Understand Production Inventory – production | inventory | management
Understand Production Inventory
I started in the semiconductor industry many years ago as a software consultant for a small company. We made memory chips for computer companies like IBM. Memory chips are a generic product with no customized features. So our production plan was based on a forecast of expected demand rather than actual orders. So we used what is commonly called a push strategy. We started a specific amount of inventory each week and pushed it through the factory, solving problems along the way. One week we were having maintenance problems with a particular machine.
Each morning at the end of the shift they would report to the manager that more and more work in process was stacking up at the machine. After several days of reporting this problem run out of table space to store the work at that station. There simply was no more room to stack the material. His response? He told the factory floor to go to Walmart and buy another table, make sure it was cleaned, and put it in the factory. That way we could store even more material in front of the problem machine.
I’m quite ashamed to say that at the time this seemed like a pretty good solution. Back then we really had no idea how to manage inventory. It seemed that many times we made our production schedule simply by wishing and hoping and having a great deal of luck. We worked overtime every weekend just trying to keep up. We were driven by the fear of idol machines anywhere in the factory.
Inventories were kept high regardless of the cost because we did not want expensive machines to sit idle. Pushing a large inventory into the system guaranteed the machines would keep running. Nowadays we know better. Even when making products to a forecast we know to control our inventory with a pull approach to production.
A pull approach is driven by actual orders from the customer. Within the factory a pull approach produces only what is needed by the downstream machines. This way inventory does not stack up while you are solving equipment and process problems. If a machine breaks, for example, you stop sending material from the other work stations. The heart of a pull system is the concept of just in time, which states that a batch of material moves from one station to the next station just as it is needed, Just when the workstation is ready to process that batch. This keeps inventory levels lower and more manageable.
One very important aspect of the just in time system is bottleneck management. The first step is to determine which machines in the factory have the lowest throughput or utilization. Once you know where these bottlenecks are you manage inventory in front of the bottleneck machines, at the bottlenecks, and after the bottlenecks to ensure a smooth flow of material throughout the factory.
There are lots of analytical tools to produce inventory reports for factory management, and they are very valuable to production supervisors and managers. But one really good way to understand how inventory is managed in your company is to go to the factory floor and see for yourself. Based on the material flow can you tell if you are using a push or a pull approach.