Most job shops are defined by selling and producing in a make-to-order environment. Production orders are executed only in response to a specific customer order for a discrete quantity and due date. As such job shop managers typically do not regard inventory management as a key component to their customer service levels and operating profit. Rather, the LEAN Six-Sigma approach to improving factory responsiveness is favored over inventory management initiatives. This paper presents the perspective that the LEAN Six-Sigma tools that reduce set-up and improve process yields must be combined with the strategic use of inventory to decrease production costs and to create profit generating market offers.

The Job Shop Reality

Let's face reality. Most of the high run "easy" jobs have been outsourced to off-shore production facilities. Companies in North America are surviving, and thriving, because they offer a product and a service. Buyers who purchase manufactured components cannot always rely on the long lead times and variable quality offered by remote off shore manufacturers. This is especially true for defense, aerospace, and medical companies that require short-run "difficult to make" component parts

One manufacturing executive recently described his North American manufacturing company in the following manner. "We are a job shop. You know, custom orders. The customer places an order for the exact amount and we have to deliver that exact quantity. The customer rarely cares that our production yield is variable from one production run to the next. And now, more than ever, we must pursue internal improvement quickly. We have to eliminate waste, get better at set-ups, improve efficiency, get better forecasts, and better predict our production operations."

The above description is typical for many production managers who believe that their operations are a job shop because current markets demand lower volume and higher product mix. Shorter production runs and a more difficult product mix are often coupled with customers who have just-in-time initiatives focused on minimizing inventory. In response to the need to operate with a just-in-time inventory strategy, it seems that customers constantly change their mind about what they need and when they need it. This unsettling situation exists even with sophisticated customers who possess the power of modern technology in the form of Enterprise Resource Planning, Material Requirements Planning, and Master Production Scheduling.

MRP Variability in Job Shop Supply Chains

On a periodic basis (usually weekly), demand orders are placed into a planning module of Enterprise Resource Planning (ERP) called the Master Production Schedule (MPS.) The MPS is a combination of forecast and firm customer orders. Data from the MPS is analyzed by the MRP module which calculates component part needs by allocating available inventory and, then, recommending purchase orders and production work orders. The difficulty in using MPS/MRP is that these systems are too precise and are revised too frequently. For example, any inventory accuracy errors are passed on to the MRP module. Data errors cascade through MRP and create inaccurate demand. Other inventory accuracy errors arise due to timing differences with inventory transactions or quality holds. When material transactions are not real-time MRP cannot "see" the material and does not allocate its availability to demand. Further, the materials planning process begins with the MPS that contains a number of orders that represent a "best guess" of future demand. All too often, these forecasts will change with changes in sales projections or budget revisions within the top level business plan. If projected revenue is changed and that data is loaded into MPS/MRP, then the material system will drive an entirely new set of material requirements regardless of current order commitments or consideration of internal or external constraints.

Batch Sizing Dilemma

Competitive North American manufacturers add value by helping their customers recover from the changes in order patterns caused from using MPS/MRP. Suppliers absorb the demand variability by shrinking quoted lead times, rescheduling production orders, and finding unplanned capacity. However, these techniques used to absorb the order variability can be expensive. The use of overtime, expedited outside services, and disruption to work flow decreases productivity and increases production costs.

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