To run a business, at least part of you has to be an optimist. Bad times can always improve, and good times can always get even better. With that steadfast optimistic spirit, it’s normal to build our companies to be able to produce more than we’re currently selling so we have room to grow.
However, the ability to over-produce comes with the danger of producing too much.
Over-Production is the most feel-good of the 8 wastes. When we’re producing a lot, it feels like the good times are rolling. We have a nice cushion in case the orders start coming in and the stacks of products that are ready to sell gives us the welcome perception that our company is prospering, even if it’s not.
I’ve fallen victim to the indulgence of Over-Production. It’s nothing to be ashamed of; it means you think you have a great company. But it can become a very expensive indulgence if the expected orders do not materialize. That’s when the unsold product makes you feel ill instead of optimistic.
Pull not Push
Traditionally, companies have often operated on the principle of having products ready to go when the customer comes calling. While this is handy when the customers do come knocking, it’s also a gamble.
Lean methodology teaches us about “just in time” production, which operates on customer’s “pulling” production with their orders instead of the company “pushing” production with its optimism. Switching to a just in time approach is not easy, and often involves substantial changes to the production process, but for companies suffering from chronic over-production it’s well worth looking at.
It’s natural to assume that the larger the batch size, the cheaper the cost per unit.
That’s often, but not always true, especially when larger batch sizes lead to overproduction.
Companies that over-produce tend to tie up a lot of cash in unsold products, which reduces their liquidity and limits their ability to borrow money from the bank.
If your company requires periodic short term operating loans, this could be a serious problem.
It’s Not Just Manufacturing
Over-Production waste doesn’t just happen to manufacturers. Think of the last time you went into a meeting with 5-10 people coming and printed about a dozen handouts just to be on the safe side.
If you’re buying donuts for the staff, count the staff first. If you’re buying binders, check to see if you still have some first. Over-production sneaks into our lives in many ways, often disguised as the feeling of “covered all our bases.” The best way to fight this waste is to learn how to operate your business without a buffer of extra products. Staying close-to-the-rocks in terms of production can be uncomfortable at first, but in the long run, can reward us with less shrinkage and more cash flow.