ORDER FULFILLMENT IN HALF THE TIME
How to cut order fulfillment times in half
for a competitive advantage.
Some companies realize the value of fast order fuilment (next three bullets),
but don't know how to shorten it. Others may not realize the benefit or
think it is too hard to improve.
- Some companies say that without this competitive advantage, they must then
compete on price, but can't if they have not lowered their cost,
which this site also shows how to do by design.
- Another benefits of reducing order fulfillment time are getting
paid earlier, minimizing the high carrying cost of (almost)
completed finished goods. and minimizing the chance of changes
during long order fulfillments.
- Some companies says that cutting order fulfillment time in half would double
This article will show how to cut order fulfillment times in half or better.
The first topic will be a discussion of the delays cause by the typical causes of part/material
availability problems followed by a major topic on shortening supply chain
times. In that section will be a sub-section on how to eliminate the problems of
long-lead-time parts. This will be followed by a section on shortening order
fulfillment time for existing products.
The last major subject will show how to shorten build times, preceded by a
summary of the traditional practice of shipping from inventory compared to
Part/Material Availability Problems
Part/Material availability problems are often the leading cause of slow or
inconsistent order fulfillment speed. If parts and materials designed into the
product (hereafter called “parts”) are not readily available, then the choices
are the “between a rock and two hard places," summarized as follows:
• Order parts after receipt of order and wait however long it takes to get all
of them delivered; build the products; and then ship them so late that this could be
a competitive disadvantage with some of the lead-times that are too long to make
this scenario uncompetitive.
• Try to order all parts ahead based on forecasts, relying on yours or
customers’ forecasts . If over, you will incur extra cost and inventory. If
under, some of the order will revert to an expedited version of the above firedrill scenario and be late, thus disappointing customers or lowing market
share. If any parts have lead times exceed the order delivery window, that
prevent this scenario from working, but trying will waste a lot of effort and
• Try to stock long-lead-time parts, which is expensive and hard to know how
much to order of each one, all of which gets exponentially worse with the
number of long-lead-time parts in your products. Fortunately, long-lead-time
part problems can be eliminated by design (see below).
The biggest cause of availability problems
First, understand the biggest cause of availability problems:
An designer selects the first part found that “will work”
and tells Purchasing to buy it.
The trouble with this common practice is that even if the selected part has
the published specs to “do the job,” it may not be a very good part: It may not
have consistently good quality; It may not even function well enough in all
usage modes in all environments: And it may not be readily available throughout
the expected lifetime of your product.
SHORTENING SUPPLY CHAIN TIMES
So, instead of throwing “the" part number over the wall to be bought, the
engineer should specify the minimum spec because looking at higher performing
parts may reveal parts that are more available, which may even cost less if they
are built in higher volumes in efficient factories by competitive suppliers.
Then work with Purchasing to assure the chosen part will be readily available
throughout the production life of the product. In order to assure this, the following need
to be investigated for a range of parts above the specified minimum spec..
Importance of part being available for the life of the product
This is important enough to eliminate from consideration parts that may
disappear during the expected production life of the product because of the dire
consequences, which could be:
• Production delays and resource drains to write the change orders to substitute
a new part and deal with quality issues and requalify the product if necessary,
• Try to buy a lifetime supply (called an “end of life buy”) before the
“endangered”part goes out of production based on forecasts, which is either
expensive (if over) or risky (if under). The costs and risks will rise
exponentially with the number of times this has to be done.
Critical procurement considerations
• Part lifespan. As a starting point, ask
suppliers how long candidate parts will be available, specifically asking if
there are any looming phase-outs, redesigns, or when a large batch in inventory
may run out. They may not know or may give unrealistic assurances, so other
investigations may be necessary.
• Other users of the candidate parts. Ask
suppliers, “Who else is buying your parts?” If their other customers make
products with similar lifespans to yours, that is a good sign. Beware of parts
used in fast-moving industries, like consumer electronics, whose products and
their parts may be obsolete in a matter of months. When enquiring, also ask
if their customers have the same challenges.
