What is the cost of preparing the production and material plans of a medium-sized business?
In answering this question, many company managers describe this cost as limited to personnel cost. In reality, however, the costs are not limited to personnel cost. What is worse, the plans that are made themselves generate a cost. In particular, main-industry companies cause additional cost for their suppliers with the plans they send.
Let us try to explain the situation with an example. Let us consider a company that, in order to produce a product, must process it one after another on five separate machines. Let the company's planning officer give the plans he has prepared to the machine foremen, and let the foremen produce on the machines according to the plan. What are the losses here? Let us examine them now.
First, when planning is done, a plan has to be made for five separate machines
Fundamentally, however, planning the final product is sufficient. In other words, four further plans are also being made. As unnecessary operations, these create two important costs. The first is the labor for the extra operation; the second is the time spent on planning. During this time, we have in hand an order waiting to turn into money.
Second, because each machine produces to its own plan, there is an obligation to hold stock in between
The only way to eliminate this is the practice of one-piece flow. All statements to the contrary are invalid. In other words, there is stocking. Stocking also means the use of additional resources for tasks such as stacking the outgoing product on a pallet, transporting it, making the stock entries, and checking the stock.
Third, scrap has increased
We can explain the increase in scrap as follows. When a machine is being planned, because it cannot be known how much scrap there will be on the next machine, a certain amount of extra production is planned as an estimate. In fact, the scrap rate comes to be set by this plan. What happens to the products produced in excess? In many places the answer to this question is that they can be used on the next order. Well, when will the next order come? The answer may be never! So the excess products that are produced are also scrap, because it is not certain whether we will be able to sell them.
Waiting time has increased
Why does waiting time increase? The person who does the planning has to think of production capacity as if it will be at a minimum. He arranges the time plan and the balance accordingly, and he applies the time he has in mind. In most cases the plan proceeds in the form of a fixed slice of time. For example, for one order, each machine may represent one day. In other words, the order takes at least five days. In reality, however, the order's total value-adding time is perhaps one day. But the time lost on the transfers between each machine steadily increases, especially on small orders.
There has been an increase in lead time
To explain the increase in lead time, let us describe the "Delivery Plan" practice that many companies apply. The company passes the order information to its supplier a certain time in advance. The supplier makes its plan and delivers the goods on the stated date. The important point here is the time the supplier spends on production. This time is not equal to the period you sent. In other words, the supplier either holds the product it has produced in stock, or produces it at the time closest to the delivery date. In both cases, there is an order waiting in the supplier's hands. The delivery time has lengthened by itself.