Thursday, August 22, 2013

8 ways why batching is bad for your business

One of the most common questions we get when reviewing a process:

"What's wrong with batching? I can produce so many more widgets when I do it this way?"

When I first started out in Lean, I had the same questions. It seems more efficient to the worker, and therefore it doesn't make sense to them that someone would want to change that. It took a few improvements before things started to sink in for me.

Just so everyone is on the same page, when you batch, you don't complete tasks one item at a time, you wait until you have a few items, then complete the task all at once. Usually this is because the time to get setup to complete the task takes a while, so it's more efficient to do the task all at once. However, the time waiting for a large enough batch to complete causes the next step to wait, then it generates a large amount of inventory all at once, which is unable to deal with the inventory and therefore it will need to be stored or will sit waiting to be worked on.

Don't believe us? Check out this video of envelope stuffing, and you'll understand why one at a time is better.

Here are a list of reasons why batching and inventory is bad:

1) Delays in detecting problems - The parts are not allowed to move to the next process until the whole batch is complete, so any problems found later in the process are delayed, adding to the number of items with problems that will need to be reworked or thrown away, increasing costs.
2) Taking up resources - Any items being produced that are not needed right now are taking up time at that process step, that could be better spent on things that are needed, which delays deliveries to customers.
3) Inventory cost - The labor and cost to process the items has been spent, but since it's not needed yet, it will take longer to get paid by the customer, which reduces cash flow and the cost of capital (money that could be getting a return on investment).
4) Cost to store inventory - Inventory needs to be stored, so there is a cost to process and record it, package it to protect it from damage, put it somewhere out of the way (requiring more floor space, which adds to the cost of utilities for lighting, heating and cooling).
5) Potential for problems - Once the inventory is stored, there is an increased chance that it gets damaged, deteriorates, corrodes, etc. This requires it to be redone or reworked or discarded, which costs money.
6) Loss of customers - If a customer cancels the order, or asks for a different version, or the part is no longer made available for sale, then the inventory becomes worthless, so the expense of buying and purchasing the items is lost.
7) Cost to dispose - There may be additional costs to deal with the scrap or unneeded items beyond the wasted labor and material costs, such as landfill disposal costs, cost to transport or pickup the items, fill out paperwork, or even properly recycle it.
8) Perception differs from reality - As seen in the video, the perception of batching may not actually result in faster processing.

Don't get me wrong, there are situations where batching is a better option in the short term (large setup times, low cost of inventory, inconsistent deliveries, etc). There are other situations, especially when ordering from a supplier, where travel and bulk discounts come into play. For these situations, an economic order quantity can be calculated that considers all these extra costs, to decide how large the batch size could be. However, in general the goal is to minimize the size of batches as much as possible by making the setup times less.

What examples do you have that helped you understand inventory and one piece flow? What other problems does inventory and batching create?

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