When Not To Go Lean

April 10, 2007
For some manufacturers, running too lean might be wasteful.

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.
Sometimes overproduction is less costly than running lean, observes Marshall Fisher.Fisher recommends that manufacturers work closely with their key partners on "voice of the customer" studies. The goal, he says, "is to find an early predictor of new product sales, such as point-of-sale data from key customers." It's important that you figure out strategies that shorten your lead times -- the sooner you can identify actual sales trends, the quicker you can react by adjusting your production schedule accordingly.

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About the Author

Dave Blanchard | Senior Director of Content

Focus: Supply Chain

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During his career Dave Blanchard has led the editorial management of many of Endeavor Business Media's best-known brands, including IndustryWeekEHS Today, Material Handling & LogisticsLogistics Today, Supply Chain Technology News, and Business Finance. He also serves as senior content director of the annual Safety Leadership Conference. With over 30 years of B2B media experience, Dave literally wrote the book on supply chain management, Supply Chain Management Best Practices (John Wiley & Sons, 2010), which has been translated into several languages and is currently in its second edition. He is a frequent speaker and moderator at major trade shows and conferences, and has won numerous awards for writing and editing. He is a voting member of the jury of the Logistics Hall of Fame, and is a graduate of Northern Illinois University.

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