Plan Ahead to Avoid Overproduction
Sometimes too much of even a good thing can be bad. Such is the case with excess inventory. Companies need sufficient inventory to meet customer demand, but too much stored product can result in negative consequences, such as high carrying costs.
When companies produce or purchase too much inventory, it is often the result of variability and inefficiency in their processes. In Lean terms, this waste is referred to as overproduction.
A few business practices can lead to overproduction. For example, procurement specialists sometimes buy larger quantities than needed because they must meet vendor minimum order quantities, or they want to take advantage of quantity discounts. But if companies carefully calculate their true carrying or holding costs, they will often see the greater benefit lies in avoiding this surplus.
And manufacturers—whether they are make-to-order or make-to-stock—often schedule more production than is requested or needed to account for factors such as scrap and quality problems. This can result in excess inventory, however, as well as reduced capacity through equipment downtime, and higher costs related to overproduction and quality issues.
A similar situation can occur in office environments where, instead of creating one contract or invoice at a time, paperwork flows in batches, resulting in bottlenecks and overflowing in-boxes.
Lean practitioners focus on the concept of Takt time—the beat of customer demand that can help companies avoid overproduction. If businesses consistently calculate (and re-calculate) Takt time for a product or family of products, they can schedule products and resources more accurately and efficiently, reducing overproduction.
Drilling into the root causes of why a variability occurred can reduce or eliminate the need for overproduction. Applying Lean methodology can help accomplish this goal, because it combines team members who are preforming the work and others who may contribute to it.
For example, one Lean tool for reducing overproduction is Total Productive Maintenance (TPM), which focuses on equipment-related waste. Equipment breakdowns or poorly performed maintenance result in downtime. When machine uptime can't be predicted, and the process capability isn't sustained, businesses must keep extra inventory against this uncertainty, and the flow through the process can be interrupted.
Correct maintenance, however, improves uptime and increases production through an area, allowing machines to run at their designed capacity.
Typically, operators are not viewed as members of the maintenance team, but in TPM, machine operators train with engineers to perform many daily equipment maintenance and fault-finding tasks. Operators who understand the machinery, and can identify potential problems, can correct issues before they impact production—thus reducing downtime and production costs.
Instead of just living with overproduction, we should learn to question it every time we see it occur—and when we find it, do something about it.
Parts of this column are adapted from Lean Supply Chain & Logistics Management (McGraw-Hill; 2012) by Paul A. Myerson with permission from McGraw-Hill.