By Paul Yandell | Supply Chain Quaterly | Quarter 1 2011 issue

Many supply chain managers are quite familiar with this principle. They may recognize that change is needed somewhere, but because their concerns relate to operations (rather than to a “big picture” issue), they may have trouble first, convincing upper management that change is necessary, and second, getting them to understand what that change should encompass. This is particularly difficult when manufacturing (the main focus of this article) is involved. One reason why is that executives are unlikely to embrace major changes unless they see evidence of a crisis. Another is that most chief executive officers (CEOs) and other business leaders come from sales and marketing or finance. They tend to pay attention to manufacturing only if costs are high or quality is poor, and few know what it takes to improve manufacturing processes. They may have heard of quality management tools like Lean and Six Sigma, but it’s a rare CEO who really understands them. Thus, even if top executives recognize the need for change, they may not have the ability to make the right kind of changes happen.

But change does not always have to come from the top down. When improvements are needed but one or more of the three enabling factors are wanting at the highest levels, then middle management must step up and take the lead. How? By becoming “guerrilla managers.”

Unlike traditional military leaders, whose main source of power is their obvious authority, “guerrilla” fighters have few resources, operate “under the radar,” and may work within a loose chain of command. The analogous guerrilla manager—in essence, a middle manager with a leadership agenda—faces similar conditions.

Despite those constraints, it’s entirely possible for a guerrilla manager to implement Lean in the supply chain with top management support but without top management leadership and with virtually no investment required. But it requires working carefully within the system, not subverting it or overthrowing it.

This is not just theory. What started as a guerrilla Lean initiative at my former employer, a mediumsized manufacturer, was extremely successful. In a remarkably short period, manufacturing lead times dropped from two weeks to two days; manufacturing defects declined by 90 percent; inventories were cut by 50 percent; and profits doubled even as sales remained flat. Additional documented benefits included identifying and using up several hundred thousand U.S. dollars’ worth of overstocked and mismatched parts, a 40-percent reduction in the number of suppliers, and a 30-percent reduction in space requirements—all without any stockouts. These improvements earned the company a regional Shingo Prize for Excellence in Manufacturing in 2007.

To implement Lean from below, you’ll need to follow some specific steps. First, you must gain personal credibility as a leader through self improvement. Second, you must cultivate an awareness of and respect for the power equation in the organization. Third, you will need to recruit like-minded individuals in the organization to help carry the initiative forward. And finally, you can gradually implement lean practices within your sphere of influence. As lean tools such as visual management systems and kanban (visual authorization to perform production tasks) take hold, the effort can be expanded to other departments, cascading throughout the entire organization and moving the company toward adopting a lean culture.

Establish credibility as a leader

If you want to lead, others must have a reason to follow you. It’s relatively easy for upper-level managers, who have the positional power necessary to drive change, to get employees to follow their lead. A middle manager, by contrast, has to rely on his or her personal abilities to influence and persuade co-workers. In other words, you need to be able to rally others to your cause.

For a middle manager striving to lead, then, personal drive and attitude, coupled with strong communication skills, are a must. That may not come naturally to everyone; I recommend Dale Carnegie’s powerful book on the subject, How to Win Friends and Influence People, as a must-read for anyone considering becoming a guerrilla manager. If you’re uncomfortable speaking in front of others, public speaking programs such as those offered by Toastmasters International will be very helpful—not just for overcoming a fear of public speaking but also for learning how to plan and prepare presentations. Take advantage too, of opportunities to teach or coach others. Teaching not only informs the students but also improves the teacher’s communication skills.

It’s not enough, of course, to be able to speak persuasively. You also need to know what you’re talking about! Otherwise your qualifications to lead a project will be questioned. Accordingly, managers must possess strong technical skills, such as expertise in Lean and Six Sigma, and a deep understanding of supply chain management and/or manufacturing.

Additionally, guerilla managers need to be wellversed in the general management concepts and terms of the day. Read anything and everything about leadership and management issues, as you will learn something useful from almost anything you read in those areas. Accounting is the language of business— learn it. Know your cost drivers and understand how your company makes money. Showing how your initiative will reduce costs and increase profits is the best way to win support for any program, at any level in the organization.

Lastly, dress for success, and always be on time and ready to go. Don’t let your personal appearance or habits detract from your effectiveness as leader.

