In today’s environment, what usually happens here is the customer wants something faster than our normal lead time. The rub comes in when we’re not able to respond in the time the customer wants. Then everyone starts to moan and groan the factory isn’t responsive or the customer won’t be taken care of. You’re probably seeing the connection already to the first story, “Supply vs. Demand”. In fact the two of them are connected and here again we spend oodles of time arguing about why this happens and what are we going to do about it when in fact we only have three situations that can occur and three solutions.
The three situations we may face are as follows:
Our lead time is 15 days and the customer wants the order shipped in 30 days.
Our lead time is 15 days and the customer wants the order shipped in 15 days.
Our lead time is 15 days and the customer wants the order shipped in 5 days!!!
The first two situations in fact rarely happen. If they happen to you on a regular basis consider yourself blessed. You probably don’t even need to read the rest of this. In the first two situations, there is enough time to purchase raw materials and manufacture the product. There’s no need to get into arguments because we have time to do everything. The third situation is the one that drags us down.
As I stated earlier, we pretty much have three choices.
Carry some inventory somewhere
Reduce the lead time
Tell the customer “I’m sorry, we can’t produce the order when you want it, but here’s where we can”.
In the short term, analyzing where to carry inventory when we have to make up ten days requires us to determine where in the process from raw materials to finished goods we need to carry inventory to be able to respond in five days. Long term the challenge is to figure out as a business decision, how fast DO we want to respond and if we decide we want to carry inventory, then set inventory levels to support this decision. The thing we need to realize with carrying inventory is no matter how much inventory we decide to carry, if the customer continues to demand product faster than we can make it, eventually we will run out of inventory and carrying inventory gets to be VERY expensive.
Reducing lead times means we utilize the tools of Lean, Six Sigma, Total Quality Management, etc. to reduce lead times to those of the customer. The closer we can come to matching the customer’s lead time, the less we need to rely solely on, and the less pressure there will be on a forecast or inventory. The challenge though today is as soon as we reduce our lead time to five days to meet the customer’s needs, they’ll start asking for four days lead time!!!!. Where this ends I don’t know.
Part of me hopes I’ll retire before I have to face this but I suspect what will happen is one of two things.
We’ll begin making so many mistakes in our rush and the customer will tell us to slow down
We’ll learn how to manufacture products instantaneously and we’ll have to find other dimensions to compete on.
While it may seem incorrect to do, saying “No” to the customer may be the right thing to do. It may be the last choice, and we better make sure we’ve explored all other options, but telling the customer the truth is the right thing to do. We’ll explore this later but never ever lie to the customer. Knowingly telling the customer what they want to hear and then not being able to meet the commitment is disastrous.
The bottom line then is leadership HAS to decide how it wants to run its business operationally. Burying our heads in the sand on this will not make the problem go away.
BLOG AUTHOR:
CHUCK NEMER
CSCP, CPIM, CLTD, CHSCA, CSSC, CPIA
FOUNDER, THE GURU OF BIZ
EMAIL : chuck@theguruofbiz.com
WE HELP SUPPLY CHAIN PROFESSIONALS MAKE MONEY, SAVE MONEY, AND FIX PROBLEMS WITHOUT PAYING BIG FEES
Chuck Nemer is a trainer/consultant with 40 years of experience in Supply Chain Management, Lean, Leadership, and APICS. He currently works with approximately 50 universities and 3000 students annually in supporting the use and play of the simulations in the classroom. Within those 40 years, he has taught, and continues to teach, professional certification classes for APICS, professional development seminars and programs on his own, and on behalf of colleges in their outreach programs to local and regional manufacturing firms.
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