• “Better” parts. The range of acceptable
parts, already narrowed by availability, can be expanded by considering
“better” parts than your minimum requirements, which could have tighter tolerances, better
margins, better materials, better finish, or higher performing, as long as they
are not to big or too heavy. For new designs, the part volume allotment and
mounts could be designed designed to be large enough allow for this eventuality, which may even make it
easier to change parts, if it ever comes to that.
• Paying for “better” parts. Sometimes people resist buying
“better” parts because they think it will “cost more,” which is especially
problematic if product “cost” is measured predominately by part cost
(Bill-of-Material entries). The author’s seminars have a bullet that says:
“Be prepared to pay for this availability, but it will be
in total cost saved and
avoid the costs to fix availability problems.”
• Selecting parts and materials for regulatory
compliance. Specify parts and materials that are already
pre-certified for regulatory compliance, such as for cleanliness, product
sterilization, mil-specs, etc. This would ensure that the design would not
need to be changed later, and maybe need to be requalified.
• Part consumption. Ascertain the number
of candidate parts consumed per year (not produced since some may go into
inventory). If your products are seasonal, understand if suppliers are
building batches in the lean season in hopes of having enough in inventory
for the peak season.
Also, searching past production
records will give an indication of the stability of patterns in the part’s
• Standard parts may have higher
consumption than non-standard parts and may be available from more
suppliers. So, wherever possible, select standard parts, even if they are
“better” than you need because it still will reduce total cost as mentioned
in the section, on “Paying for ‘better’ parts” above. A further advantage of
standard parts is the synergies when many of your products could use them,
thus simplifying your own operations and supply chain management.
Eliminating problems of long-lead-time parts
Eliminating the problems of long-lead time parts starts with part selection
and supplier selection.
Most long-lead-time problems are caused by specifying parts for function
with no regard to their lead times. Systematic avoidance of lead-time
problems starts with examination of the suppliers mode of production and its
supply chains, using the following criteria:
• Best: Suppliers parts are made in
stead flows on dedicated lines
• Next Best. Suppliers part are made
on-demand from readily available materials, as taught in this site and
Next to Worst:
Suppliers parts are shipped from forecast-based inventory, discussed above for
your products Suppliers parts may be in stock, but if not, they may either make you wait until the next production batch, which may be made yearly
for their unusual part, or revert to the worst scenario (next), which guarantees long lead times:
• Worst. Suppliers parts are built after they get your order with
the problems cited in the section above titled: “Part/Material Availability
Shortening order fulfillment time for existing products
• Overall order fulfillment rates can be immediately improved by
rationalizing away the most unusual products and variations that have the
slowest manufacture and supply chains.
• One important caveat is to retain certain products/variations that (a)
have future potential, (b) truly must be in the product line for valid
reasons, and (c) can then be incorporated into a subsequent product family
development and then be built on-demand at low cost and shipped quickly.
Until that happens, they may need to be built by the usual heroics.
Outsource or relocate to your own profit-and-loss center
• If those products and variations must really be in the product line, but
don’t have much of a future or chance of being redesigned or incorporated
into a synergistic family, they could be:
(a) built in a self-supporting profit-and-loss center in your company that
keeps building them with their own talented people and so their production
will never drain resources away from the fast and efficient Ops and SCM
proposed on this. Further, unusual, hard-to-build products should not be
charged to overhead that will them have to be paid by the profitable
products, which becomes a “loser tax.”
(b) outsource them to a contract manufacturer, even to a less advanced
competitor, who will build them in the same old way at the same cost in the
• If certain products have only a few parts with availability
challenges or only a few long-lead-time parts, it may be worth it to do
proactively (before an order is taken) change orders to substitute more
available parts This would apply most to worthy products that have
competitive pressures on order fulfillment time.
Before the next major topic of Shortening Build Times, if may be instructive
to distinguish between Ship-from-Inventory and Build-to-Order.