Respect the existing power structure

If you are to have any chance of receiving support for your initiative from your superiors, you will need to “manage” your boss. There are two critical requirements for making this work.

The first is to balance your own agenda with that of your superiors and of the organization as a whole. Always identify and fulfill your manager’s agenda before yours. For example, if your boss is concerned about meeting a certain deadline or solving a shipping problem, then you should meet that deadline and solve the shipping problem. If you want to implement a kanban system but your boss is mostly concerned about staying within his or her budget, make sure your initiative supports that objective in some way. Remember, if your superior is successful, then he or she will command more resources and opportunities for subordinates, including you.

A corollary piece of advice is to find out what your manager lacks, and then provide it. Some managers are poor communicators or have poor supervisory skills. Others may be good communicators but lack technical knowledge. It is the subordinate’s job to identify and fill those gaps. Be sure to establish clear objectives and expectations regarding your contributions (as well as how to measure them), and only then move forward with your own agenda.

The second requirement is to regularly provide timely, accurate information about the projects your boss has assigned to you. You can keep you manager informed by regularly reporting key process measurements (KPMs); a good approach is reporting weekly but sharing numbers informally each day. Keep your communication brief and to the point, a single page if possible. Focus on data, and use graphs and charts to show trends so your manager can absorb the data quickly.

The weekly briefings should also lay out general directions and major milestones. Keep the same reporting format week to week; this will make it easy to scan for changes. Be sure to also maintain continuity. For example, don’t identify something as a big issue one week and then not mention it in the following report. You may get some feedback on some numbers, especially if they vary greatly from week to week, and some comments on projects that the boss is anxious about and are not showing significant progress. Learning how to respond to these sorts of questions will make you a better communicator.

Even if your boss likes a one-on-one update, a formal report sets the agenda and serves as a permanent record of events. Share the report only with your direct superior and your own team. Do not send it to higher-ups, or it will feel like you are sharing too much and inviting interference. Your boss can share it if he or she wants to. Remember, you are managing your boss, not setting him or her up to feel uncomfortable.

The regular reporting system you establish has a secondary purpose in that it allows you to set a management agenda. In addition to a review of the projects your manager has assigned to you, the report should include a brief rundown of your lean side projects—your personal agenda for improving operations. Doing so keeps your boss in the loop (no surprises). No news is good news, they say, and that is true here as well: no response constitutes a tacit approval of your agenda. Keep driving forward in the absence of intervention from your boss. You now have a platform from which to grow and lead.

Rally the “troops”

Running an operation requires a team effort. To be an effective midlevel leader, therefore, you need to build a team of like-minded change agents. You’ll get to know them soon enough; they are the ones who are most engaged and most respected at work, not for their position but for their skills. They will include informal leaders as well as some of the formal leaders. Don’t ignore the outspoken “negative” people. Their passion, though currently misguided, can be turned to good once they are engaged in a meaningful way.

Once you’ve connected with co-workers who support and want to be involved in your guerrilla Lean effort, you’ll need to establish a common language and understanding of both the issues and the opportunities at hand. Bring-your-own lunches where you and you colleagues can watch videos about lean principles or share readings from publications such as the James Womack and Daniel Jones book Lean Thinking are good places to start. Watching videos such as Hoosiers that speak to a broader audience about teamwork may be helpful on occasion as well. More formal efforts, such as teaching an introductory class in lean manufacturing during lunchtime or attending an off-site class as a group, will accelerate progress. Keep your expenses low—remember, you probably won’t get funding until you show some concrete results from your efforts.

When the group has a common understanding of lean principles and has reached consensus on the objectives of the lean manufacturing project, you are ready to move forward with kaizen (continuous improvement) events. A kaizen event brings managers, operators, and technical people together to address a particular process. The group evaluates the process steps in terms of what adds value and what does not, and then focuses its efforts on eliminating the non-value-added steps. Repeating this process over and over again yields continuous improvements that eventually benefit the entire organization.

The traditional place to begin kaizen is with value stream mapping (VSM). Simply put, VSM involves documenting and visualizing your current, end-to-end processes to create a “current state map.” After identifying and eliminating waste in the current process, you develop an idealized process flow called the “future state map”—a representation of the improvements you will strive to achieve.

