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A manufacturer's dilemma
November 13, 2013 by atm Atom — blogger, atmatom
Editor's note: Remember the "I Love Lucy" episode (#39) that had Lucy and Ethel working on a candy factory production line wrapping chocolates? If so, you'll know exactly what this blog post from Triton is all about.
Too fast! Too slow!
No winning!
As a manufacturer, we are constantly faced with the need to have the right number of production personnel in place — and the right inventory — to meet a specific demand in orders. Because we don't get forecasts from customers, this is generally a guess.
We also set production capacity levels based on personnel and inventory levels. If there is a spike in order volume as we are currently experiencing, it creates a backlog — which creates lead times.
We could push all orders up and try to force everything out the door faster, but then that would consume inventory too quickly and we would run out before the next deliveries. This is the kiss of death for a manufacturer, because we then have personnel on payroll with nothing to build. Costs remain the same, but there's no revenue coming in.
Many think it's a simple matter of increasing inventory levels to accommodate the increase in demand, but while we are required to have ATMs available with little to no lead times, this is not the case for our suppliers (or for other manufacturers' suppliers, either).
Lead times for some parts can be as long at 6 to 9 months. This becomes a very delicate matter when trying to gauge how much inventory we will need for each flavor of ATM without maintaining too much inventory (a huge cost burden).
These issues become slightly less evident with our counterparts because they set up their lines to build one flavor of ATM for a number of weeks, load up a bunch of containers, and ship it all assembled.
While this works great for low end units that most customers purchase, but not so well when you need the same flexibility to fulfill customized orders that might require a number of multi-cassette and vaulted unit configurations. It also makes it difficult to keep parts on hand and ready to ship in a timely manner.
We had the same issue in reverse after the ADA bubble ended abruptly — we had inventory coming in the door for months after because we were trying to increase our capacity 6 months prior. It's like drinking from a fire hose.
Obviously, we'll continue to do our very best to meet all our customers' orders, we just don't want to get stuck eating all that extra chocolate!
This article has been republished from the Triton blog, atmAToM, with kind permission from Triton.
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