| Push Your Production Forecast Out the Door! Pull In Customer Satisfaction |
Traditionally production scheduling relies on the old standard practice of taking the sales
forecast, applying capacity available and placing it into some sort of sequence. These forecasts
are generally a combination of customer orders and input from sales people or in some cases,
customers as to what they think may happen. Often they rely on historical data and patterns or
experienced, seasoned guessing but guessing nonetheless. While they do tend to allow a
smoothing of production demand, they share two common traits. First, they push material
through the process and second, and more often than not, these forecasts are just plain wrong. I
recall a marketing manager in my previous career as the materials manager of a $1 billion in
purchases organization who told me his forecasts were just fine, “by the third week of the month I
usually know how the month will turn out.”
So, how do we avoid the push? Implementation of a pull system is a great answer to this
dilemma. A pull system, implemented properly, can truly allow you to pull customer orders
through the system without adding inventory based on forecasts. Using kanbans for “A” models
that you know will move can balance the production more effectively than building to a forecast.
The operating philosophy becomes you build what is needed to fulfill either the orders or the
kanbans, and then you stop. You do not “push” inventory in other words; you allow orders and
kanbans to “pull” requirements through your operation.
Pull systems used in this fashion have several inherent benefits. First, excess inventory is
eliminated. The “if we build it, they will come” mindset can be dangerous to your cash flow if it
leads to high inventory levels. Second, the possibility of obsolescence is greatly reduced as you
are not pushing product through anymore. Third, quality problems and their impact are lessened
as, if there is a problem, your exposure to scrap or rework is greatly reduced as the quantities
are much lower. Fourth, you can expect that space reductions will be made as there will be less
material in process or in finished goods. And finally, with the order pull through and the kanbans
you will likely see your lead-times reduced (an 80% reduction is not unrealistic) while your on
time customer delivery performance increases as well (we have seen instances where this rises
to 99%).
World Competition Consultants has had great success with this approach and we would like to
suggest that you use our unique strategy on kanbans as you implement this process. When a
kanban signal fires, we do not recommend that the kanban be automatically filled. The
replenishment signal needs to be reviewed by a materials professional planner to determine if it
needs to be refilled based on the long range MRP plan or product life plan. Kanban systems
without this review tend to respond too late to trends in both directions. If volumes are rising, they
may be too small in size or number to operate properly without supply disruption. If volumes
and/or strategies are leading to a decline, they are usually too many in number and/or size and
inventory grows. In addition, we suggest you consider establishing kanbans on hard to get or
problematic components from unreliable or long lead time suppliers to maintain your ability to
react to customer orders without tying up dollars in finished goods. We believe the review and
these strategic kanbans are critical pieces of the process.
Give us a call or drop us an email and we can arrange a plant and process audit to determine
your readiness to implement the pull system. Alternately, we can validate your process and make
suggestions on how you can reach even greater success.
Steve Lewandowski
(865) 681-3844
steve@wcconsultants.com
P.S. I must point out that pull systems are not intended to eliminate MRP forecasting for long
range planning. Pull systems only eliminate reliance on forecasts for production scheduling
purposes.
forecast, applying capacity available and placing it into some sort of sequence. These forecasts
are generally a combination of customer orders and input from sales people or in some cases,
customers as to what they think may happen. Often they rely on historical data and patterns or
experienced, seasoned guessing but guessing nonetheless. While they do tend to allow a
smoothing of production demand, they share two common traits. First, they push material
through the process and second, and more often than not, these forecasts are just plain wrong. I
recall a marketing manager in my previous career as the materials manager of a $1 billion in
purchases organization who told me his forecasts were just fine, “by the third week of the month I
usually know how the month will turn out.”
So, how do we avoid the push? Implementation of a pull system is a great answer to this
dilemma. A pull system, implemented properly, can truly allow you to pull customer orders
through the system without adding inventory based on forecasts. Using kanbans for “A” models
that you know will move can balance the production more effectively than building to a forecast.
The operating philosophy becomes you build what is needed to fulfill either the orders or the
kanbans, and then you stop. You do not “push” inventory in other words; you allow orders and
kanbans to “pull” requirements through your operation.
Pull systems used in this fashion have several inherent benefits. First, excess inventory is
eliminated. The “if we build it, they will come” mindset can be dangerous to your cash flow if it
leads to high inventory levels. Second, the possibility of obsolescence is greatly reduced as you
are not pushing product through anymore. Third, quality problems and their impact are lessened
as, if there is a problem, your exposure to scrap or rework is greatly reduced as the quantities
are much lower. Fourth, you can expect that space reductions will be made as there will be less
material in process or in finished goods. And finally, with the order pull through and the kanbans
you will likely see your lead-times reduced (an 80% reduction is not unrealistic) while your on
time customer delivery performance increases as well (we have seen instances where this rises
to 99%).
World Competition Consultants has had great success with this approach and we would like to
suggest that you use our unique strategy on kanbans as you implement this process. When a
kanban signal fires, we do not recommend that the kanban be automatically filled. The
replenishment signal needs to be reviewed by a materials professional planner to determine if it
needs to be refilled based on the long range MRP plan or product life plan. Kanban systems
without this review tend to respond too late to trends in both directions. If volumes are rising, they
may be too small in size or number to operate properly without supply disruption. If volumes
and/or strategies are leading to a decline, they are usually too many in number and/or size and
inventory grows. In addition, we suggest you consider establishing kanbans on hard to get or
problematic components from unreliable or long lead time suppliers to maintain your ability to
react to customer orders without tying up dollars in finished goods. We believe the review and
these strategic kanbans are critical pieces of the process.
Give us a call or drop us an email and we can arrange a plant and process audit to determine
your readiness to implement the pull system. Alternately, we can validate your process and make
suggestions on how you can reach even greater success.
Steve Lewandowski
(865) 681-3844
steve@wcconsultants.com
P.S. I must point out that pull systems are not intended to eliminate MRP forecasting for long
range planning. Pull systems only eliminate reliance on forecasts for production scheduling
purposes.
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