The VSM effort should encompass the entire company’s operation, even if much of the system falls outside the purview of your band of guerrillas. That’s because it is important to remember that all actions take place inside a larger system, therefore the effect of those actions on the entire system must always be considered. In the same vein, it is very important that lean efforts be consistent with the entire company’s agenda and philosophy. This is not a coup, but rather an effort to improve the organization for the benefit of all.

Move forward

When the stage has been set and everyone understands and has agreed on the objectives, you can begin to implement Lean in your manufacturing operation. (These principles can also apply to supply chain, logistics, and even office management, by the way.) Choose your first kaizen efforts carefully, keeping in mind that you will need to gain support from both management and your peers.

Start with areas over which you have direct control, and look for early kaizen victories to generate visible gains and create a buzz in your organization. An easy, logical place to start is the “5Ss,” a series of workplace practices that are conducive to lean production. (“Ss” refers to the Japanese names of these practices.) They include:

1. Sort (Seiri): Separating needed from unnecessary items—tools, parts, materials, documents—and discarding what is not needed

2. Set in order (Seiton): Neatly arranging what is left, making sure that everything has its place

3. Shine (Seiso): Cleaning everything

4. Standardize (Seiketsu): Cleanliness that results from regular performance of the first three steps

5. Sustain (Shitsuke): The discipline to perform the first four Ss

The 5Ss, in fact, are the first element of a very useful framework for your initiative, a simple model called the Four Drivers of Lean Manufacturing:

• Workplace organization (the 5Ss) ensures that each operator has a clean, safe, workstation equipped with all the tools and materials needed to perform an operation. There is no clutter or unneeded materials, and work instructions are in clear view. Work is standardized and audited, and each worker is responsible for his or her own quality.
• Uninterrupted flow minimizes interruptions and shop floor inventory. As much equipment as possible is placed “in line” to ensure a constant flow in production and to minimize bottlenecks. The fewer the parts on the line, the less rework and obsolescence there will be. And the fewer steps in the process, the fewer potential sources of error there will be.
• Quality at the source, or error-free processing ensures quality in every operation, for both internal and external customers. One way to do that is to employ poka yoke, or mistake-proofing, throughout the plant to ensure parts are processed correctly. An example of poka yoke would be a part that cannot be installed if it is not oriented correctly. A critical component of error-free processing is seeking out the root causes of mistakes and eliminating them at the source.
• Single minute exchange of die (SMED)—the quick changeover of production equipment—ensures maximum flexibility in manufacturmanufacturing, so that any number of products can be made in any combination, in any quantity. The aim is to achieve smaller and smaller lot size, ultimately matching lots to orders.

Implementing these four drivers in sequence will quickly simplify and improve operations. Because each driver serves as a foundation of the next one, it is important to follow this sequence to ensure sustainability of your efforts. Only after you are clean and organized, get your processes flowing, and make production free from major defects can you start to improve your flexibility and drive down lot sizes to match order size.

There are several benefits of focusing on achieving early, “easy” successes. For one thing, they will enable subsequent changes within your areas of influence. For another, they will help you bring other people on board. As lean momentum builds in an organization, areas that have not experienced their own kaizen may start their own workplace organizations, implement visual management, and introduce their own production efficiencies.

The “four drivers” will also help you to identify bottlenecks and problem areas you can work on next. You might consider prioritizing projects based on their level of impact on operations and quality. Think about the so-called “80-20 rule”—the concept that 20 percent of a process, customer base, or product array incurs 80 percent of your time, effort, and costs. Anything that falls in the “20 percent” category is ripe for attention.

As you read this, you may wonder: How do you pay for all these changes if you are doing them “under the radar”? It’s a good question, because one key to the success of any guerrilla movement is the ability to operate on thin budgets. Whereas traditional, companywide lean transformations often involve week-long kaizen workshops led by expensive outside consultants, a guerrilla manager, by contrast, can implement Lean with a series of what I call “mini-kaizen.” These are short, narrowly focused meetings designed to educate the team and invigorate their enthusiasm for the improvement opportunity.

A typical meeting might consist of some advanced value-stream mapping and work by the kaizen leader and a few key team members. This can take place in four hours on, for instance, a Tuesday afternoon (you could bring in some pizza at the end of the work day). Or you could meet for a few hours on a Friday afternoon to plan a specific change event, such as improvements to an assembly line or a redesign of the packing area to eliminate wasted motion and materials. The actual work required to make those changes could be performed by the entire team on Saturday. There’s no plant shutdown or lost production time, and the typical weekend change requires fewer than 15 hours per employee. By this point, your boss should understand and support your plan well enough to authorize the minimal amount of resources needed to carry it out. In some cases the returns from this lowcost approach will be visible within a month.

