Inventory Strategy – Sales and Profits

What are Inventory Strategies? Push and Pull Inventory Strategies are two approaches to managing workflow in a production or manufacturing process.

Increase Sales and Profits with Push Methodologies

Push methodologies involve pushing work through the production process, regardless of whether there is an order for the product. This is Make to Stock (MTS).

Usually, the Production Scheduler schedules the production of Product A for 1.75 hours per week. The Top Level Flow equals 620 units per hour. Here is the workflow for the production of Product A each week.

Stage	Time in Stage	Efficiency	Units Produced
Start-Up	15 mins	50%	77.50
Ramp Up	30 mins	75%	232.50
Acceptable Flow	30 mins	90%	279.00
Slow Down	15 mins	65%	100.75
To the Finish Line	15 mins	35%	54.25
Done—–	1 hr 45 mins Max = 1,085	68.6%	744.00

With the help of the Inventory Analyst, the Production Scheduler estimates the next 4 weeks to determine how much we produce. Instead of producing Product A for 1.75 hours per week, the Production Scheduler schedules the production of Product A for 7 hours. 

The Production Scheduler eliminated the 30-minute downtime for a changeover. The 30-minute downtime will happen this week but not for the next 3 weeks. With an hourly Direct Labor Product of $150 per hour, the savings will be $225. 

Each changeover has a 5% waste factor. They are estimating waste at $500 per changeover. The new plan will have a 1% waste. This week, the savings would be $400 savings. The following 3 weeks will be a savings of $1,500.

Also, there are other savings in speed and efficiency. As an example, the production process includes the following stages with times:

Stage	Time in Stage	Efficiency	Units Produced
Start-Up	15 mins	50%	77.50
Ramp Up	30 mins	75%	232.50
Acceptable Flow	345 mins	90%	3,208.50
Slow Down	15 mins	65%	100.75
To the Finish Line	15 mins	35%	54.25
Done—–	7 hrs Max = 4,340	84.6%	3,673.50

Comparing the two charts, the short-run efficiency was 68.6%, while the long-run efficiency was 84.6%. This higher efficiency is a factor in the lower labor cost.

The 7-hour Production Run is 4x as long as the 1.75-hour. However, the Units Produced are 4.9x as much.

Yet, push production also has several disadvantages. One major disadvantage is that it can result in excess inventory and excess capacity, which can tie up resources and increase costs. 

Additionally, if demand for the product changes, the excess inventory may become obsolete, leading to waste and financial losses.

Increase Sales and Profits with Pull Methodologies

On the other hand, pull methodologies only produce work when there is a demand. This approach helps to reduce waste and inventory, as work is only produced as needed.

One advantage of pull production is that it can help to reduce waste and excess inventory, as work is only produced when needed. This can result in lower storage and carrying costs, as well as a reduction in the risk of obsolescence. Additionally, pull production can be more flexible and responsive to changes in demand, as production can be adjusted in real-time to meet changing customer needs.

There are several strategies in the Pull Method. 

What is Make to Order (MTO)?

In manufacturing or production, Make to Order (MTO) refers to a process where products are manufactured after an order has been placed for them. This contrasts with Make to Stock (MTS), where products are manufactured in advance and kept in inventory until needed. MTO allows for greater customization and flexibility, as products can be tailored to the specific needs and requirements of the customer. However, it can also be more time-consuming and resource-intensive, as production does not begin until an order is received.

What is Configure to Order (CTO)?

Configure to Order (CTO) is a manufacturing process in which products are customized to meet the specific needs and requirements of the customer. In CTO, the customer specifies the various options and features they would like included in the product, and the manufacturer assembles the product using these specifications. This can include size, color, material, and additional components or accessories. CTO allows for greater customization and flexibility than Make to Stock (MTS) or Make to Order (MTO) processes. Still, it can be more time-consuming and resource-intensive, as the manufacturer must configure the product according to the customer’s specifications.