SHIP-FROM-INVENTORY vs. BUILD-TO-ORDER
1. Ship from Forecast-Based Inventory.
Even this title casts doubt about this practice as a consistent solution to
competitive order fulfillment. If the forecasts were right, which is rare,
then order fulfillment could be right away. On the other hand, if (a) the
forecasts were not good guesses and (b) you can not afford to carry all the
inventory for all the variations, then the company must try to build those
product variations “to order” in a firedrill mode, but without employing the
systematic methodologies described below.
Each affected product will probably be a chaotic firedrill that will deplete
your resources and morale, while greatly disappointing customers some of the
time. The reason this will not work is the inescapable dilemma of inventory
High inventory levels improve fulfillment, but will cost a lot of money just
However, if you try to lower inventory costs, that will disappoint
Thus, trying to improve one will always make the other worse!
And none of these oscillations will consistently satisfy customers.
Using the right words: When discussing order fulfillment, use the most
realistic words, not “build to stock” and “ship from stock” which may sound
unrealistic appealing because some people actually like having things “in
stock” – as long as everything they want is in stock Rather, use terms like
“build to forecast” or “ship from inventory” because no realistic person
likes “forecasts” or “inventory.”
2. Build-to-Order means that products
(and their variations) are built quickly in flexible operations “on demand”
in any quantity from parts and materials that are supplied in the following
(a) They are pulled quickly from their sources on-demand spontaneously
directly to wherever they are needed (called “dock-to-line”), which is a
principle of lean production; or
(b) They are so standardized that they are always available all at the
points of use, thus avoiding kitting batches of parts into a “kit” which
then forces manufacturing in forecasted batches, which is called Mass
(c) if parts are not available like that, then they are built on-demand from
available materials as in (a) and (b).
SHORTENING BUILD TIMES
Document current order fulfillment times. First, identify the market
segments in which order fulfillment matters the most. One simple question to
ask Marketing and Sales would be “how much would sales increase if we could
cut the order fulfillment time in half?” Another question would ask how much
market share would grow for the same improvement in order fulfillment speed.
Prioritize the following efforts on the most promising products, product
families, product variations, market segments, and even specific customers.
Then starting at the top of the list , break down the activities that add up
to the overall build time. This will be added to the time to procure parts
and materials (previous section) to result in the overall order fulfillment
Understanding the activities. Summarize key activities of current order
fulfillment times and put them in Pareto order with the longest activities
on the top of the list.
For each activity, enter the following into a spreadsheet:
• current elapsed time
• minimum possible actual processing time
• current batch size
• setup times on the critical path (on-line setup)
• setup times that are done off-line when the processing is going on
Spreadsheet columns to the right would show further breakdowns, goals, resources
required, estimated resource savings, estimated financial benefits, and then
plans to achieve those goals. This process could be formalized using tools
such as Value Stream Mapping.
ONE PIECE FLOW to shorten order fulfillment time
Shift from “batch & queue” production to one-piece flow
The shift from manufacturing batches to one-piece flow has two elements,
Operations and Supply Chains.
The Shift in Operations
This discussion will start with “The Slow Build Time” scenario,
which will need to shift to “The Fast Build-Time” scenario:
The Slow Build-Time scenario
Slow factories make parts in batches from, a batch of materials,
and then move the finished batch of parts to Assembly where a
batch of products is assembled.
Slow factories schedule each batch of production based on
forecasts and then the batch of products either:
• Goes to customers who has waited for ordered parts to
be delivered to the factory and then is fabricated and assembled into a batch
of products which are then delivered to waiting customers.
• Goes into inventory, based on forecasts made early
enough so that the slow factory could deliver finished products
in time for the anticipate demand. If the size of the forecasted
batch matches demand, then everything is fine, but this
idealized scenario is extremely rare. In reality, there will be
one of two dismal alternatives
• If the forecasted batch size was
smaller than demand, then the
first customers would get their products right away After that,
customers would either be turned away, thus losing all those
sales, or customers would have to wait for “back-ordered”
products to be built in the slow scenario mentioned above.
