Level Demand
JIT systems also require level external demand in addition to process standardization to maintain a stable takt time. Figure 3.8 shows five different demand patterns. These are level, normal, erratic, seasonal, and sales promotions. There are other patterns, but these will illustrate the relevant concept. Level implies average unit demand variations in a range of ± 10%, normal implies unit demand fluctuations of ± 25% and erratic could mean more than ± 100% of average unit demand. Demand patterns could also exhibit seasonal fluctuations, promotional spikes, and other patterns specific to certain industries. Just in time systems achieve level demand through strategies such as design commonality, process improvements, effective scheduling strategies, and other methods described in this chapter that help
FIGURE 3.8
Level Demand
simplify, standardize, and mistake-proof processes. Incoming demand must not exceed a systems available capacity or disrupt its takt time.
The ability of a supply chain to stabilize the external demand placed on its participants varies by industry and organization. Level demand is difficult in industries that engage in sales promotions or otherwise manipulate external demand. Promotional activities tend to increase the demand variation and cause a deterioration in a supply chains ability to match its capacity to the varying fluctuating demand. A simple example is retailers that have everyday low prices versus those that employ promotions. The latter will have a more difficult time meeting demand unless inventories are increased. In summary, product or service promotions have the effect of artificially manipulating external demand patterns, and the result is increasingly larger demand variation patterns. Higher variation adversely impacts capacity and inventory investment.
Incorrectly matching supply and demand across a supply chain causes excess capacity because production schedules are underutilized or overutilized. When overutilized, production schedules are impacted because capacity is constrained. The result is missed schedules and poor customer service. In service operations, people as well as their tools, i.e., IT systems, are integral to the level of available capacity. For this reason, it is important to ensure workers are available to service customers by matching them to the demand placed on a system. It is common to enter a service operation such as a bank, hospital, store, or restaurant and not wait too long for service. This is the result of good operational planning. Overutilization can be managed. A common example is capacity planning within a global call center. In these highly integrated systems, calls from anywhere in the world are automatically rerouted to other call centers within the network if a customers waiting time exceeds a predetermined time. There are other operational strategies organizations can use to match capacity to demand to effectively level it when demand significantly varies. Some examples are developing common designs for products and services, increasing operational flexibility through Lean Six Sigma, forming partnerships with other organizations, and outsourcing capacity-constrained operations.