Here are examples of CTO:

1. Custom computers: Customers can specify the specific components and features they want to be included in their computer, such as the processor, memory, hard drive, and graphics card.
2. Custom vehicles: Customers can choose from various options and features when ordering a vehicle, such as engine size, transmission type, and exterior color.
3. Custom furniture: Customers can specify the size, material, and style of furniture they want, as well as any additional features or accessories.
4. Custom appliances: Customers can choose from various options when ordering appliances, such as the size, color, and specific features they want.
5. Custom clothing: Customers can specify the size, color, and style of clothing they want, as well as any additional customization options such as embroidery or printing.

Assemble to Order (ATO)

Assemble to Order (ATO) is a manufacturing process in which products are assembled using components kept in inventory rather than being built from scratch after an order is placed. In an ATO process, the manufacturer maintains a stock of finished components and subassemblies, which are combined to create the final product when an order is received. This can be more efficient than a Make to Order (MTO) process, as it allows the manufacturer to take advantage of economies of scale and reduces the final product’s lead time. However, ATO does not allow for as much customization as MTO, as the manufacturer is limited to the components and subassemblies already in inventory.

Here are 5 examples of ATO:

1. Customized bicycles: Customers can choose from a range of options when ordering a bicycle, such as frame size, material, and components, and the manufacturer assembles the final product using these options.
2. Customized modular homes: Customers can specify the layout and features they want to include in their modular home, and the manufacturer assembles the various modules to create the final product.
3. Customized kitchen cabinets: Customers can choose from a range of options when ordering kitchen cabinets, such as the size, material, and style, and the manufacturer assembles the final product using these options.
4. Customized office furniture: Customers can specify the size, material, and style of office furniture they want, and the manufacturer assembles the final product using these options.
5. Customized consumer electronics: Customers can choose from various options when ordering, such as televisions or speakers, and the manufacturer assembles the final product using these options.

Pick to Order (PTO)

“Pick to order” (PTO) is a type of order fulfillment process in which orders are filled by selecting individual products from inventory and assembling them into a finished order. In a PTO system, the customer places an order for a specific product or combination of products, and the order is fulfilled by selecting the required items from the inventory and packing them for shipment. PTO systems are often used in retail or e-commerce settings, where orders are typically small and diverse, and a wide range of products are kept in stock. This is in contrast to “pick to stock” (PTS), where orders are filled by selecting products from pre-assembled stock-keeping units (SKUs), and “pick to light” (PTL), where an automated system directs workers to the specific location of the products they need to pick.

Engineer to Order (ETO)

Engineer to Order (ETO) is a manufacturing process in which products are designed and built to meet a customer’s needs and requirements. In an ETO process, the manufacturer works closely with the customer to design a custom product that meets their unique specifications and requirements. This can involve significant engineering and design work, as the product must be tailored to the customer’s needs. ETO allows for greater customization than the Make to Stock (MTS) or Make to Order (MTO) processes. Still, it can be more time-consuming and resource-intensive, as the manufacturer must design and build a custom product from scratch. ETO is often used in industries with highly specialized or customized products, such as aerospace or defense.

Here are 5 examples of ETO:

1. Customized aircraft: Customers can specify the specific features and requirements they want to include in an aircraft, and the manufacturer designs and builds the aircraft to meet these requirements.
2. Customized defense systems: Customers can specify the specific features and capabilities they want to include in a defense system, and the manufacturer designs and builds the system to meet these requirements.
3. Customized medical devices: Customers can specify the specific features and functionality they want to include in a medical device, and the manufacturer designs and builds the device to meet these requirements.
4. Customized industrial machinery: Customers can specify the specific features and capabilities they want, including in industrial machinery, and the manufacturer designs and builds the machinery to meet these requirements.
5. Customized power generation systems: Customers can specify the specific features and capabilities they want to include in a power generation system, and the manufacturer designs and builds the system to meet these requirements.

Conclusion

However, pull production can also have some disadvantages. One major disadvantage is that labor and machine utilization can be less efficient, as production must be stopped and started frequently to meet the changing demand. This can result in higher unit costs and lower profits. Additionally, pull production can be more complex to manage, requiring high coordination and communication among different parts of the production process.

Tell me in the comments, Which system do you use now? Do you want to move to a different system? Are you just starting and trying to determine which system should be used?