Responding to Customer Demand: The Lean Way

Takt time, the rhythm or beat of a process, refers to the ability of a process to respond to customer demand. In a perfect manufacturing world, you would produce whatever the customer requests in real-time, and hold no finished goods inventory. This is a pure example of demand-driven production.

Unfortunately, most manufacturing companies don't have this luxury.

Customer demand is subject to change, up and down, and you need to flexibly respond to this change. Batch manufacturing accommodates changes in customer demand by building and stocking Finished Goods Inventory. The Lean Manufacturer prefers to respond directly to customer requirements, and eliminate the risk, space, and working capital investment associated with Finished Goods by adjusting the production rate up or down as demand changes.

It is important at this juncture to clear up a common misunderstanding about Takt time, and our use of the word demand. The literature on Lean Manufacturing defines demand as, “whatever the customer wants to buy”. This definition works well if demand is relatively stable. But stable is not a word that comes to mind in business or manufacturing, especially in the 21st Century.

The Toyota Production System places great emphasis on “level loading” their production schedules to avoid excessive changes to the production environment, but in many industries today this is simply not possible.

Naively trying to build whatever the customer wants to buy by frequently adjusting your physical production lines is a guaranteed formula for disaster.

Trying to respond to changing demand, and also run an efficient factory, is traditionally resolved in a number of ways:

1. Build finished goods and respond to customer demand from a Finished Goods warehouse.
2. Freeze the production schedule at certain production levels, and build finished goods if necessary to maintain that volume.
3. Rebalance the line frequently to adjust to changing customer demand.

Your strategy needs to be more sophisticated. Designing a mixed model line involves designing for flexibility. You do not simply react to what comes in the door, nor do you arbitrarily set your production at a fixed volume. Instead, you put in place resources that can respond flexibly to changes in customer demand in the future, without rebalancing and without building Finished Goods. One of the key inputs to your line design is a clear understanding of customer demand, including demand variability.

When you set out to design a mixed-model line, you do not know ahead of time exactly how many products you will build every day once you go “live”. The production volume will vary from day to day, as customers place their orders for the products they want. However, you need to make a determination as to what production capacity will be required to support your expected customer demand. You need to make an assumption of future mix and volume that you will use to calculate the number of people, workstations, and machines needed.

At this stage in the line design project, you need to contact your friends in the Sales and Marketing department, to see what level of output they need from your manufacturing line to support their sales plans.

As you review production volume estimates by product, and the capacity needs for the line, the beauty of the mixed-model line design strategy becomes clearer: Your goal is to set up a series of sequential workstations that build products progressively, and are balanced to a target rate.

The smoother the demand pattern, the simpler the balancing of resources will be. At the individual product level, the demand patterns could be highly variable.

Product level variability will not pose a problem for a Lean manufacturer building in mixed-model mode.

Since you want to design a line for future needs, and not simply base your line design on the volumes you need today, the production volume per product must be a future volume. The analysis has to include growth trends, product obsolescence strategies, new product introductions, as well as sales cycles and seasons, by product.

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