In the realm of Lean manufacturing, overproduction is recognized as one of the seven areas of waste. This occurs when a company produces more goods than necessary or manufactures them earlier than required. Overproduction can be intentional or unintentional, each with its own implications for a business.
Intentional overproduction: A double-edged sword
Intentional overproduction often aims to create safety stock, ensuring that a company can meet customer demand even in the face of supply chain disruptions or shortages. While this approach can safeguard against understocking, it also presents challenges such as increased storage costs and the risk of inventory obsolescence. The key is finding a balance that allows for flexibility without excessive waste.
Unintentional overproduction: A common pitfall
Unintentional overproduction arises when demand is not accurately understood, often due to inadequate forecasting methods. This issue is prevalent, with demand forecasting ranking as the fourth most significant concern for supply chain leaders. It typically results from delayed or batch forecasting, siloed decision-making or an inability to process large volumes of data in real time. The consequences include surplus products, inefficient resource allocation and geographic mismatches in product distribution.
The ripple effect of unintentional overproduction
The impact of unintentional overproduction extends beyond inventory concerns. It can lead to inefficient staff alignment, with teams unable to manage overstocked goods while other staff, assets and storage are left unused. Additionally, inventory that is overproduced in the wrong area can divert supplies from where they are needed, resulting in a deficit in the original region causing regionally unmet customer demand.
Other wastes, such as higher transportation costs and increased emissions due to unnecessary relocation of goods and storage fees for excess inventory, are also a potential waste when manufacturers are forced to transport goods to where they are needed. These challenges highlight the need for robust and connected demand and supply planning that enables planners to make accurate decisions in near-real time, avoiding excess inventory.
