This is the second post in our series discussing the 7 lean manufacturing guidelines. The first guideline is to design a lean future state by producing to your takt time.
What exactly is takt time?
Takt time is the rate at which customers order your products. That classic definition sounds easy, but in high-mix manufacturing, some products are always ordered frequently and others infrequently.
The truest way to produce to takt time is to make to order (MTO). By making to order, you prevent overproduction which is the most costly waste. So MTO is always the ideal state. Pure MTO can be hard to achieve with high on-time delivery due to the inevitable spikes and dips in demand and the varying mix of products ordered.
The challenge with shortening the production schedule
As companies get leaner in operations, the production schedule length can drop from a week to daily to even every few hours. Shorter production schedules create a challenge because they reduce the flexibility of the value stream to respond to dips and spikes in demand. Flexibility is key to being able to build to takt time for high mix manufacturers.
Many manufacturers we work with only adopt MTO for final assembly. Indeed different feeder operations like machining, stamping, foundry or painting are much more difficult to move to MTO because of requirements to produce products together in large batches in order to minimize non-production time for changeovers or batching. From a lean perspective, batching for any reason is overproduction, so batching should be avoided or minimized wherever possible. That’s why SMED or setup reduction is such a useful lean tool. When MTO can be extended into feeder areas, the company can realize the financial benefit of freeing up cash as inventory levels decrease.
Taking a hybrid manufacturing approach
If pure MTO is not possible, then a hybrid of MTO and MTS (make to stock) is the next best approach. The company then has some inventory on hand that can be used to provide a buffer for spikes and dips in demand. Inventory is pulled during a spike in demand, and replenished when there’s a dip.
A MTS strategy presumes that you can confidently forecast what our customers will order. That’s a key assumption, because forecast accuracy is often quite low. When a forecast is too high, you have to keep that extra product in your inventory. Products held in inventory must be stored, counted, managed for obsolescence until they are ordered next. In addition to the cost of the inventory and inventory holding costs, your overall risk has increased as well.
Which products should you consider for MTS?
You should first look at the products that are most frequently ordered. In lean terms, your runner products are candidates for MTS, while your repeater and stranger products are best as MTO.
5 Recommendations for MTS and MTO manufacturing
- Apply MTS and MTO considerations based on order frequency to every level of your bills of materials.
- Design your production schedule to cover all end-products and sub-assembly levels.
- Build as close to takt time as possible…with just a few MTS products as a buffer.
- Continually review your forecasts and measure your rate of accuracy.
- Make continual efforts to reduce anything that forces work by batches.
Stay tuned for the next segment in this series. We’ll talk about establishing flow!
Written By: Phil Coy