Every year we hear about a new business technique or philosophy designed to improve production, increase quality levels, reduce inventories and grow profits. All of these new concepts come with endorsements and claims of outstanding success. But, how do we evaluate these concepts and their claims for success? Can a particular technique that works at another manufacturing company be used to advantage at our company? One key parameter for evaluation of a new concept is the style of manufacturing of your operation.
It is amazing how many production managers don’t know, or have forgotten, their manufacturing style. Yet, an understanding of your manufacturing style or strategy will serve you in any evaluation of new concepts or techniques.
Let’s go back to the basics: There are four distinct manufacturing styles or processes. Each style or process has its own unique set of characteristics that work to define your manufacturing, purchasing and inventory control operations. For the purposes of this essay, we will focus on the first three manufacturing processes.
- Make to Stock (MTS): Products are usually finished before the customer order is received at the plant. Orders are filled from a finished goods inventory and production orders are planned to replenish the finished goods inventory. The lead time to fill a received customer order is very short and may be less than a day. The finished goods inventory is maintained at a level to minimize stock-outs and have product available for immediate shipment. The quantity of finished goods inventory is established with a forecast. Establishing upper and lower inventory levels allows for signals to production to replace inventory. In a MTS environment, the lead time to procure material and assemble the product is longer than the desired customer delivery time.
- Make to Order (MTO): The product is made after receipt of the customer order. The final product is usually a combination of standard parts and custom designated parts that meet the customer requirements. In some cases the standard parts or sub-assemblies are stocked in inventory prior to receipt of the customer order. In this case the term “assemble to order” is used to define the process. The lead time to complete a customer order includes the procurement of some materials and the assembly of the final product. MTO products usually have a variety of customer options which must be defined before the product can be assembled. The total manufacturing lead time to procure special items and complete production is longer that the customer delivery lead time. Therefore, sub-assemblies are kept in stock awaiting the unique components and the final assembly.
- Engineer to Order or Design to Order (ETO): The products are so unique to the customer requirements that no work can begin until the customer order arrives. In this case the product is designed to customer specifications; materials are purchased; and fabrication is completed after the customer order is taken. Typically, each customer order requires new part numbers, bills of material and routings. In an ETO process, the lead time includes the product design, procurement and fabrication time.
- Some P&IC professionals also define a continuous flow process. An example of this type of process would be an oil refinery or paper mill. In this process, there are few, or no, set ups; the process equipment is set in place and routings rarely change; and material flow through the process in continuous, 24/7.
Every manufacturing plant will fall into one of these processes. In many cases, you will see several styles of manufacturing in a single plant based on the different products made in the plant. Understanding your plant’s, department’s, or value stream’s manufacturing process is the first key to evaluating a new business concept.
Look at the manufacturing style or strategy of those companies with successful implementation of the new concept. How does your manufacturing strategy compare to these examples? How will this new concept affect your customer order cycle, scheduling, inventory management, and production lead time? The answer to these questions will help you determine if this new concept is suitable for your further investigation.