“We really missed it this time,” the marketing vice president sighed as the chief executive offi cer (CEO) and other managers stared glumly at his revised forecast. “Frankly, we were as surprised as everybody else
Figure 2.8 Supply Chain Management
43
Why Master Scheduling?
that interest rates would spike upward as they have. And that single fact accounts for the dismal outlook for orders over the next few pe- riods. The fi nancing costs for the customers are just too unfavorable right now.”
“So when do you expect things to pick up again?” the manufactur- ing vice president asked.
“When interest rates come back to Earth—and please don’t ask me when that will happen. I don’t know, and I doubt that any of the so-called experts know either.”
Indeed, the current outlook for the next four periods was dreadful.
Almost as bad was the uncertainty. Because the company produced expensive machine tool equipment, sales were extremely sensitive to interest rates, and uncertainty as to future rates created a puzzle for production planners and schedulers. If rates came back down, demand for the company’s products would quickly bounce back. As for correctly forecasting those rates, the fi rm’s treasurer liked to say that “those who tell don’t know, and those who know don’t tell.”
The current master schedule had undoubtedly already triggered the purchase of materials and components and building of other com- ponents of various lead times. These were either in the stockroom or somewhere in the pipeline. The production capacity was there; the skilled personnel were there; the fi xed costs of the plant were there. All that was missing was the customer orders. What to do?
Lots of head scratching takes place in times like these. The market- ing people wonder: “Why was our forecast so far off target?” The sales force beat the bushes for opportunities to fi ll the gaping hole in its revenue forecast. Manufacturing evaluates other ways to utilize un- used capacity, fearing layoffs of experienced people who might never come back when business improves. The people in fi nance start having nightmares in which production keeps humming along—and keeps piling up expensive and unsold inventory.
Management Issues
The situation just described raises a number of management issues—
both with respect to the current situation and with respect to a com- pany’s whole approach to the problem of operating in environments of unstable demand. In terms of the immediate situation, some would advocate pulling up three of the orders from the second period into the fi rst. Perhaps some customers could be induced to take early delivery.
This would keep all activities on course through the fi rst period but would create a worse situation for the second.
An optimist would hope that a sudden uptick in demand would res- cue the master schedule and might build inventory in the expectation of an order turnaround. Someone once said that the defi nition of an optimist is “a person who has no experience.” A pessimist would begin reducing capacity and laying off labor. Someone also once said, “I’d be a pessimist, but it wouldn’t work anyway.” A pragmatist would think through alternatives for preserving the company’s fi nancial, produc- tive, and human resources through a hostile period: building common parts for use in a variety of company products; rescheduling material purchase to later dates; redeploying personnel to other useful work.
What Kind of Company Are We?
The situation of slack demand provokes a larger question introduced earlier about a company’s sense of itself: Are we in business to sell what we make or to make what we sell? A production- oriented company sells what it makes; it usually listens more closely to technical capabili- ties than to the voice of the customer and relies heavily on sales and marketing to move its steady output. In the face of slack demand, it may slow down, but it rarely stops. Instead, it invests heavily in a tool set that sales and marketing can use to clear its inventory: price fl ex- ibility, attractive fi nancing terms, warrantee extensions, and so forth.
A sales and marketing– oriented company makes what it sells. When sales are brisk, production responds; when order volume withers, its production responds accordingly—it is not in the business of just push- ing product.
Which orientation is best? It probably depends on the product,
45
Why Master Scheduling?
the industry, and the time period (more discussion of this follows in Chapter 4, “Managing with the Master Schedule”) But one thing is certain: Both require fl exibility. The company that sells what it makes needs fl exibility in the ability to move fi nished goods. The company that makes what it sells needs greater fl exibility in production; for it, the model of lean production—the capability to produce at low cost in small batches and to economically switch production to other items—
may be an important key to getting through periods of slack demand like that in our example.