Overproduction - Too Much, Too Soon
Part 7 of Value Creation & Waste; A Lean Practitioner's Perspective
Over-Production is making products in quantities exceeding requirements or earlier than they are required. Where is exists, it can be quite damaging to productivity as it consumes excessive material, wastes labour and energy and has the potential to increase waste material through obsolescence. It has a particular interest to me as it is most often caused by people trying to do the right thing and its solutions are counter intuitive to many people. Certainly, I see many examples of it.
I remember one particular example that I witnessed while working in a manufacturing plant in Melbourne. I was watching a skilled operator machining components from a length of steel bar. For some reason I glanced at the work order and saw that it was for only 2 components. By this time the operator had already made a good dozen and was still going. I asked him why he was making excess, and he replied that it took him nearly an hour to set the machine and material up for the job, so there wouldn’t be any profit in making just two as his hour of setup labour would need to be added to the cost of just two components. But once set up, he could make each part in just a few minutes, so he was going to use the entire bar which would spread the cost across all the items, making each part more profitable. His heart was totally in the right place, trying to reduce costs and maximise profitability, but he had made a key assumption that was incorrect; that the parts would be sold in the near future. In fact, in that case the parts were obsolete and no longer available in the company catalogue. These two were only being made as a special order to support a large customer while they upgraded their plant. What the operator had actually done was wasted most of the steel bar and the extra time it took to make the excess parts. Even in a less extreme case, where that parts were still valid, a work order should have already taken into account the cost impacts of changeover time and should be followed by the operator. The root cause here, as it often is, was excessive setup time. By reducing setup time to a target of 10 minutes or less (commonly referred to as Single Minute Exchange of Dies or SMED), it ceases to be a major consideration.
Another cause is overproducing to produce extra inventory to make it less likely that you will run out. As we discussed in the section on Inventory Waste, this is flawed thinking. Running out of inventory is caused by sub-optimal inventory management and supply chain performance. A strategy of carrying more inventory without strong inventory and supply chain management only ties up more capital and is unlikely to preventing you from running out. You might kick the can down the road a little, but if you have other issues, you will still run out just the same.
It should be noted that this is another case of waste amplifying waste, as overproduction creates excess inventory.
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