20 May 2004                       www.strategosinc.com

Capacity, Inventory and Delivery

How High Utilization Degrades Delivery Performance

Capacity utilization and inventory are connected in a peculiar way that is not readily apparent. In addition, Little's Law further relates capacity utilization to delivery performance. In most situations, high utilization causes a significant deterioration in a factory's ability to deliver quickly and reliably.

Unaware of this phenomenon, many firms emphasize high utilization through their allocation of capital and Return-On-Investment policies. In some cases, such policies actually increase the necessary capital investment, rather than conserve it. In other cases, sales and growth are inhibited.

This has important implications for strategic thinkers. It affects finance, manufacturing and marketing strategies. Scheduling strategy, as a part of Lean Manufacturing, is much more than just Kanban. It involves the role MRP/ERP, backlog and how manufacturing can contribute to marketing strategy.

Our new page, Capacity, Inventory and Delivery, explains. In the coming weeks, we will extend these ideas and discuss the role of variability, Make-To-Order versus Make-To-Stock, backlog and how to think strategically about these issues.

All of this is available in our online/onsite seminar as well. This unique seminar deals with scheduling from a strategic perspective and helps managers think about scheduling as it relates to the other strategic areas of finance and marketing.

Strategos-International

On another topic, I am proud to announce an affiliation with outstanding consultants in China, Europe, Australia and North America. as Strategos-International. Each of these firms brings a unique perspective and skill set. You can expect to see contributions from them in future Lean Briefings.

All The Best,

Quarterman Lee

qlee@strategosinc.com

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