From what CMC have observed so far, it seems less than 1% of Chinese factories have set up a documented and model-based planning system for their production activities (from customer order forecasts and component purchasing all the way to shipment to customers).
Why is this problematic, and what are the advantages of a production planning system for a Chinese factory?
Why The Lack Of Production Planning?
This situation clearly stems from a lack of understanding about the advantages of a planning system for production. As we will see in the following advantages, initial investment in time and sometimes in software, as well as the ongoing adjustments, lead to significant savings in money and in time.
Advantage 1: avoid down time due to material shortage or engineering issue
A good planning system will identify all the pre-requisites and will assign deadlines for their completion. In a very simplified manner, it looks like this:
SOURCE: Why good inventory control methods are key to on time shipments
If delays accumulate somewhere in the system, the planner notices it and focuses extra efforts to that area. In other words, there are much fewer last-minute surprises.
And that leaves time to the planner and the production manager to re-arrange capacity to avoid idle resources (workers doing nothing, bottleneck equipment not being used, etc.)
Advantage 2: avoid the semi-finished goods over-production or shortage situations
Since there are fewer disruptions in the system, there is less need for “just in case” inventory. Any unnecessary inventory is bad for three reasons:
- It costs you about 25% of its value on an annual bass in fully-loaded costs;
- Making large batches increases the risk of quality issues widespread on thousands of pieces, and in addition those issues tend to be discovered later (see next point);
- Work-in-process inventory increases lead times, as shown in the graph below. By making 2,000 pcs (when only 1,000 pcs are needed), a manufacturer in effect asks its customers to wait for longer. The order tends to be “sticky”.
The objective is to move in direction of just-in-time procurement and production. It doesn’t happen immediately, of course. But, as the planning system gets better, last-minute shortages should become rare.
What about bad suppliers? They will always be a problem. But there are solutions to make it less painful. For example, purchasers should require updates from suppliers, including digital photos when necessary.
Advantage 3: increase efficiencies in workshops
As I wrote above, one of the advantages of a planning system for production is to seldom have idle resources. But that’s not all. Here are a few other ways it helps.
- By having a view of the whole system, a planner can balance the work load at each work center – in other words, ensure a regular amount of work and avoid highs and lows.
- By knowing the theoretical capacity of each resource (down to the individual machine and operator) and by estimating the amount of time necessary to make each product, the planning team gives objectives to each production workshop. Production supervisors know their numbers are tracked, the rules of the game are clear, and they give immediate feedback – this is good for motivation!
- Ideally, production plans are made visual for all in production, purchasing, sales, etc. for easy communication. Nobody wonders ‘what should we work on next?’.
- Planning in this way concerns manufacturing but also logistics (internal and external). It includes a material request plan that can be combined with a point-of-use inventory system to reduce walk times and unnecessary part movement and paperwork.
Are there situations where it makes no sense to set up a planning system?
I am not sure. Let’s look at two extremes.
Let’s say you process a few orders with very high quantities. Your processes are simple. Everything can fit inside the production manager’s head. However, how can you be sure you are optimizing your numbers? Little gains will likely yield large results, if your output is quite high.
Let’s now say you have a high-mix, low-volume business. You can’t spend time estimating the processing time of each SKU. Probably true. However, you can probably group your SKUs in a few families and apply a few rules of thumb that will be true with a 5-10% error margin. And, given the complexity of your business, there are probably many mistakes and you definitely need a system to organize and optimize all the material and information requests.
How about you? Have you, or one of your suppliers, implemented a production planning system? What benefits did you observe? Share your experiences in the comments below and we’ll respond.