“A strict build-to-order model creates piles of inventory, hidden problems, and ultimately poorer quality and, in the end, lead times are likely to grow as the factory is disorganised and chaotic”,
Jeffrey K Liker, The Toyota Way.
The fourth principle of lean, as defined by Womack and Jones, is Pull: “as flow is introduced, let customers pull value from the next upstream activity” (www.lean.org). However, the truth is that all lean organisations actually work to a level schedule (“every part every day” or similar). The level schedule is actually a smoothed forecast of demand and its purpose is to remove the fluctuations in “true” customer demand from day to day and so create stable flow. As a forecast of demand the level schedule is subject to the same potential for inaccuracy as any estimate. This means that operating a level schedule inevitably involves inventory:
- Safety stock in case actual demand should exceed that we have scheduled to produce;
- Surplus stock in the event that actual demand does not meet that scheduled.
This cannot be avoided. While we can (and should) apply continuous improvement principles to our forecasts, we can never avoid the fickle ups and downs of the customer.
The problem is even more significant in service businesses where it is rarely possible to create a truly balanced level schedule of customer. The nature of service is such that being available when your consumers want or need your service is something which adds considerable value.
Nevertheless, service managers can do a great deal to understand and, at least, “smooth” demand. To do that you need to understand the four types of demand in service processes:
- Demand that cannot be managed. This is demand which arrives in the service process when is needs to. “Emergency” type demand (fire, police, accident and emergency etc) is typical of this category, though many services experience “it must be done now” demand fairly regularly (from IT system crashes to emergency shoe repairs). There is little you can do to “smooth” this type of demand (educate users, perhaps), but good data analysis and forecasting, coupled with cross-skilling will help you plan capacity to meet the peaks. It is often appropriate to leave some capacity available for such demand, and for customers willing to pay a premium to “jump the queue”, although this creates the risk that the capacity may not be used today.
- Demand which can be incentivised. This type of consumer demand arrives when the consumer wants the service, but is not urgent and, therefore, may be open to incentives to move to an off-peak period. Promotions in the retail and hospitality sectors are a good example of this, but a wide range of services can benefit from persuading some consumers to move to off-peak periods. For example, GPs may put on specialist clinics at certain times to move non-urgent demand from peak times. A web portal, with incentives to use it such as quicker turnaround, may also help move demand. This is a great opportunity to work with your service team to brainstorm ideas to “smooth” such demand.
- Demand which can be managed. In some cases the service provider can specify when they will meet the consumer’s demand to match capacity. Timetabling of appointments is common way of achieving this in health, local authorities and many other arenas. This does help achieve a level schedule though it may do so at the expense of customer value as people do not like to have to wait a long time for service. Properly used, however, this approach can actively improve customer value by giving the consumer a clear time when their service need will be met.
- Failure demand. “Failure demand” is a term coined by John Seddon in relation to services. It is the demand which arises as a result of a failure by the provider. It is the waste rework caused by the provider’s failure to get the service right first time. This can be surprisingly high (nearly 50% in one service I’ve recently studied), and working hard to reduce rework will go a long way to helping balance capacity with true consumer demand.
Another complication with services is that the characteristics of the demand will also vary. Different consumers will have different needs, and may have differing competency levels in dealing with the service. Segmenting or triaging demand may help deal with these differences, though we need to be careful about the social acceptability of this – a stream for “old people and simpletons” may not add customer value !
Perhaps the best way to deal with the variability in customer demand in service businesses is through skills flexibility. If our people are very flexible then they can easily move from one service area to another as demand peaks and troughs through the day, week or season. However, few organisations are truly good at this as it requires functional boundaries to be swept away. The finance department on a quiet week are unlikely to be aware (still less be interested) that their warehouse colleagues are rushed off their feet preparing service kits for engineers. It is a very special type of organisation where staff will willingly and regularly move between different activities as demand fluctuates.
Analyse the demand for your service, and work with your team to understand it. Then work together to devise strategies to “smooth” that demand as much as you can, and to balance capacity with consumer demand.