Page 76 - How To Implement Lean Manufacturing

Inventory and Variation 57

So When Does Make-to-Order Make Sense?
In a Lean system with a fairly stable demand, there are times when an entire family of
parts is made in one production cell, for example. Let’s say the family has 30 models,
but only 5 models comprise 90 percent of the total production. We might call them A
models or runners. The other 25 models we will call strangers. It may then be advanta-
geous to produce the runners on a make-to-stock system and produce these strangers
on a make-to-order basis., holding only the cycle stock on hand. In so doing, you forego
much of the resources it would take to hold the buffer and safety stock inventory for
these 25 strangers. To accommodate the variation you would then buffer these cycle
stocks with a time-buffer strategy such as a plan to work a little overtime when it is
needed. This is fairly common, easily calculable and very often a good, Lean, business
decision.
The other time make-to-order makes sense is in the job shop—that is, the extremely
high-mix production situation, which is usually low volume as well. The key problems
with a make-to-order system are that very often you really do not know the demand
volume or the due date, until the order is in your hands. Most of these orders are unique,
so to be competitive most job shops either have a great deal of invested capital or long
lead times—each of which creates a problem of its own.

What Is the End Result of It All?
The typical Lean manufacturing system is a make-to-stock system—that is, it normally
has a finished goods inventory, with a sound policy for the management of the inven-
tory, to assure supply to the customer. It is also a pull production system, that is, pro-
duction is only triggered by customer consumption, to avoid the waste of overproduction.
However, this finished goods inventory, although it is necessary, is still waste and, as
such, we wish to eliminate it. As we get better at removing the variation and then reduc-
ing the inventory you can see that the optimum condition would be to have no inven-
tory at all; which would be a make-to-order system. The logical extension of a fully
matured make-to-stock system is therefore a make-to-order system. The catch is, to
remove all the inventory, we need to remove all the variation, but since variation is “the
inevitable differences….”) we can not remove it all. Interestingly enough, the perfect
system would be a make-to-order system with no inventory and the lead time would
have to be zero. Of course, that is impossible, but it is interesting.

Chapter Summary
Becoming Lean is not synonymous with JIT, for JIT is only a part of becoming Lean. To
affect inventory reductions, it is important to understand that inventory is created
largely due to the variation that exists in the manufacturing system and that this varia-
tion, at some level, is inevitable. Consequently, we want to reduce the variation to a
minimum, which will then allow us to reduce the inventory without hampering cus-
tomer service. This inventory reduction lets us not only save money but also allows us
to reduce our lead time and hence become more flexible and responsive as a business.
Though a number of inventory reduction tools exist, kanban is one of the most powerful
in the House of Lean and must be applied totally—following all six rules—to be really
effective.