As an entrepreneur, there are always situations that you cannot plan for, and it is at those moments you find out what you’re made of. When running a small business you can improv for some things, customer complaints, product development…. taxes(??). However, to keep your sanity, the goal should be to limit your business improv, especially when managing your supply chain (that journey from raw material to customer), and one of the biggest links in that chain is production management.
Production management is a sophisticated term that simply asks: “When, what, and how much do I need to produce?”
The place where most business owners run into problems, and develop the most ulcers, is not knowing all the things that go into planning production. This causes them to react, ask for favors from vendors, drive to fed ex right before they close, or stay up all night producing items that need to be ready.
So here are three supply chain management tools you can use to reduce the stress involved in planning your production.
A run rate is how many products you’ll sell or ship in a given period of time. This could look like sales in a day, week, or month. The time frame depends on on the business owner’s preference. There are many ways to do this calculation, and some involve advanced computer science, however, to keep it simple, look at last month’s sales in units and divide it by 4.
If you sold 120 units last month and divided it by 4, your run rate would be 30 units a week.
Inventory can seem simple, but there is one key error new warehouse managers run into… counting inventory that doesn’t belong to them. You have physical inventory that is in the warehouse, but some of that inventory has been sold already and just not shipped out. The key is to calculate the available inventory. Available inventory is the current inventory in the warehouse, less the items that have been purchased but not shipped out. If you do not take those items out of your inventory, you’ll think you have more time before you need to produce than you do.
If you have 400 units physically in your warehouse and you have 100 units sold but not shipped out, you currently have 300 units of available inventory.
Production Lead Time
How long does it take from initial raw material order to final product ready to ship? This is the production lead time. And sure, this might be something that is in the back of a business owner’s head, but have you mapped it out for each of your items? Probably not. Spending time to accurately calculate production lead times is one of the best places to reduce stress in production planning. What you can do is grab a good cup of coffee and a free morning to make a list of all your products, mark how long it takes from raw material order to finished product, and then go through the list again and ask yourself > “Is there anything that goes into producing this that might take a bit longer?”and make adjustments.
If it takes three weeks for all of your raw materials to arrive, one week to put the materials together, and one week to for everything to dry, set, and package your production lead time is 5 weeks.
There are a number of additional things that go into production management. However, if you keep these three topics in mind you’ll be able to improvise a bit less and enjoy your business a bit more.