Smoothing Demand

There are two facts about manufacturing that I always keep in mind.

1. It’s a race against time.

2. Rhythm drives improvement.

In B2B manufacturing, your customer’s demand isn’t always consistent week to week or even month to month. This stops your team from getting into a rhythm. If demand is bouncing up and down it strains your business in a lot of different ways;

? Carrying more inventory.

? Working more overtime.

? Delivering late.

? Purchase orders to your supply chain become irregular so they deliver late.

? It becomes harder to improve because some jobs are irregular.

Just because this is in your customer’s hands doesn’t mean it’s hopeless. This is where communication with the customer is vital. In several instances customer demand can be smoothed simply by changing planning parameters.

The first parameter to review is Minimum Order Quantity (MOQ).

At some point in time, you set a minimum order quantity with your customer. The higher this value is set, the more irregular demand will be.

Below is an example of what total weekly demand would look like for 100 different items that all have a very stable daily usage of 10 units per day but a minimum order quantity set to 150 days of supply (1500 units).

As you can see the demand isn’t smooth even though the usage is consistent. There’s no rhythm. If we take the same 100 items and we cut the MOQ in half (to 750) the weekly demand gets a little bit better.

It looks like a rhythm is emerging but it still isn’t very smooth. We still might have to build inventory every few weeks or work extra overtime. If we drastically reduce the MOQ 95% of the original (75) the weekly demand looks like this.

Now you can see the weekly demand is smooth and there will be an obvious rhythm.

Keep in mind, we did not reduce our lead time yet. We just reduced the shipment quantity to our customer. In this case, one of the benefits would be reducing the inventory at your customer by 142 days.

Of course, there are tradeoffs. Now, you’ll need to make 20 deliveries whereas you used to make one. You will receive and process 20 times more purchase orders. You will have to do 20 times the setups….

But now you have some rhythm, and this will drive improvement.

Consistent delivery schedules can be created and optimized.

Order processing can be automated completely.

Setup times will be reduced and improved.

When you do the same setup and work every 8 days instead of every 7 months you get better at it. Part quality will get better. Opportunities for improvement happen at regular intervals.

Reducing minimum order quantities will smooth demand and create more rhythm in your operations.

In the next article, I’ll discuss another planning parameter to help smooth demand- reorder point v reorder period.

If you would like to discuss how to smooth the demand in your business send me a message.

Derek Shoemaker- Principal

[email protected]