Michel Babineau, CEO of On-Time Edge, here. Over the last twenty-five years, in a consulting and managerial role, I’ve met hundreds of owners, CEOs, and presidents of manufacturing companies. I’ve listened to their concerns, challenges, and hopes. The On-Time Edge team has also helped these companies improve their operations. Some challenges these executives have faced, or still face, are unique. But a large number of them, dare I say the majority of them, are common across companies within an industry, and often across very different industries. In this series, I share what I heard and offer possible solutions to their challenges that might help you.
“Customer demand is unpredictable.”
What does unpredictable demand look like in the real world of manufacturing? Extremely difficult. Especially in today’s markets buffeted by multiple crises.
Every manufacturer’s goal is to manage schedules and production flow to deliver on time without creating excess inventory and incurring significant unplanned overtime and expediting expenses. Tough to do in even the best of times. We’ll discuss approaches that can help improve operational efficiency.
Let’s start with demand forecasts.
What’s the Best Way to Deal with Forecast Accuracy?
Customer intimacy. Let me explain. Manufacturing companies, especially complex, vertically integrated ones, have to develop an intimate relationship with their customers. Which ones? Focus first on your most important customers with whom you spend most of your time, about whom you worry the most. (I’m putting aside for now the lumpy or intermittent forecasts, or worse, lumpy customer orders, where demand is erratic and unpredictable.)
“... customer-intimate companies stress … a willingness to take on responsibility for achieving results. They will often put themselves at risk to further their clients’ success. They will even take responsibility for an operation and deliver a guaranteed result.” The Discipline of Market Leaders, M. Treacy and F. Wiersema
Customer Intimacy at Wal-Mart: Vendor Managed Inventory (VMI)
The ideal form of customer intimacy is when customers share actual, end-customer use of their inventory. For example, Wal-Mart does that today with its vendors and has been doing it for decades. Their objective is to make sure that the shelves never run empty. They share their inventory at the point of consumption, at the point of use. Every store has its inventory and the level of inventory of every store is shared with all their suppliers.
The result is suppliers can decide when to replenish inventory, not at the warehouse level, but when to replenish a store (or stores) if it is running low on stock. Suppliers get full visibility and track and measure stock outs in stores. That’s VMI. Using it, Wal-Mart has removed links in the supply chain, removing the warehouse, HQ interactions, and communication failures from the product flow as much as possible.
The benefits of VMI: Everyone has full visibility, inventory is tracked and measured in near real-time, so stock outs at the store level are reduced or eliminated. This model helps Wal-Mart minimize operating costs and offer low selling prices at retail.
Does the VMI Model Work in Manufacturing?
You bet. That exact same concept can and should be applied to complex manufacturing. For example, instead of ordering a hundred components every two months (i.e., demand), the real consumption of those hundred items may be five or 10 per day over a given period of time.
Synchronize Your Production to Actual Product Consumption
Customer Demand = Purchase Orders
Actual Consumption = Point of Use
Similar to Wal-Mart, your objective is to synchronize your production with a customer’s true consumption, not the demand they're giving you. That's a big change in the way most companies are doing business or thinking.
4 Steps to Real Synchronous Flow
1. Change your planning and scheduling mindset—lead with language (words matter!)—that informs your sales, production managers, customer service, and planners and schedulers that a production strategy based on consumption and not demand improves the performance of your clients, their end users, and your own company.
2. Deepen your relationship with your customerbymaking the business case for consumption-based planning and scheduling and its benefits, among which are:
Preventing excess inventory
Lessening process cycle times
Managing variability for more stability and control
3. CEOs or owners must train their sales and customer service reps (and other client facing people), to develop this intimate relationship as a trusted advisor with your customers so you can synchronize your production to their true consumption. Customer success is your success.
4. Make sure that customers are fully satisfied with your performance. But, remember the goal is to do away with the artificial, lumpy, traditional way of fulfilling demand as a manufacturing supplier.
Gain an Extra Edge When You Need It Most
Let’s talk about ...
How you can transition your customers over to a vendor-managed inventory process.
The latest techniques for planning and scheduling production in your plant or multiple plants.
A Quick-Start implementation approach to enable a more stable, proactive, and productive planning/scheduling process as soon as possible.