Sunday 23 March 2014

Pull Production or Push Production?

 Before finishing the year I received an e-mail from a small manufacturer of equipment for education centers. In this e-mail, they ask us if we have an available budget for the last part of the year and they offer products at a low price.

 They ask us about it because they have got a lot of stock, that they have made during the year but they aren't able to sell. An example of Push production.

Why do they work in this way?

 The target of this production system is to reduce production costs by economies of scale but it doesn't consider the customer's needs, the result is a warehouse filled with equipment that no one wants to buy. So we must add the inventory cost, the risk of deterioration cost and the marketing and discounts costs to the production cost.

Is the save of cost by the economy of scale worthwhile?

Firstly, I'm not sure that we obtain cost reductions, to make this equipment we need raw materials and we must incur energy and work labor costs and the cost of opportunity.

Applying the economy of scale we can reduce the unit cost but we increase the total cost. If we aren't able to sell the equipment quickly we must add the inventory cost and the deterioration, theft and obsolete risk cost.

Why do we work in this way?

To use the Push production system started with the production of equipment easy to sale, i.e. high demanded and low variety equipment, like the Ford T during the second decade of XX Century, a highly demanded and a uniformed car which any customer can have a car painted any color that he wants so long as it is black.

It doesn't look the case of this company, it has a wide variety of products (there are hundreds of references) in a very competitive and limited market.

¿Does this company hit the target with the Push system? I don't think so.

The alternative.

As an alternative, I propose a Pull system. With this system, the process to make equipment starts when a customer asks an order or when the stock of these products is empty (if our customers need the product immediately, this is not usual in Educational Centers).

How does the Pull system run?

The Pull system process starts when our customer asks a product.

When we know exactly what we have to make we buy the number of raw materials and components that we need, avoiding to buy big quantities because it produces an inventory that we don't know when we'll spend it. To value this part is very important because the financial and inventory costs are, surely, higher than the saving.

Then, we start to make the products, using all the Lean tools (7 Wastes,, 5S, SMED, Poka Yoke, Kanban, TPM, 5 Whys) to reach the Just-In-Time system.

The first step is to eliminate the 7 Wastes that are all the processes that add No Value to the product, they are identified as Defects, Movements, Over-Processing, Waitings, Transports, Overproduction and Inventory. Is allows us to reduce cost and delivery time.

The next steps are to apply the 5S methodology to keep the work area clean, in-order and uniform to save workhours; Poka Yokes to avoid mistakes and do it right at first; 5 Whys to avoid the mistakes happen again; and Kanban for agiler management.

Finally, we must implement the most advanced methodologies as SMED procedures to allows reduce the timing of the process and the TPM based in Autonomous Maintenance to increase the availability of equipment used in the process; with the final target to implement the Just-In-Time and make the products just when they are sold.

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