Spread the word!

Although a guerilla Lean initiative should begin in your own area of direct influence, you want other people, departments, and functions to understand the value of Lean and to adopt it in their own areas. Ultimately, you hope to convert top management to lean thinking and help your company move toward a lean culture. How can you share your successes and build momentum?

The color and visual management systems used in lean production will not only serve to organize your tasks but will also help you to publicize the effort. People who are not directly associated with a particular kaizen will actually see the good that you are doing; this will spark their interest, and they will want to get involved.

You should also “brand” the kaizen efforts and publicize the results. When I did this at a former employer, we handed out T-shirts after we completed our first round of kaizen events. Soon everyone wanted to participate! Celebrations are another way to generate positive publicity. Throw an after-hours or lunchhour party and liberally cover the walls with “before and after” photos so everyone can see what you’ve accomplished.

Spreading the word is not just about having fun, though. As part of your publicity initiative, keep the accountants informed. It’s important to get them on your side; they have access to the highest levels of the organization. Share results with them early and often. If guerrilla Lean leads to inventory savings and increased cash flow, they will be genuinely interested and will support investment in additional efforts.

Because an effective lean supply chain starts with sales and marketing, then works backward through manufacturing, materials, and finally, to suppliers, you want all of these departments to be on board with the changes. In reality, this is difficult to achieve even when top management is leading the effort. The leadership skills discussed earlier in this article will help you communicate effectively with all of these groups across the organization. And be passionate—it’s contagious!

Finally, throughout the course of the changes you and your colleagues implement, be sure to keep your boss in the loop. He or she will recognize that Lean is a good thing and will want to participate (even if only to take some of the credit). Always remember: You will be successful only if your superiors are successful.

You can do it, too

Working “under the radar” and without leadership from top management, the successful guerrilla manager must lay the proper groundwork by managing his or her boss, and then work with the peer group to introduce lean tools into the supply chain. This type of effort requires tacit support from top management, but it can be started in virtually any arena by managers who are interested in improving their organizations’ effectiveness. As the kaizen experience builds interest and tools such as visual management and kanban systems take hold, the Lean initiative can be expanded to other departments, cascading throughout the entire organization.

So sharpen up your leadership skills, gather your troops, and carefully move ahead with changes that produce noticeable results. Once you have a good beachhead of successes, you can start preparing plans for major kaizen outside of your areas of control. And … congratulations, your areas of influence have just grown!

Why lean supply chains are worth the effort

Lean manufacturing was originally developed at Toyota. The main thrust of Lean is to identify and eliminate waste at all levels of the production process. Waste can be defined as any activity that does not add value to the finished product or service. Examples include unwarranted transportation and handling, waiting (time in the queue), unnecessary motions, defective product, lack of standardized work, and underutilized skills. Lead time is another kind of waste, in the sense that it includes inventory, rework, waiting, and transportation.

By Jeff Schutt, Ph.D. and Thomas Moore | Supply Chain Quarterly | Quarter 3 2011 issue

Indeed it is, as some consumer packaged goods (CPG) companies have discovered. These manufacturers have found that they can achieve both of those objectives by shifting from a traditional make-to-stock operation to a produce-to-demand environment. It’s not easy, since successful implementation of produce-to-demand requires a break with traditional CPG operations. Moreover, this approach is not appropriate for every company. But in the right circumstances, produce-to-demand can bring about remarkable improvements in finished-goods inventory, order fill rates, and supply chain costs.

Consumer packaged goods supply chains generally operate on a make-to-stock basis. As shown in Figure 1, in a make-to-stock environment, demand plans are generated from the combination of sales history and planned future events, such as promotions and price changes. The demand plan then drives the creation of a master production schedule (MPS).

