While the latest conventional wisdom in manufacturing is to adopt lean production techniques, sometimes it's better not to run lean, suggests Marshall Fisher, professor of operations and information management at the University of Pennsylvania's Wharton School. "If your product lifecycle is short and unpredictable but you have high margins, then overproduction may not necessarily be the most expensive planning mistake you can make." A far bigger mistake, he says, is to lose sales on a full-priced product that turns out to be more popular than you forecast. If you're producing consumer electronics, fashion apparel, books or DVDs, for instance, lean may not be the best way to go.
Fisher, a keynote speaker at the recent Supply Chain World conference in Philadelphia, points out that the industry is quite knowledgeable about the physical costs of supply chain management -- production, transportation, facility utilization, inventory carrying costs, etc. What companies often fail to consider, though, are the costs of supply and demand mismatch:
- lost revenues and profit margin when demand exceeds supply
- products and parts scrapped or sold at a loss when supply exceeds demand
- the costs of carrying buffer stocks to avoid out-of-stock situations.