Even if this percentage is lower than

if decision makers know that short lead times drives responsiveness, Fisher et
al. (1997) demonstrates that companies attempt to quantify the impact of lead
time reduction with no success and have constraints to reduce their lead times
in practice. To address the quantification of lead time reduction, Blackburn
(2012) stated that marginal value of time is low for products with low forecast
variability, or predictable demand, and cost of overstock is limited to the
inventory holding cost. In a broader way, de Treville et al. (2014b)
proposed a quantitative model that demonstrated that marginal value is high and
investments in lead time reduction are meaningful for products whose forecast
evolves over time and demand volatility is high or stochastic; products that
are typically classified as innovative. However, de Treville et al. (2014a)
applied this same model to products that were difficult to classify as
functional or innovative, in three different industries, and demonstrated that
depending on demand characteristics and the valuation of overstock costs, the
mismatch cost may be higher even for products that appear to be functional.

 The cost-differential frontier model proposed by de Treville
et al. (2014b), uses quantitative financial techniques to optimize sourcing
decision in face of demand risk. The frontier indicates the indifference of a
buyer between a make-to-order policy and a long-lead time supplier. It shows
the cost differential required to compensate for an increase in demand
volatility exposure, when the relative lead time increases from 0 (for the make-to-order
policy, placing the order once demand is known) to 1 (the longest lead time
supplier, which in this case is Flextronics lead time). If the long-lead-time
producer offers a cost that is cheaper than the make-to-order cost by a
percentage that is greater than the cost-differential frontier, then the
long-lead-time producer covers for the supply-demand mismatch cost generated
with the long lead time. In the opposite, if this percentage is lower than the
one in the cost-differential frontier, the supply-demand mismatch cost is
greater than the cost savings offered by the long-lead time supplier. The
cost-differential frontier is based on the newsvendor model as the order
quantity covering the replenishment lead time is the one which maximizes profit.

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For an organization that
quantifies the value of lead time reduction and discovers that the cost of
having long lead times outweigh the cost of flexibility, the organization is expected
to align in five dimensions: strategy, processes, structure, rewards system,
and people management (de Treville and Krishnamurthy, 2014c; Goldratt and Cox,
1984; Schonberger, 1982; Suri, 1998; Suzaki, 1987). These five dimensions are
mentioned in the model developed by Galbraith (1995) called Star Model, where
he stated that all five dimensions must be aligned to achieve its strategic
objective. For an organization that is willing to reduce lead times and
exploits the time-based strategy advantages, de Treville et al. (2012) created
a model that states a positive relationship between the time-based strategy and
process lead-time reduction, moderated by the organization’s structure, rewards
system and people management. 

Researchers show that when
an organization is willing to transform its business to pursue a time-based
strategy, as being responsible to customers provides a clear competitive
advantage that compensates for higher costs or production, the benefits can be
substantial (de Treville et al., 2014c). Suri (2010) demonstrates that
companies that have implemented QRM and cut their lead times by 80% or more,
they can deliver to customers exactly the products they need, faster than any
competitor in the market, at even a lower price and with incremental
improvements in quality. 


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