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Figure 1 -Consumer packaged goods make-to-stock information and product flow

In this type of system, manufacturing plants focus on producing according to the MPS and on minimizing manufacturing costs, a practice that encourages them to make product in large batch quantities and to resist production line changeovers. In addition, in order to provide a 99-percent- plus case fill rate for customer orders, manufacturers hold finished-goods inventories that typically range from two to seven weeks of sales. This inventory is expensive to hold: working capital is tied up, there are storage and handling costs, and it’s a challenge to manage stocks as items near their end-of-life stage. If this approach fails and a stock-out appears imminent, then plants acquiesce to short-term schedule changes that often are viewed as operational crises.

The classic make-to-order scenario, meanwhile, is not a useful concept for CPG products. These products generally are uniform regardless of which retailer-customer they are sold to, and manufacturers typically receive many orders per item per day. Nor does it make economic sense to assemble to order from pre-made components such CPG mainstays as food and cleaning products.

There is, however, a way for CPG companies to stay in the make-tostock world without incurring huge holding costs—operate with very small finished- goods inventories and the capacity to make product on a short cycle. This is the essence of produce-to-demand: reliably producing goods on short notice when needed, and having processes in place so that such an operation becomes routine rather than disruptive.

As Figure 2 shows, produce-to-demand involves some information flows that are fundamentally different from the classic make-to-stock model. The power to make production decisions shifts from the longer-term master production schedule to a daily schedule. Information about customer orders, local finished-goods inventory, and replenishment requirements at remote distribution centers flows directly to the production scheduling process.

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Figure 2 – Shifting to produce-to-demand

Do you still need a master production schedule in a produce-to-demand environment? Yes, because you still have to plan the acquisition of materials for each plant. But the production objective is no longer attainment of the master production schedule, per se. Instead, the focus will be on making just the right amount of product, as needed, in order to pursue the ultimate objective of minimizing total supply chain costs while delivering the best possible customer service.

What about continuing to generate a forecast? That will still be necessary too. You must have something on which to base the master production schedule, and you will still have to plan for known future sales peaks. However, the demand plan will be a little less important to daily operations, hence forecast errors will have less costly consequences.

Is your business a candidate?

For produce-to-demand to be both feasible and economically attractive, a business must have particular kinds of production technology, product characteristics, supply chain organization, and information visibility.

Production technology. If you are going to substitute short-cycle production flexibility for finished-goods inventory, then production has to be reliable. Planners must be able to rely on the plant to make product on time, almost without fail. They also must be able to count on the plant to produce good-quality product at the expected rate, and to be able to change equipment over to make each product in a predictable and reasonably short amount of time.

While produce-to-demand does not require five-minute changeovers, it is not compatible with fourhour changeovers, either. Because it generally will lead to more frequent production runs than a traditional make-to-stock policy, the plant must be able to absorb the lost production time and make the additional changeovers without much impact on costs.

Which brings us to another potential challenge: having enough capacity to meet short-term spikes in demand with production rather than with inventory. In our experience, produce-to-demand can work with 20 percent additional capacity above the average utilization if six or seven days of finished-goods inventory is maintained. Customers can be effectively served from a plant warehouse with only two or three days of finishedgoods inventory when there’s spare production capacity of 50 percent. That’s a lot of flex capacity, but it is not out of the question, because the capital cost of most CPG processing equipment often is less than the value of the safety and cycle-stock inventory that can be eliminated in a produce-to-demand environment.

Of course, capital-intensive industries like semiconductors, paper, or steelmaking, which sometimes have billion-dollar plants, can’t afford to have significant unused capacity. These industries can sometimes use a finish-to-demand approach. For example, paper companies will keep master rolls (also called parent rolls) of paper in inventory and then trim them to order. In addition to eliminating finished-goods inventory, this approach maintains the necessary high utilization level of the truly expensive assets.

Product characteristics. Products that are suitable for produce-to-demand manufacturing share a few characteristics. First of all, the elapsed time from the decision to make a product until that product is available to ship must be relatively short—generally less than the customer’s expected lead time. Poor candidates for produce-to-demand are products with slow processes, such as those involving fermentation or long quarantine holds. Most consumer products have short production cycles and meet this criterion. Produce-todemand can work in some other industry segments, including high-volume packaging in pharmaceuticals and high-volume distribution of industrial supplies.

The economics of produce-to-demand are much better when there are few components that are unique to each finished product (see Figure 3). To ensure quick production turnaround, raw materials must be readily available. If relatively few raw materials are made into many finished goods (for example, the few natural cheeses from which all of the flavors of a cheese spread are made), then little or no incremental raw-material inventory is needed to support a variety of produce-todemand finished goods. In CPG companies, in fact, it’s not unusual for just the packaging materials (for example, the containers or even the container labels) to essentially match one-for-one with the finished goods. All of the main ingredients are shared, and these collective inventories are thus quite cost effective.

