Lean with more stock

Recently I was invited by a production company in the south of The Netherlands. The reason was chronic lack of grip on the production process. This was far from a new problem. However, increasing pressure on cost and reliability, forced the plant manager to take action soon. All efforts to date, including attempts to introduce Lean and Six Sigma, had offered little or no relief. After a tour and some preliminary discussions, we agreed to return a little later to simulate the situation with a number of key players.

That same week we returned with little more than a sheet of graph paper and a pair of dice. The graph paper represented the assembly line; with the dice we determined the demand for different products. It soon became clear that production to order (PtO) is not an option in this situation. The capacity simply fell short to follow the demand variation. Production to stock (PtS) seemed to work a lot better. After all, the service level skyrocketed. The disadvantage was, of course, the increased inventory level. Moreover, and this was an eye opener, the demand for capacity still appeared very irregular, despite the newly constructed finished product inventory.

While playing, the effects soon became obvious. Lack of control, disappointing utilization rates, long and unreliable lead times. Very recognizable symptoms for people around the table. The cause was soon clear: the randomness with which assembly orders for individual items were generated. One day there were no assembly orders. One day later too many. Just like in real life.

Fruitless search
Now the reason for the lack of grip was known, the obvious question was how to avoid abrupt demand for capacity to continue to make the process unmanageable. The team understood that the answer to that question would be the key to recover grip on the production process. Both in the game and in their factory. An awkward silence followed.

When after some time the commercial manager suggested to add finished goods inventory, his colleagues immediately redirected his idea into the garbage bin. “More stock does conflict with lean-thinking ‘, was the convincing argument. The search for solutions was prosecuted.

More stock
This search remained fruitless, until the commercial manager had regained his courage and asked again for more stock to level the demand variation; to produce more if it was quiet, less if it was busy. Nothing to lose, the team decided despite previous objections to give it a try. Totally against the convention and their own logic, the team ultimately decided not to reduce but add inventory, albeit in the right place.

That appeared to work. And how! Grip was repaired with a continuous occupation and reliable lead times as well. Pretty much lean therefore. To their surprise they found the extra inventory to protect the plant against the harmful effects of demand variability. The benefits were clearly demonstrated. Now the game was conquered, the team was full of ideas and inspiration for recover grip on their own process.

Isn’t it great? Who would have thought that a simple game could turn this team to finally leave the beaten path and to break existing conventions, to think and do different. Unfortunately, in practice we all too often stuck in old misconceptions and faltering logic. Fancy a little game?

Alex Tjalsma is partner with Involvation, supply chain consultancy