• If, on the other hand, the forecasted batch size was larger
than demand, then current demand would be satisfied right away
but money are precious resources would have been wasted building
products that may not sell now and then go obsolete. Most
companies will pay for years of inventory carrying cost (about
1/4 of the inventory value per year) “just in case” someone will
buy one or offer a clearance sale to “move the metal” or send to
a liquidator. Eventually, if this doesn’t get rid of the
obsolete inventory, the company will have to “write it off.”
Usually the result of these costs the company millions of
Effect of product variety on inventory cost
and customer satisfaction
Keep in mind that forecasting batch production for inventory
gets worse, mathematically times the number of variants as
"X" variants would mean X times the inventory for the same
customer satisfaction or
1/X the customer satisfaction given the same inventory level.
2 variants would mean twice the inventory for the same customer
half the customer satisfaction given the same inventory level.
5 variants would mean 5 times the inventory for the same customer
1/5 the customer satisfaction given the same inventory level.
The Fast-Build Time Scenario; Flow
Manufacturability and one-piece flow
If setup can be eliminated or reduced enough to eliminate
the need to manufacture in batches, then parts, sub-assemblies, and products can
flow one piece at a time. One-piece flow may be essential when building to-order
a wide variety of standard or mass-customized products.
It also eliminates much of the waste of batch-and-queue
manufacturing: waiting, interruptions, overproduction, extra handling, recurring
defects, and other non-value-added activities, which Lean Production
strives to eliminate.
One-piece flow has a distinct advantage for assuring
quality at the source. First, flow manufacturing eliminates the possibility that
recurring defects may be built into several batches before being caught at a
downstream inspection step. Second, people working in flow manufacturing look
for any visible deviation as each part is handed to "its customer"
(the next station). Further, if the part doesn’t fit or work in the next
operation, the feedback will be immediate leading to quick rectification of the
In flow manufacturing, parts may be manually handed to the
next station, which may be very close, thus eliminating the need for mechanized
conveyance or fork lifts, whose aisles may occupy as much space as the
One-piece lines are usually sequential, sometimes breaking
into parallel routes when needed to balance the line (see next section). Rather
then laying out "lines" in a literal straight line, it may be
advantageous create a U-shaped line which bends the line into the shape
of a "U" for the following reasons:
C Visual control. Everyone in the line
can see the whole operation, enhancing visual control, thus resulting
in greater group ownership, continuous improvement (kaizen), and problem
solving. Visual control can be further enhanced with clearly visible andon
(warning or status) lights and display boards.
C Problems heard. When everyone in the
line works close together, problems at all stations will be heard by the
entire line, thus leading to faster problem identification and resolution.
C Helping out. If one worker gets
behind, nearby workers can help out, even from end to beginning.
C Skipping steps. Having work stations
closer together makes it easier to process orders that skip steps.
In sequential one-piece flow, when one production machine
breaks down, the whole line will go down. Therefore proactive equipment
maintenance is important to prevent unexpected production interruptions. A good
TPM (Total Preventive Maintenance) program should assure this. Inventory buffers may give an allusion of
protection, but may still require special measures, like overtime and inventory, to recover.
Equipment maintenance can be more responsive and less
costly with standardization of all replaceable parts: belts, motors, fuses,
Ideally, to achieve optimal machine tool and work station
utilization, one-piece flow lines should be balanced so that the time to do the
required tasks at each station, called the takt time, is fairly constant.
C If takt time at each station = station
capacity, arrange into sequential line.
C If takt time does not equal station
capacities, but does not vary with products:
C Upgrade appropriate capacities or find
faster machines to achieve balance.
C Group machines/stations into
series/parallel paths to achieve better balance, perhaps 3 of one feeding 2
C If underutilized machines are not
expensive, don’t worry about balancing if the entire system can provide
C If takt time varies with different products,
C Make stations/machines flexible enough to
C Sequence jobs to compensate for imbalances
C Size the line based on the most expensive
machine and provide excess capacity for the less expensive machines.
