TOC in Operations – Advanced · Lesson 10 of 12
When the customer is running a project
The plant makes every order by its due date, and still finished goods pile up while sales reshuffles the queue. The customer’s due date isn’t real: he is building a plant, and his project is late. Release on confirmed need, size the buffer below the confirmation window, decouple the long-lead parts, and see how the same thinking delivers a fixed lead-time guarantee.
The situation
A forklift maker had the familiar symptoms: about 65% on time, a quoted lead time of four to six weeks, peak work in process of about 47 days and finished stock of one and a half to two months. Dispatches peaked in the last week of the month, plans changed constantly for sales or for missing material, material bought for one order went into another, and people were stressed.
The standard solution went in: choke the release, buffer management, due dates from the front-of-load. Reliability improved, and two strange things happened.
- Orders made by their due date were not dispatched. Finished stock grew.
- In spite of the due-date quotation process, sales kept pushing to reshuffle orders.
Pause and think: why would a customer not collect a forklift made on the date he asked for?
- Because the price was too high, and he is negotiating a discount before he collects it
- Because he doesn’t need it yet: the date he gave was an estimate, not his real need
- Because the forklift was made to the wrong specification
The due date in the system was computed from the booking date and the quoted lead time. It said nothing about when the customer could actually use the truck.
The customer’s environment
A forklift is a capital purchase. Customers buy it for expansion: a new plant or warehouse, an extension, more output from the same site. These expansions are projects, and the forklift is needed at their last leg. Projects are usually late and uncertain, which puts the customer in a conflict of his own.
So when a customer ordered early and the plant made the truck by the computed date, he delayed collecting it: finished stock. When his project became certain, he pushed for immediate delivery, and sales reshuffled the queue. The plant was reliable to dates that weren’t real.
The solution: release on confirmed need
The direction: no finished goods, so make as close as possible to the customer’s real need; and no reshuffling, so deliver within the customer’s real tolerance time, which means short, reliable lead times.
- Choke the release and restrict visibility to the floor, as before.
- But don’t release by due date − buffer. Release when sales confirms that the customer’s site is ready, and set due date = release date + buffer. Buffer management works on these dates.
- Sales keeps the pipeline of all orders. Fifteen days before an order’s due date, sales checks the real need with the customer. If the project is late, the due date is revised, and checked again 15 days before the new date. When the customer confirms, the order goes to planning and appears on the floor’s buffer report.
- For manufacturing, an order exists only after sales confirmation. Booking it in the system means nothing to the plant.
- A daily sales meeting reviews the orders due in the next two weeks. There is one window between sales and production, and no parallel instructions to change priorities.
Negative branches, and their injections
1. The window is too short to make everything from raw material. Start the rope where the remaining work fits the window. Decouple everything upstream with stock buffers: raw materials, cut and machined components, bought-outs. A full-kit check (in-house and bought-out parts) comes before the line.
2. Confirmations arrive randomly. If every confirmed order is released immediately, some days overload the plant and due dates are missed. So the internal buffer must be shorter than the sales confirmation window, leaving a cushion to stagger releases: orders are released at the rate the plant reports finished trucks, holding work in process constant.
3. What if the decoupling breaks? A coverage report can’t help here, because nobody knows which customer will confirm next. And if the decoupling breaks, delivery goes beyond the customer’s tolerance, and the competitive edge fails. So the feeder shops need a very high level of protective capacity.
4. Custom orders. For the customer, a custom truck is just another product; for the plant there are no stocks of its special parts, and procurement plus production can be far longer than the customer’s tolerance once his need is confirmed. So start procurement from the original due date, and start manufacturing only when sales gives clearance.
The plant’s production buffers became:
| Product | Lead time before | Production buffer |
|---|---|---|
| Domestic | 4 weeks | 12 working days |
| Exports | 4–6 weeks | 12 working days |
| Custom | 10–12 weeks | unchanged |
A fixed lead-time guarantee
Some businesses go a step further and offer the market a fixed lead time: every order delivered in two weeks, always. Suppose the production lead time was four weeks, the buffer is cut to two, and every order is released the moment it arrives. Will arrivals always match the rate at which the plant finishes orders? They won’t. Work in process swings with the order inflow, and the plant swings between chaos and idleness.
Because arrivals are random, the production buffer must be lower than the market lead time: for example 8 days inside the 14 promised. Orders wait in an order bank for three to four days, and are released at the rate the plant finishes, so work in process stays under control. And how do you get the production buffer down to 8 days? Usually by decoupling, as above.
Check your understanding
Answer all five. Get four right to complete the lesson.
1. Trucks made by their due date stayed in finished stock because…
- Their due dates came from the booking date, not the customer’s need
- The trucks had quality problems found only at the final inspection
- Transport was unavailable
- Sales forgot to invoice them
The customer’s project was late, so he didn’t need the truck yet.
2. In the new process, the due date is…
- The booking date plus the quoted lead time of four to six weeks
- Chosen by the plant
- Release date plus buffer, once sales confirms the site is ready
- The end of the month
Release follows the confirmed need, and the date follows the release.
3. Why must the internal buffer be shorter than the confirmation window?
- To leave time for final inspection and painting
- Because the customer pays on confirmation, and cash must come in first
- Because sales asks for it
- Confirmations arrive randomly, and the cushion lets releases be staggered
Released unchecked, random confirmations overload the plant.
4. Why can’t this plant decouple its feeders with a coverage report?
- Its feeders have no set-ups
- Nobody knows which customer will confirm next
- Coverage reports work only for exports
- The plant has no computer system
Without future release information, it needs stock buffers and high protective capacity.
5. To promise every order in 14 days, the production buffer should be…
- Exactly 14 days, matching the promise
- Longer than 14 days, to be safe against random arrivals
- Shorter, for example 8 days, with an order bank in front
- Whatever the front-of-load says
Random arrivals need a cushion; the order bank absorbs it.