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Figure 3 – Typical consumer packaged goods materials structure

Supply chain organization. In the most successful produce-to-demand environments, suppliers take on much of the responsibility for maintaining component inventories. Moreover, quick responses are critical whenever material is required. For those reasons, forming strategic, collaborative procurement relationships with suppliers is very important when produce-to-demand is involved. Ideally, the supplier operates as an extension of your manufacturing operation. Maintaining this type of relationship with suppliers can make a big difference in produce-to-demand’s total cost. That’s because the suppliers’ willingness to be flexible in regard to production and delivery and/or to hold safety stocks will directly reduce the amount of inventory the finishedgoods manufacturer must maintain.

But there are circumstances where suppliers cannot—or will not—keep product in inventory for quick delivery on demand. In one actual case, the supplier was 1,000 miles away from the plant, and the material price was too low to justify an investment in just-in-time (JIT) warehousing near the plant. Even so, the economic case for produce-to-demand remained positive because the CPG manufacturer was able to keep critical materials in inventory on its own.

Here’s another example of how produce-to-demand can work when suppliers can’t keep component inventories on hand. Suppose it is difficult to get product cartons on time for a produce-to-demand operation. It may be possible to store safety stocks of the required cartons at the consuming plant in a way that preserves overall produce-to-demand economics. For instance, empty cartons can often be stored folded or nested, requiring little space compared with storing the equivalent finished goods. Moreover, they typically are quite inexpensive compared with the assets tied up in equivalent finished goods. (Better yet, the supplier may be willing to deliver on a consignment basis, so you don’t pay for the cartons until you use them). Thus, quick-response material stock can be available at a relatively low cost to support almost-immediate production or a decision at the last minute to extend a production run.

Information visibility. As Figure 2 suggests, produce-to-demand requires new kinds of information visibility. It requires systems that make customer demand and finished-goods inventories visible to plant schedulers on an almost real-time basis. You might think that every company with an enterprise resource planning (ERP) system would have those capabilities, but they do not. Whether those capabilities exist or not depends on the individual implementation. In fact, there still are environments where these key data for produce-todemand are not immediately available.

This kind of data availability is more critical than is having an automated scheduling system. While an automated scheduling capability can be valuable, particularly if you want to reschedule finished-goods production every hour or two in order to use the very latest information, in most produce-to-demand environments scheduling is still mostly manual. Realistically, they are limited to rescheduling finished-goods production only once or twice daily.

What must change?

Not surprisingly, the list of changes required to convert to produce-to-demand begins with addressing any elements identified in the discussion above that are missing. Some may be fundamental to your business and unchangeable, but you may be able to pursue others. They include:

• Manufacturing capacity
• Production reliability
• Changeover times and costs
• Component rationalization across products
• Supplier relationships and the services they provide
• Systems that provide near-real-time customer order and inventory information

Following this prerequisite work, the specific changes necessary to implement a produce-to-demand approach then fall into the following categories:

Changing production planning and scheduling processes. Produce-to-demand typically requires making relatively modest changes in the production requirements/MPS planning process. This includes planning against lower finished-goods inventory targets, planning more frequent production based on smaller batch quantities (if economically feasible), and reducing the number of days in the planning horizon that are considered nominally fixed or frozen. Once all that has been addressed, the master production schedule will be viewed differently within the organization, as it is now only the starting point for the short-range schedule and a guide for acquiring materials (see Figure 4).

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Figure 4 – New approach to scheduling

Plant-level planners will operate under a new paradigm in a produce-to-demand environment. They must now watch the daily customer order stream and redevelop the short-term schedule in a way that manages small finished-goods inventories and meets order requirements—all while still maintaining production efficiency. They are no longer just reacting to schedule- change requests that historically have come from central planners or management; they are now driving a very dynamic short-range schedule themselves.

You might wonder whether frequent changes in the production schedule create havoc on the production floor. The answer is no, because produce-to-demand plants are very flexible. In a well-managed produce-todemand environment, rescheduling affects production beyond an agreed time fence—anywhere from a few hours to a few days into the future, depending on how quickly changeovers are permitted and how quickly required materials can be brought to the production line. Thus, it reduces the number of daily “emergencies.”