Another way to balance lines is to make certain stations
double as kanban sources, so that they make kanban parts during times when they
have excess capacity.
Flexible operations work best with dedicated cells or
lines for every product family. Cells can be permanently configured so that
within a product family, all setup has been eliminated. This strategy works best
with many simpler dedicated machines instead of a single "mega-machine,
unless the mega-machine can handle a very large family -- enough to justify its
expense. In some cases, older or "obsolete" machines may be used to
provide complete set of machines for the cell; this was one of the solutions
covered in Eli Goldratt’s novel The Goal. Remember that speed or
capacity may not be as important as flexibility.
Total cost analysis must be used taking into account all
related overhead costs in addition to the usual material and processing cost. In
some cases, cells may be installed even if the cell alone can not be justified
by traditional analyses, but if the cell completes a valuable plant capability
like build-to-order. The guiding strategy for cell design is flexibility and
Artificially induced irregularities.
Raw material comes out of the ground in a steady flow.
Most products are ultimately consumed in a steady flow. Most irregularities in
factory workload are artificially induced. Sources of irregular
factory workload include:
C Production quotas for end of the
month, quarter, and year.
C Promotions, usually to move built but
unsold finished goods or to meet sales quotas. This situation is compounded
when customers hold off purchases until the expected "sales."
C Quantity discount and "deal
making" encourage large batch purchases. Ironically, this may cause
the producer to work overtime to deliver the large batches and cause the
customer to incur inventory carrying costs once the batch is received.
C Lack of dealer confidence of product
availability, leading suppliers to build up inventory.
C Lack of customer confidence in product
availability, leading consumers to "stock up" when they can.
C The "business cycle." Half
of the effects of downturns are caused by working off excess inventories; half
the upturns are caused by building up inventories for anticipated upswings in
demand. (See Womack and Daniel T. Jones, Lean Thinking; Banish Waste and
Create Wealth in Your Corporation, (1996, Simon & Schuster), p. 88, "Do we really need a business cycle.")
Seasonal irregularities. Some irregularities in factory workload are
seasonal, such as Christmas, back-to-school, and other events. But these can
be dealt with, since these are predictable. Notice how grocery stores know how
many turkey’s to order for the holidays and how much beer and snack foods to
order for major sporting events.
Line capacity issues:
C Eliminate artificially induced irregularities
C If demand exceeds daily capacity for a line, prioritize
scheduling into categories (next-day, two-day, time available within the week)
and charge accordingly, either a premium for next day or a discount for slower
C For short-range peak demand beyond capacity of
a line or cell:
C Shift production to another line if
second line is flexible enough
C Consider overtime
C For long-range peak demands beyond capacity, expand
capacity and/or outsource the least efficient or least
compatible operation. Pre-assign efficiency ratings & work from the top of
C Avoid unexpected loss of capacity with preventive
maintenance (TPM) and quality assurance programs, like TQM and
process controls, to avoid interruptions and products looping back.
SHORTENING THE TIME TO CONFIGURE AND CUSTOMIZE
Instead of using a lof of valuable resource-hours and taking a lot of
calendar for firedrill customizations, use Mass Customization principles
customize products quicly and cost-effectively, as shown at
The first example shows a factory layout to mass customize electronic
products. The second illustrated example shows how to mass customize
The article at
http://www.halfcostproducts.com/design_for_lean_and_bto.htm shows how to
design products for mass customization.
These are the general principles. Pass
around this article or URL to educate and stimulate interest
In customized seminars and
webinars, these principles are presented in the context of your
company amongst designers implementers, and managers, who can all discuss
feasibility and, at least, explore possible implementation steps
In customized workshops, brainstorming sessions
apply these methodologies to your most relevant products, operations, and supply
copyright © 2016 by
David M. Anderson
Book-length web-site on Half Cost Products:
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