The right inventory planning approach is critical for effective and efficient production

Some make-to-stock manufacturers suffer from low factory efficiency and poor on-time order fulfillment despite having significant levels of finished goods inventory. These challenges are often accompanied by constantly changing shop floor priorities, increasing lead times, backorders, and overtime labor.

The situation can become particularly aggravated if make-to-stock and make-to-order production orders coexist on the shop floor. In some environments, make-to-stock replenishment orders are sometimes regarded as “second-class citizens”, which get de-prioritized in favor of competing make-to-order production orders.

In the worst cases, this can lead to a “death spiral” in which make-to-order production jobs consistently overtake make-to-stock replenishments, thus degrading finished goods inventory positions. Standard “make-to-stock” products therefore increasingly become “make-to-order” products in practice.

Effective Inventory Planning as a Key Production Driver

In cases like these, what is perceived as a production scheduling issue may in fact be a production scheduling issue coupled with and driven by problematic inventory planning. The relationship between finished goods inventory planning and production is not always obvious, particularly if balance sheet inventory is believed to be right-sized or high. The strong implications for efficient shop floor operations also tend to be overlooked.

A key starting point is to properly plan inventory levels for each product. When this is done, replenishment production orders can more reliably be triggered “at the right time” in a way that promotes healthy inventory levels without overdriving the factory. In this way, optimized inventory planning becomes a prerequisite for effective production management and efficient operations.