safety stock maintained at specific points in the supply chain to protect against variability in demand or supply. Maintaining buffer inventory holding ensures that a manufacturing line continues to operate even if a component delivery from a tier two supplier is delayed. This volume sits above the cycle stock required for normal production and acts as a physical hedge against uncertainty.
Production Protection
Surface mount technology lines rely on a steady flow of passive components and integrated circuits to avoid costly downtime. Effective buffer inventory holding prevents a minor logistics delay from halting the entire assembly process. The quantity held depends on the lead time of the part and the historical deviation in supplier performance.
Financial Burden
Capital tied up in extra parts represents a major cost that must be balanced against the risk of stockouts. While buffer inventory holding reduces the chance of line stoppages, it also increases the storage space requirements and the risk of component obsolescence. Carrying costs include the cost of money, insurance, warehouse labor and potential damage during storage.
Stock Level
Calculation of the required volume involves a statistical analysis of service level targets. This buffer inventory holding level stays constant until a change in the supply chain risk profile forces a recalculation.