It Seemed Cheaper at the Time

As we seek economies of scale, as we try to keep busy and fully utilize staff, we often keep working even when the next step isn't ready for more. We do things in large batches as we try to be as efficient as much as possible. We try to spread the changeover costs or processing time or transportation time over many items. Unfortunately, things then wait. In piles. In queues. In holding areas. In waiting rooms. In work-in-process. Waiting for the next step to get to them.

Over-production is often considered the worst of the Lean Wastes, as it contributes to the creation of so many other wastes. Whenever one step produces more than the next step is ready for, you have over production. It seems cheaper to produce in batches, but your costs are higher than they could be whenever you produce too much, too soon.

A few examples...

1. A company ordered steel in large batches to get the unit price down. With about six months worth of stock sitting in the warehouse, the company made a major change in it's product design and no longer required that type of steel. The market price for steel was soft and, when all costs were factored in, the company only recouped about 40% of what they had originally spent for this "cheap" steel.
2. A kitchen cabinet manufacturer made colour samples on small wood pieces. Customers would use these colour samples as they shopped for everything else they needed to decorate and finish their new kitchens. The manufacturer would run large batches of samples, to minimize the cost per sample, and all the dealers would get boxes of hundreds at a time. Styles and colours change rapidly in the cabinet industry and, inevitable, dealers would end up throwing out hundreds of obsolete samples.
3. The order handling department in a lab would accumulate ten to fifteen requisitions before processing them in batches, to "be more efficient." A process mapping exercise revealed that this batching was adding, on average, a full day to the total cycle time for the tests. By changing to immediate handling of each order as it arrived, they were able to shorten the cycle time by a day, without any additional expenses.

We seek economies of scale because it seems cheaper. Yet, when total costs are considered, big batches often cost us much more than we imagine.