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

The customer takt represents the demand of your customers for your your products. The line takt represents the ability of your production system to produce. Hence, the customer takt should meet the line takt. This series of blog posts looks into what to do if they do NOT match. In my previous post I talked about small fluctuations… which are pretty much no problem in the short term, as inventory (for make-to-stock) or lead time and utilization (for make-to-order) will handle these. However, if the fluctuations trend in one or another direction, eventually you have to act. In this post I will talk more about what to do if the customer takt is faster than your line takt (i.e., the customer demand exceeds your current capacity).

Introduction

Your customer takt is faster than your system or line takt. You cannot meet the customer demand. This is usually a problem. Not meeting customer demand leads to lost sales. You could sell more products… except that you don’t have them. Especially if you are contractually obliged to supply (e.g., if you are a tier 2 or tier 3 supplier for the automotive industry), not supplying can become expensive fast.

Generally speaking, having a lack of supply is a problem, and this problem is also an opportunity to make more money. There are two directions you could go to address this issue. The most common one is to increase capacity and hence to increase supply to subsequently increase sales and hence profit. A secondary option is to decrease demand, for example by increasing prices. While this is much less common, such “demarketing” is sometimes done (e.g., if you are so large that you may get problems with antitrust laws, or because there is a hard constraint on the supply).

Increase Capacity by Increasing Working Time

If you do not (yet) meet your customer demand, you have to increase your output. This is the most common way to improve a customer demand exceeding your output, as it is usually the most profitable one. The line takt time is calculated by dividing the work time by the number of parts produced, as shown in the equation below.

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

Hence, there are two basic ways to improve the output: work longer or work faster (or a combination of both). Let’s first look at a longer working time, as this is (often) the fastest way to increase output. You add overtime, or add additional shifts to simply run your system longer. Depending on your regulatory framework for working time changes, you often can add overtime or additional shifts quickly. Even with more restrictive regulations, changes are often possible within four weeks, which is often faster than a technical increase in capacity.

In extreme cases, some production systems are run twenty-four hours seven days per week to meet demand. (Note: Some production systems are also run around the clock for technical reasons—e.g., a blast furnace, which cannot be turned off easily or cheaply.) This “around-the-clock” operation is also the limit timewise, as we are not lawyers that often can fit twenty-five hours in a twenty-four-hour day. But do make sure you do not neglect maintenance and upkeep of the machines. Also be aware that you are now at the limit timewise, and an additional increase in customer demand can no longer be met by increasing the working time. Additionally, night shifts and weekends are often the most expensive labor hours.

Hence, if you expect demand to continue at a high level, you should also work on the second option of increasing the speed of the system, and use increased working time to merely give you time to upgrade your system.

Increase Capacity by Speeding Up System

For longer or particularly large demand increases, making your production system faster is often the preferred option. Eliminate waste, unevenness, and overburden (muda, mura, and muri in Japanese). Find the bottleneck and improve the bottleneck(s). For flexible manpower lines you can increase the number of people in the line. For particularly large demands, maybe even add another line or plant (using all the knowledge from your current line to make the next one even better). Hence, I will not go into details here, but please refer to the rest of my blog for ideas. Altogether, a lot of lean tools aim to produce more in the same time.

On, and an important note: Merely whipping your workers more so they work faster won’t work! While workers can temporarily increase the speed if they see the need, permanent increases need a change in the underlying system rather than merely piling pressure on the workers.

Reduce Demand by Increasing Prices

Now let’s talk about the options in the other direction to reduce demand. The easiest one is to increase prices. If you don’t have enough products, simply increase prices. If you won’t do this, a middleman will do it, as prices changing due to supply and demand is one of the fundamental principles of economics. It is also pretty easy to do; simply change the price unless you are contractually tied to a long-term price. This is also a good tool to temporarily reduce demand until you are able to install additional capacity to increase production again.

Reduce Demand by Increasing Waiting Times

Another option to reduce demand is to let customers wait for their delivery longer. You are still selling your products, but the delivery time gets pushed further (and further?) down the road. This is especially common with make-to-order production.

Reduce Demand by Reducing Advertising and Promotion

Another option to reduce demand is to simply make the customers less aware that your product exists in the first place. You reduce advertisements, you reduce promotions. However, this is less common, as it is slower to decrease demand and also slower to increase demand again once you have created more capacity.

But in some cases it may be desirable to reduce demand in the long run; for example, many countries forbid advertising for tobacco and other harmful substances, or may even force negative advertising on the product.

Summary

Overall, there are a lot of different ways you could increase your output. The details of course depend on the specifics of your production system and your market. In my next post I will look at what to do if your capacity exceeds the demand of the customer. But now, go out, ramp up production to meet your customer demand, and organize your industry!