Ask 100 factory managers about the factors that extend production lead times and cause late shipments, and you will get these answers:
- Suppliers deliver components late (true; big impact)
- Customers approve some elements too late (sometimes true)
- Machines break down (true; big impact in some cases)
- We were too enthusiastic when we promised a shipment date (often true)
However, they are missing what is often the biggest issue they have control over: Lack of control over batch sizes and inventory levels. Let’s see why that factor has such a large impact on lead times...
First, how does production planning work?
The first step to putting together a production planning system is to list all the steps necessary for an order to be completed (and their typical lead times). These can be the columns of an Excel file, and with very simple formulas it gives you a high-level plan that includes the timing of each step (based on the desired shipment date).
A factory can then look at all orders at the same time and optimize the production plan to increase efficiencies (and spend the lowest amount of time on all orders in the aggregate). When properly done, and when the production plan is stable, this is usually a source of large savings.The system can be further refined to include information about batch sizes, material specificities, machines, operators, etc. for more accurate estimates.
How do healthy planning & purchasing processes impact inventory levels?
One cardinal rule of Lean Manufacturing is never to make more products than customers ordered. Over-production helps improve some local efficiencies (for example, tooling gets changed over less often), but it usually increases costs through extra handling, extra warehousing, occasional scrap (when it finally isn’t sold), etc.
Another cardinal rule is “pull, don’t push”. If an upstream process keeps churning components that its downstream processes don’t need, all that results is more inventory. (A bit of “push” is often needed, as the workload of processes gets leveled, but it should be kept to a minimum.)
So the production planner has to keep batches as low as realistically possible. At the same time, there needs to be a corresponding change in the purchasing policy – never buying more than ordered quantity (when possible). This is difficult for purchasers and managers who are used to negotiating “deals” with lower prices. But again, the small price decrease translates into many indirect costs.
In short, if purchasing and production planning follow good practices, they will never order more than necessary.
Other inventory control methods and disciplines
So we have purchasing and production planning playing the game. They are not over-purchasing and over-producing. What gets bought gets made and gets shipped, and very little stays within the factory walls.
What else is necessary for keeping the inventory level down? An inventory control system. At the risk of oversimplifying, it includes:
- Checking if something is in inventory before it is purchased;
- Alerting the right people before some components become obsolete (or near expiration date) or for any other abnormal situation (e.g. finished goods that are not shipped to a customer);
- Regularly monitoring the different types of stock levels, including slow-moving inventory, and looking for ways to dispose of unwanted inventory – for example by forcing production to consume it or by selling it out when appropriate.
The direct impact of inventory on lead times
Why did I spend so much time writing about inventory, while this article is about shipping on time? Well, keeping inventory low, and especially keeping work-in-process (WIP) inventory low, is key to keeping lead times short.
Little’s Law shows a direct impact between the amount of WIP in a process and the lead time to complete that process. Increase WIP and you will need more time before you ship the goods. (I am assuming the bottleneck is unchanged in that process.)
It makes intuitive sense, after all. If you push 1,000 pcs through process A and then through process B, it will take less time than pushing 2,000 pcs through the same route. Especially if process A is very close physically to process B (which is possible since there is less WIP standing in the middle) and the pieces can be transferred from A to B easily.
(I understand that they might be able to process twice as many pieces in less than twice the time through most processes, but generally that’s not true at the bottleneck that constrains the whole production system.)
What is necessary BEFORE inventory control methods run in full force?
Production managers always feel safer when they see high inventory levels. It ensures production doesn’t come to a halt as soon as an issue is discovered! They will need reassurance in three key areas before agreeing on a reduction of inventory.
- Equipment must seldom go down unexpectedly. The factory needs a preventive maintenance plan – including some regular down time for inspection, cleaning, and/or replacements. This planned down time usually takes place at a time when downstream processes are not impacted.
- Quality must be stable. In addition to proper process control, it is critical to set up go/no go gates in relevant places along processes, and have a very fast feedback loop to avoid creating a defect on a high number of pieces.
- Materials don’t suddenly become unavailable – someone may find out they disappeared (i.e. got stolen) or they are obsolete. Ideally the MRP system will issue alerts in such cases.
Overall, inventory control requires changes in production planning and in purchasing, but helps a factory reduce its lead times and ship faster. When you visit a factory, ask about those systems, and don’t be impressed by visual displays of daily production, turnaround time from order placement to shipment, etc. If a factory tracks lagging indicators and doesn’t put in place the right systems, they are not really addressing the problem.
Do you have to walk around work in process to see workstations and people, when you visit your suppliers’ factories? Do some of your suppliers get this? Do you think the concepts I covered are counter-intuitive?
Please let us know your thoughts and ideas on today's topics of planning and inventory control methods; we welcome your feedback.