Rethinking inventory policies. Produce-to-demand is all about reduction of finished-goods inventory. Implementing it in a traditional make-to-stock environment requires recalculating safety- and cycle-stock levels to take into account the shorter lead times with which plants can now make product. It also requires that work-in-process (WIP) and materials inventory policies (both for ingredients and packaging) be reexamined to support production of finished goods under short lead times.

Improving supplier communications. Traditional production environments often rely on purchases that are driven by material requirements planning (MRP), with standard lead times that are based on the master schedule. While it’s possible to retain that approach for less-critical materials in a produce-to-demand environment, it’s necessary to intensively manage with suppliers those items that you use in very large quantities and those that are unique to each finished good. If you do not do that, then you will likely end up with choking masses of those items sitting at your plant. The flow of these kinds of components should be set so that there is very little lead time (ideally one day or less) from the time you finalize the need for the material to the time it’s delivered to your plant.

Manufacturers that receive components on a JIT basis will already be familiar with the need for frequent communication with suppliers when short-cycle delivery is involved. For others that are used to taking an “order it and forget it” approach to material supply, the daily supplier communication required to manage the flow of the right materials to the plant for today’s and tomorrow’s production will be a new experience.

As is the case with scheduling, good software tools that support supplier communications can be helpful, but in many environments simpler options are sufficient. For example, a communications-oriented spreadsheet posted on a shared website, showing daily/hourly delivery requirements versus actual current material status, can work quite well.

Aligning the organization. Perhaps the most difficult change required when shifting to produce-to-demand is the conversion of operations management from a department-centered, cost-minimization mindset to a supply chain orientation. In the traditional environment, manufacturing management is principally evaluated on production cost per unit, and senior management pressures manufacturing to reduce conversion costs. In a produce-to-demand environment, by contrast, manufacturing management will still be evaluated on production cost, but now it will be in the context of total supply chain economics, including inventory, warehousing, and transportation costs as well as disposal costs for excess and obsolete inventory. Management must adopt the new perspective if the right implementation decisions for produce-to-demand are to be made.

Often, making that happen will require introducing new metrics. For example, we have seen companies that have adopted produce-to-demand begin to track supply chain inventories in new ways (materials at suppliers, materials at plants, work in process, finished goods at plant, finished goods in distribution centers). Many of them also begin to compare the actual number of changeovers each week compared to the number planned in the original weekly schedule. These kinds of metrics assist in tracking the impact of produce-to-demand on plant changeovers and efficiency, on total pipeline inventory, and on the return on total assets.

It is also necessary to evaluate the quality of planning staff at headquarters and, most critically, at manufacturing plants. Because the complexity of production scheduling increases in the produce-to-demand environment—both plant efficiency and inventory must be managed, and rescheduling is more frequent—capable planners are an absolute requirement.

Test for success

The best way to convince skeptical management to adopt a produce-to-demand style of manufacturing is to conduct a pilot implementation that shows what this approach can accomplish. Such a test will not be costly; as noted earlier, the new processes can be executed without specialized software, and produce-to-demand can be implemented for an appropriate single product category at a single plant to demonstrate its economics.

But pilot operations are valuable for more than just changing attitudes. They are important laboratories in which to test the design of produce-to-demand processes for a business, a plant, or a product category. This will allow you to see just how well the combination of new processes and policies works, and to make adjustments to those processes and policies before rolling them out more widely. A successful pilot also provides insights into special challenges (for example, promotional demand or international products), and it often identifies tools and conditions that will be needed for a wider implementation and generation of sustained savings.

Produce-to-demand is a results-oriented approach to operations, a way to provide high levels of customer service at a lower total supply chain cost than traditional make-to-stock. It has been very successfully implemented in parts of the CPG industry and makes sense in some other industries, but it clearly is not for everyone. Implementing it successfully requires meeting several prerequisites as well as some careful rethinking of planning and operations processes and of inventory policies. Successful execution, with smaller inventory buffers, requires well-managed operations led by competent staff members. We believe that in the consumer packaged goods industry, the better operators will over time move a significant fraction of their operations to produce-to-demand, and in so doing will gain a distinct business advantage over less-sophisticated competitors.