The Surprise in a Smaller Lot Size!

If the components that we're using today were always made yesterday, it would be much easier
to trace back to the source of the problem and correct it.

by Dave Garwood

Remember the circular slide rules used for calculating Economic Order Quantities? At one time, they were considered stat-of-the-art tools for "scientific" inventory management. We've come a long way from that era of implied sophistication!

Although the merits of smaller lot sizes were probably always understood, it has only been recently that many companies have focused their efforts on significantly reducing lot sizes. Previously, obstacles such as long setup times were considered "givens," constant factors on the circular slide rule. Those companies that tossed aside their circular slide rules and chopped lot sizes have enjoyed tremendous rewards. Less work-in-process, fewer material handling containers, shorter manufacturing lead times and faster reaction time to customer requirements are only a few of the advantages. But the unexpected pleasant surprise has been a significant improvement in quality.

For example, consider a case where a component is used in a finished product and the product is produced at the rate of 5 per day (or 100 a month). Because of the relatively short run time and high setup time, it's not uncommon for one of the components to be produced in lots of 300, equivalent to a 3-month supply. If, after producing 300, and then using 5 for today's production, we discover a defect, we have 295 components in stock with the same defect! Rather than making new ones, we're more likely to try to rework existing stock and, therefore, never know if the root cause of the problem has been corrected! The oods are high that the same problem will be repeated the next time we make 300.

If we scrap the 295 defective parts, the Great Debate sets in ... who caused the problem and who will absorb the scrap costs? Now everyone is scrambling for cover, trying to make sure they don't get stuck with the scrap costs. Finding the real cause of the quality problem has now become secondary! If we'd made a smaller lot size, such as a day's worth (5 pieces), we wouldn't have as many to scrap. Responsibility for scrap costs would be a non-issue. And, more importantly, efforts would be focused on correcting the problems.

Often, the defective parts aren't discovered when the first 5 peices of the 300 lot size are used. If the problem is discovered after using half the lot size (150 pieces), it may be several weeks since they were produced. It's difficult to reconstruct what happened several weeks ago out on the shop floor. We're probably not going to find out what caused the quality problem. If the components that we're using today were always made yesterday, it would be much easier to trace the source of the problem and correct it. Since we're also currently making the parts, we can immediately implement the proposed changes to fix the problems and determine right away if they work.

Practice makes perfect. The smaller the lot size, the more repetitive the manufacture of the component. When we make 300 once every three months, it's easy to forget how we made them right the last time!

The more we work at improving our manufacturing operations, the clearer the overlap in scheduling, quality and productivity projects. On the surface, smaller lot sizes may appear to be an inventory reduction project. But it has always been a major contribution to quality improvement for many companies. What a pleasant surprise!