With pressure to adapt to rapidly changing markets and improve financial results at an all-time high, many manufacturing companies are considering the move to a demand-driven or make to order process in their operations.
This transformation entails a re-defining of the relationship between customer demand and manufacturing scheduling.
In short, demand-driven manufacturing brings the customer closer and requires tighter synchronization between shop floor scheduling and demand as it flexes and flows.
While operating costs in a make-to-order environment are lower, the journey of business process transformation requires careful and fundamental shifts in strategies, which, if not executed with precision, can result in many missed benefits for both the customer and the manufacturer.
Should You Move to Make to Order?
There are three questions we feel you should ask yourself before considering the switch to a make to order process:
- Do you support a proliferation of Stock Keeping Units (SKUs) with relatively few of the same core components?
- Do you find you’re more frequently making ad hoc changes to your stock products Bill of Materials to accommodate the special requests of customers?
- Are your supplier lead times manageable within the time frame of your customer’s demand?
In addition, there are two primary focus areas to consider in evaluating and implementing a solid demand-driven operation:
- Customer Connection
- Shop Floor and Execution Systems
The good news for companies that are considering the expansion of their make-to-order capabilities is that there are many tools available that can simplify the transition to demand-driven manufacturing and help support better collaboration with customers.
One capability to consider is a (Configure Price Quote) CPQ tool that enables online collaboration with customers for real-time configuring, pricing and quoting.
Many of these tools are available as either an integrated module of a modern enterprise software system, or as stand-alone cloud ERP offerings that transfer data back and forth to a separate enterprise software system.
This tool can also be delivered to a customer via a self-service portal, which simplifies the collaboration between your company and the customer, and empowers them to control their own destiny when ordering products.
There are many benefits of a good configuration tool:
- Engineering design: This data is built into the rules engine, thus avoiding compatibility issues with chosen features and/or options
- Lower need for change: The need for changes to multiple Bill of Materials (BOMs) is virtually eliminated, as the configurator enables changes to be made in one central rules table and the changes are implemented across all possible variations
- Pricing: Pricing is also based on configuration rules, so chosen features and options are automatically included or excluded for accurate pricing
- Routing instructions: The configuration tool also creates the appropriate routing instructions, and many also generate drawings that follow the order to the shop floor
Many Tier 1 ERP systems also support both Available to Promise, and more advanced Capable to Promise, and Profitable to Promise functionality, which this offers more accurate promising of delivery dates and prioritizes and optimizes inventory allocation. This then delivers a much higher level of customer satisfaction than a traditional first-come first-served allocation approach.
Both tools drive an exception-based supply chain management software process that can help reduce inventory while delivering superior service levels. Through the optimization capability, the more profitable and demand-sensitive customers receive a higher priority allocation of stock, and therefore their service level often meets or exceeds their expectations.
Shop Floor and Execution Systems
The second focus area we’ll consider is on shop floor and execution systems.
Because decision time frames are condensed in a make to order process, more dynamic scheduling and optimization is needed to maintain good communication with the customer between the various stages of operations throughout production.
Here are some technology tools that help optimize shop floor execution:
- Planning & Scheduling: A real-time, constraint-based planning and scheduling system that models production scenarios for best fit against current demand, offering algorithmic solutions to balance or resolve conflicting demand or delivery schedules. These types of solutions run in a memory resident environment either as an extension to an existing enterprise software system or as an integrated part of the platform.
- Manufacturing Execution Systems (MES): A tightly integrated Manufacturing Execution System (MES) that enables visibility and exception-based processing throughout the work centers and production operations as they process through the facility.
Key Benefits of Plant Floor Systems
There are several benefits to having a well-organized and effective plant floor system:
- Inventory reduction through more strategic supply decisions
- Quality improvement through reduced waste and rework
- Higher revenues through increased market share
- Increased adaptability to demand changes
- Reduced overhead
- Improved utilization of resources and materials
But before these tools can be implemented, there are some preparatory considerations that are required to ensure a solid foundation in making an effective transition from make to stock to make to order.
Critical Factors for a Make to Order Process
There are several aspects of an enterprise solution that must be in place to achieve an optimal make to order process:
- Build to Order Process Definition
- Collaborative Design/Configuration
- Supply Chain Visibility
- Quality Management (throughout process)
- As-built product history
- Serial No./Lot Number Tracking
The 5 Steps In Moving from Make to Order to Make to Stock
The move from a make to stock solution to a make to order is a strategic journey that requires more sophisticated information systems. The transition moves through several suggested stages.
In Stage One, business processes must change. A thorough understanding of current processes is vital to build understanding of the transformational gaps that need to be bridged before proceeding to a make to order future state.
During Stage Two, education on best practices in key concepts of make to order will drive progress. For example, it’s important to consider:
- How to develop an agile product design process to meet demand changes and market drivers
- How to shorten production planning horizons
- How to make logistical operations more strategic as accurate promised dates become more critical
During this stage, a strategic roadmap for transformation must be developed. A thorough plan that manages risk and organizational change management should be agreed upon by the executive team and project leaders.
Throughout Stage Four, current and future state information systems capabilities should be evaluated. Questions to ask during this process include:
- Will the current system support the change from a make to stock to a make to order process?
- What changes need to be made to technology to support the goal?
During Stage Five, it’s time to implement the changes supported by technology. Ensure that the information system meets the future state requirements now and into the future.
How to be Best in Class in the Make to Order Market
Can your manufacturing company be best-in-class in the make to order market? Some questions to ask include:
- Do you score high marks on managing cost reduction?
- Are you operating with very good order fill accuracy?
- Are your inventory turns improving?
- Has your working capital reduced over time?
- Are your production times within your customer desired lead times?
Positive responses to these questions would indicate that your enterprise has strong potential for becoming more demand-driven.
Ultra Consultants has guided hundreds of manufacturers through their business transformation journeys, ensuring that business value and benefits were achieved throughout the process.
To learn more about our business transformation services, contact us today.