Promising in Finer Time Buckets

Depending on the industry vertical and the “lead time” of manufacturing or services, the promising of orders are in days, weeks or months. The aerospace industry will promise the next airplane delivery in months, the steel industry in weeks, the auto parts industry in days and the IT project implementation in months. The question that the VP of operations often poses is how to promise better in finer time buckets.

During one of my stints in Asia, the CIO who came from a manufacturing background wanted a solution/strategy to promise his customers in days instead of the usual way of operating which was weeks. The benefits of promising and delivering in days was very simple – it would take away a week of inventory from the supply chain which would reduce the lead times and also leave extra cash of the table that can be put to more productive use rather than being tied in inventory.

Though the reasons for promising delivery is finer buckets is very simple – but the task of achieving it is pretty complex. During further investigation on why the company was promising in weekly buckets we found that there were basically 3 main reasons. The first reason was that the extra buffer of time was to cover the unreliability of the operations, the second reason was that each operation in the manufacturing chain was scheduled to maximize the utilization of the resource thus sometimes resulting in the production of unwanted material or producing material before hand and the third reason was that they wanted to ship in large quantities aggregating to reduce the shipping cost.

The first task at hand is to investigate the root causes of reliability. The reason can be varied, ranging from quality problems, machine uptime, poor planning and demand variability. The key to eliminate reliability is to systematically eliminate all the root causes. The other way to manage reliability issues is by creating a buffer of safety stock that can sustain the variability. Although safety stock is additional capital tied up in inventory – it does enable creating a flow of material through the manufacturing chain. The key to any manufacturer is to decide on the safety stock level and not just any stock – but a predetermined amount for a mix of stock. Safety stock is definitely not the panacea to eliminate reliability, but it does help bringing stability and consistency to the production. As further actions are taken to eliminate reliability, the safety stock can be reduced and the capital released to be used elsewhere.

The second factor is the fascination about utilization, of machines and people, by operations manager. The relentless focus on utilization reduces the focus on flexibility. No operation is perfect in the imperfect world. Creating a plan for 100% utilization increases the risk for unplanned disruptions. A small hiccup in the operation can lead to a ripple effect which can last a significant amount of time with loss of customer service, escalation of orders, complex decision making for available capacity and overall stress on the people and machines. All of this results in nervousness in the supply chain and results in the increase in inventory. In the imperfect world the advantages of running an operation at 85-90% capacity far supersedes the benefits of running at 100% capacity. It provides flexibility to take care of unforeseen interruptions and allows the goal of providing excellent customer services at a lower cost. The concept of process design and line design by industrial engineers take into account the variability in demand before setting up the manufacturing process. The premise of the design is to enable flow of material through the line thus reducing the latency within the production line. However, the rate of change in the business climate has increased several folds over the years. The original typewriter had a lifecycle of over 30 years – while the current technologies have a much shorter lifecycle. Business processes and manufacturing lines have to be reconfigured to align to the new business climate every so often to keep itself tunes to the new dance. Running an operation at less than 100% capacity provides the ability to react and accommodate incremental changes in the business while maintaining excellent customer service.

The third factor as explained was the consolidation of shipment into large batches. This is again a counterintuitive approach to improve efficiency. Larger batches do help reduce the cost per unit. But there are inherent costs associated with accumulating goods to reduce shipping costs. Material have a tendency of not adhering to the planned timeline and a delay to a portion of the shipments will delay the entire shipment. Keeping goods in the warehouse, while waiting for the batch to be complete, increases the risk of goods being stolen, lost or damaged. Increase in goods as resident increases overall material handling costs – tracking and tracing, inventory management data entries, not finding the right material and others. A smaller shipment can keep the customer operating, while waiting for a large batch before shipping increases the risk for the customer. An unplanned event during the shipment can derail the entire shipment while if shipped in smaller batches can reduce the overall risk for the customer.

The benefits for promising in finer time buckets are great, but require discipline in bringing stability, consistency, repeatability and sustainability to manufacturing. Operations Manager should systematically address and eliminate the root causes of reliability, run the operation smoothly and below 100% capacity and ship in smaller batches.

I would love to hear from you about your experiences.