Warning: Don’t let your customers schedule your plant

Imagine you are a $300mn East Coast producer of shelf-stable baked goods that runs a make-to-order production system to minimize working capital requirements. Your order lead time requirement is 14 days.

It’s Tuesday afternoon and your largest customer, a national retailer, places a large order covering its DCs nationwide, for delivery a week from Friday (i.e. 10 days from now).

Normal business ensues, and your customer service team enters the order into your ERP system Wednesday morning. By the time order is entered into the system you have at most two production days to get West Coast orders made, staged, and on a truck before you are on your way to missing the delivery date and owing late fees.

And so, the cycle begins….

‘Dem Bones

Remember the old nursery rhyme, “the ankle bone is connected to the knee bone, the knee bone is connected to the thigh bone, etc.” Manufacturing works the same way.

This new order requires a change to your previously published weekly schedule and a daisy-chain of rushed activities.

Your scheduler must create a new work order and find time on tomorrow’s schedule to make the requested quantity. He/she also needs to find another time to make the items removed to make room for the new order. Warehousing must return the materials no longer needed for tomorrow to the warehouse, and pull the materials needed to produce the added SKU. Operations needs to adjust staffing based on the revised schedule. Procurement must modify their replenishment orders to reflect the new plan. And your supply chain and logistics teams must adjust inbound delivery and outbound shipment requirements.

Moreover, each of these last minute deviations creates an opportunity for error or added cost (e.g. missing materials, expedited freight, human error or overtime). In essence, you have set your plant up to fail before the week begins.

The Root Cause

This scenario is not unusual. Across middle market F&B manufacturers, one of the most persistent problems we encounter is a plant actually being scheduled by its customers rather than by its own planning team. As illustrated above, a reactive, unpredictable schedule doesn’t stay in the scheduling box; it touches every corner of your operation. Further it potentially impacts cost, quality, safety, delivery, customer satisfaction, supplier relationships, and employee morale. Not to mention the negative financial impact. This is inefficient, expensive, stressful, and usually avoidable.

Too many manufacturers run a make-to-order production model for products that don’t require one. Core SKUs with long shelf-lives and relatively predictable demand should generally be produced to stock. Running them as make-to-order effectively turns your plant into a just-in-time operation.

But JIT only works when the entire supply chain is engineered for it. Automotive OEMs execute JIT successfully because their supplier relationships, lead times, and systems are purpose-built for that model. Most food makers are not. The mismatch is severe. Every day is a firefight.

Compounding all of this: ERP lead times are often stale, supplier capabilities aren’t accurately reflected in planning parameters, and, critically, customers face no consequences for placing orders outside stated lead times.

Give Your Plant a Fighting Chance

This is a systems and process problem, which means it has a solution: 

1. Audit and enforce your order lead times. Review stated lead times against operational reality. If they need to increase, increase them — and then hold customers to them. Consistently.
2. Implement a firm schedule lock. Nothing should be scheduled until all required materials are confirmed on hand. If a customer needs you to break your schedule, charge them for the incremental cost.
3. Assign MTS or MTO strategies at the SKU level. Long shelf life, predictable demand items belong in a make-to-stock model. Reserve make-to-order for genuinely custom or short-shelf-life products and small runners with unpredictable demand.
4. Build a disciplined S&OP process. Production should be driven by a cost-effective plan that is agreed to by all stakeholders, not by a queue of incoming customer orders.

Breaking this cycle and setting your plant up for success will help your P&L while leaving you with happier employees, customers and suppliers.

For more on this topic, see our related Insight, “Setting Your Plant Up to Succeed Starts Upstream,” at Saphineia.com.