(EN) What If Your Customer Takt and Your System Takt Do Not Match—Excess Capacity

This is the third post in this small series on mismatches between customer takt and the line takt (i.e., mismatches between the customer demand and the ability to meet this demand). The first post looked at small fluctuations, which mostly handle themselves through inventory (for make-to-stock) and through lead time and utilization (for make-to-order). The second post looked at customer demand exceeding your capacity. And, finally, in this last post will look at customer demand being lower than your capacity.

Introduction

So, what can you do if your customer takt is slower than your line takt (i.e., the customer wants less than what you could produce)? You could sell more, except that the customer does not want it. Especially for make-to-stock, this is often seen as a smaller problem than being unable to meet the demand, but it is still a problem, and—depending on the magnitude—can still cause a lot of issues. In the extreme case, a lack of revenue can kill a company.

Like with a lack of demand, here, too, you can address the problem both through the side of the customer (i.e., to increase demand) or through your production system (i.e., to decrease capacity). In the last post, with a lack of capacity it was usually (but not always) preferred to increase capacity to meet the demand rather than to decrease demand. With a lack of demand, too, it is usually (but not always) preferred to increase demand rather than to decrease capacity. In short: If you can sell more, do it!

Try NOT to Increase Inventory

First of all, try NOT to increase the inventory, at least not beyond the desired upper limits of inventory. Plenty of companies have gone bankrupt with warehouses full of stuff. In the lean mindset, overproduction is the worst type of waste, and inventory (also a waste) is the result of such overproduction. In most cases, rather than making more than necessary, it may be better to stop production.

Exceptions are when turning off the machines would lead to significant expenses or problems afterwards, like turning off a blast furnace (which you then have to heat up again) or stopping an oil well (which often leads to geological changes and a reduced output when turning it back on).

But again: Avoid overproduction!

Decrease Work Time

Before you produce too much, you rather reduce output. This may be necessary if an increase in demand is not realistic, maybe because it is an older product nearing the end of its lifecycle, or because the competition simply has a better product, or the market has fundamentally changed. In any case, you decided to reduce production output.

As the output (i.e., the line takt) is the working time divided by the number of produced good parts, you can either reduce the time or slow down the line.

\[ Line \; Takt = \frac{Available \; Work \; Time}{Parts \; produced \; during \; available \; Work \; Time}\]

The easiest and often quickest way is to reduce the working time. You reduce shifts, you reduce the duration of the shift, and you generally run the machines less than before. This is usually easy to do, and also gives you some time for other, larger actions like reducing the speed of the system or increasing demand on the customer side.

If your system is flexible enough, you may even use the available time for other products. For example, a product at the end of its lifecycle is ramped down, and a new product is ramped up on the same line. But this requires some flexibility.

Decrease Speed

The second option to decrease your output is to decrease the speed of the system. For flexible manpower lines, you can reduce the number of people in the system. Instead of five people in the line, you have only three or only one.

However, if you don’t have flexible manpower lines, your options are a bit more limited. Of course, you could slowly reduce the ability of the hardware, but that may not always make sense. Basically, reducing hardware or replacing it with slower hardware costs money. You have to plan the changes, buy gear, and implement it. On the other hand, a paid-off asset sitting around does not cost you much money. Hence, many companies prefer to keep the full technical capacity but reduce only the time.

Actually reducing the machinery makes sense only if the benefit is worth the expense. For example, if you replace a high-performance but high-maintenance machine with a slower but less-expensive machine to operate, the savings may be worth the effort. I have also seen companies building back lines because the reduced system needed less floor space and they needed the space for other production equipment.

Maybe you can even rip out the line completely and produce the remaining products on another, highly flexible line together with other products of small volumes. Quite a few companies opt to have one or two high-capacity lines for the high-runners, but concentrate low-volume products on a separate flexible line with lower output.

Increase Demand

Finally, there is the option not to decrease production capacity to match demand, but instead to increase demand to match the production capacity. If you can do this, it is often preferred. More sales means more revenue, which usually means more profit.

There are numerous ways to increase demand. Increased marketing and promotion is often used. You can try to open up new markets, go global with your products, and many more. Ask your marketing people for ideas.

You can also try to add similar products to your product range. A company making skiing poles pretty much invented Nordic walking, which not only allowed them to sell more skiing poles, but more crucially allowed them to sell them during the summer, hence reducing the seasonal demand fluctuations by selling more during the summer.

However, increasing demand may not always be feasible or even desirable. For example, you don’t want to drum up advertising for an end-of-life product, but instead focus the customers attention on your new products.

Summary

This closes out this small post series on the differences between the customer takt and the line takt. Now, go out, make your customer takt match your line takt as much as you can, and organize your industry!