On customer orders (excluding rush orders) that require special-ordered parts, Protech Company has achieved an average lead time of 78 days, the best in its industry. When such a customer order is received, Protech places the parts order with a vendor by telephone in 6 days and receives the parts after an additional 27 days, on average. The parts pass through receiving (including inspection) and into production in an average of two days. After production is complete, the order goes through final inspection in three days and arrives at the customer's site after an additional four days, on average. Protech's WIP inventory turnover rate is 10 times per year.
Management plans to leave the rate of final output unchanged, reduce the average size of WIP to one-fourth of its present level, and induce vendors to reduce their total lead time by one-third.
Required:
(1) Assuming one year equals 360 days, calculate the average lead time if management's plans are implemented successfully.
(2) What advantages can be expected from the shorter lead time?
(3) What costs and other negative factors should be compared with the advantages of the shorter lead time?