Stragised Production Planning
One of the trickiest aspects of running a production plant is determining exactly how much to produce, when to produce it, and what supplies need to be ordered and when. Failure to have the product to fulfill orders erodes buyer confidence, but having too much supply on hand is risky for a variety of reasons. As a business leader, consider the various strategies to determine your best course of action when it comes to production planning and scheduling.
Chase Strategy: Production Matches Demand
The chase strategy refers to the notion that you are chasing the demand set by the market. Production is set to match demand and doesn’t carry any leftover products. This is a lean production strategy, saving on costs until the demand – the order – is placed. Inventory costs are low, and the cost of goods for products sold is kept to a minimum and for a shorter length of time.
The chase strategy is common in industries where perishables are an issue or with a company that doesn’t have a lot of extra cash on hand and doesn’t want the added risks of loss, theft or unsold products. The production schedule is based on orders and immediate demand.
Level Production: Constant Production Over Time
As the title suggests, level production is a strategy that produces the same number of units equally. This is common in industries where demand is cyclical and production capabilities are limited or capped. For example, assume a manufacturing plant can only produce 10,000 calculators per month. The demand for calculators changes based on consumer cycles that peak during the start of the school year and tax season.
If the demand in peak seasons is 20,000 per month, the plant could not meet the demand. By consistently producing 8,000 per month, the manufacturer keeps new inventory flowing during nonpeak seasons but is still prepared for peak seasons.
Make to Stock: Enough Product to Stock Shelves
A manufacturer can choose to make-to-stock producing enough to stock the shelves of retailers. This is a common strategy for rolling out a new product such as a cellphone or car. Products are made and put in the inventory so consumers can see what is available. This strategy is similar to level production, using the efficiency of constant production that lowers costs and keeps inventory at a minimum. Buyers can access products readily and don’t need to wait, keeping demand consistent.
The difference between make-to-stock and level production is the schedule considers the cyclical demands of buyers and produces according to those anticipated demands, reducing production if the stock remains in inventory for extended periods.
Assemble to Order: For Perishables
The assemble to order strategy is a common production strategy for restaurants or any company that has perishables to consider. A florist may have supplies to make 100 arrangements but won’t make an arrangement until the order is placed. This reduces spoilage and allows for customization and freshness of perishable products.
For example, a fast food restaurant keeps a supply of frozen and fresh ingredients on hand. Based on historical demand, the schedule of ordering supplies tries to reduce the overall spoilage of supplies not used during the day. A customer who orders a burger might not want ketchup on that burger. By assembling-to-order, the business can meet the customer’s demand and improve satisfaction while reducing the costs of supplies and spoilage.