An important definition for companies is the decision to produce to stock (make to stock) or to order (make to order). The Lean Philosophy, which seeks to reduce waste and focus on the customer, is based on the pull production model and is increasingly sought by companies. However, this model is not suitable for all cases.
Before presenting the main factors that impact the decision to choose the ideal model, it is important to define each one of them:
Make to Stock (Push): Push production, also known as a traditional system, is a system that “pushes” production from the purchase of raw materials and components to the storage of finished products. Operations are triggered by three conditions:
- Due to the availability of material and components to be processed, such as inputs and raw materials;
- By the availability of the necessary resources, such as machines and labor;
- Due to the existence of a production order, generated by some centralized system that, based on demand forecasts, elaborated production programs based on the structures of the products.
Make to Order (Pull): Pull production is a production control method in which a step triggers the production of previous stages through trigger mechanisms. By making this connection between the various stages of the process, this system allows for the reduction of in-process inventories and queue times (only what is needed is produced at the time it is needed). The instruments used for signaling and operationalizing the pull system are commonly known as kanban.
In the pull system, the production schedule is based on these constraints. Kanban regulates inventory levels between operations, reducing work-in-process and finished goods inventories. The company produces against order, always meeting the real demand only when the customer places the order, having its product flow pulled, that is, activated by the link that is closest to the final consumer.
In order to define the most appropriate production policy, it is important to observe the environment in which the company is inserted, mainly with regard to the coordination of the flow of materials, product characteristics and process characteristics.
Product Flow Coordination
Typically, the push-pull decision depends on the joint analysis of two factors: demand visibility and supply and distribution cycle times.
Demand visibility refers to the fact that the company has access to consumer/end customer demand information in real time. Demand visibility allows product flows to be pulled, that is, coordinated by the stage closest to the final consumer, based on real-time sales information captured by information technology. For the retail sector, which has information on end customer demand, it is easier to adopt a pull supply system, for example.
The supply and distribution cycle times, on the other hand, refer to the average replenishment times of the longest input for production and delivery of the product to the customer. If the response time required by the end customer is longer than the duration of the supply/distribution cycle, the flow can be triggered by the stage closest to the end consumer (pulled). This, for example, was the case with the computer company Dell. Dell revolutionized Supply Chain Management when it started making computers to order. This was only possible and resulted in the successful case known today because customers agreed to wait a few more days to have a new computer customized according to their desired configurations and this time was shorter than the production-distribution cycle. If the response time required by the end customer is less than the duration of the supply/distribution cycle, the flow must be coordinated by the stage closest to the initial supplier (pushed) and guided by sales forecasts that signal the formation of inventories.
Product characteristics
Among the characteristics of the product, the added value and the degree of obsolescence stand out.
Added value is represented by product cost, which can be measured in cost accounting as COGS (Cost of Goods Sold) or COGS (Cost of Goods Sold). As the COGS increases, the trend of make-to-order increases, as it is more expensive to keep these products in stock. Shipyards, for example, build ships to order, because, in addition to the need for a very large space to build up a stock of vessels, the representativeness of the cost of stock for these companies would be enormous, since the added value of a ship It's too high.
The degree of obsolescence is a reflection of the product's life cycle. As the degree of obsolescence increases, the tendency to make to order increases, as it is riskier to keep products in stock. The same can be said for products subject to a lot of customization, as is the case of the furniture industry, which often has long delivery times, as production of the item starts only after confirmation of the purchase.
Process Characteristics
Among the characteristics of the process, the structure of fixed and variable costs stands out.
If the production process is more intensive in fixed costs and has potential for economies of scale, it tends to be less flexible, with a continuous flow process. In this case, production is pushed by forming inventories. As examples, we can mention steelworks and refineries.
On the other hand, if the flow is discrete or assembly, less intensive in fixed costs and more intensive in variable costs, production tends to be driven by demand. The electronics industry is an example of this.
The following table summarizes how each attribute impacts an item's production policy and flow coordination.
Nowadays, many companies opt for a hybrid production model, producing a part of the product for stock and finishing it as orders arrive. This practice is popularly known as postponement and allows companies to gain agility in the delivery of orders, but without having to carry so much stock of the final product. An example of a company that adopts this practice is Suvinil. The company produces a few paint bases for stock and, in order to deliver the paint with the color desired by the customer, the bases are mixed after the order is confirmed. To find out more about the postponement and other examples of application of this practice, check the post Postponement as an inventory reduction mechanism.
As can be seen, the decision to pull or push production takes into account many factors and is not easy to be taken, demanding a more in-depth evaluation of the characteristics of the product, the process and the environment in which the organization is inserted, in addition to the analysis of the advantages and disadvantages associated with each production model.
And in your company? Have you ever wondered what made you adopt the current production model?
References
Fernanda Monteiro
More than 11 years of experience in training and consultancy projects, focusing on Logistics and Supply Chain. In consultancy, he carried out projects such as Transformational Logistics Plan, Diagnosis of logistics operations, Strategy and Calendarization of Transport Operations, Measuring the Cost of Serving, Market Study, Mapping of Inventory Reduction Opportunities, Review of the S&OP Process, Management Plan Training and Implementation of Commercial Processes in companies such as Nestlé, Raia Drogasil, Ipiranga, Lojas Americanas, B2W, Coca-Cola, Andina, Embraco, Martins Atacado, Loja do Mecânico, Santo Antônio Energia, Ecoporto and Silimed. She is currently one of the teachers of the Inventory Management Course taught every six months by ILOS. She worked on the development and management of Online Courses in Logistics and Supply Chain, Supply Processes, Demand Planning, Inventory Management and Industrial Management. Still in the training area, she was responsible for applying ILOS business games in companies such as Raia Drogasil, Fibria, NEC, Novartis and Moove.
