Small is beautiful

When you visit a shopping mall, do you prefer to take an elevator or an escalator? I have asked this question to many people and the answer is mostly in favor of escalators. Have you ever wondered why?

Elevators work on the principle of carrying a large batch size, it involves a waiting time and causes some delay at times. On the other hand, escalators are designed for a batch size of one and zero waiting time. Going by the consumer insights gathered over the years, we do know that human beings intuitively prefer smaller batches.

However, when we look at the operations of leading companies in the consumer packaged goods industry, we find several instances of large batches getting pushed through the supply chain. Let’s look at each element of the supply chain to understand the current behavior and its probable reasons.

1. The first expectation of large batches starts with our vendors who prefer it to achieve higher efficiency in their production cycle and logistics. They do not realise that some excess material will probably lie in our inventory for several weeks before getting consumed. Vendors also institutionalize it by quoting a higher price for a small batch and a discount on large purchases.

2. Even in our own production lines, we see a preference for a larger batch size in order to minimise changeovers and gain local efficiency. Large production batches not only block capacity and make the production schedule less flexible, they also compromise on our ability to respond faster to changes in demand patterns.

3. Lastly, we see a preference for large batches prevalent in distribution as well. Many CPG companies still service their distribution lanes only once or twice a week with large trucks. This has pretty adverse implications on their ability to respond to sudden demand changes, taking their operations further away from being agile, responsive and flexible. The reason cited often is cost saving.

That brings us to the question - why do companies operate like this? If you look deeper, it’s actually a function of how their employees are measured. Managers leading these functions are looking to maximise their own internal measures by overlooking what the consumers want. It’s a no brainer that large batches compromise on product freshness and product availability, besides pushing the need for higher working capital. Is such an organization really responsive and agile?

The principle of small batches and regular flow removes most of this malaise at no extra cost, if done the right way. Flexibility doesn’t mean extra cost. It can actually lead to cost savings if done effectively. The concept of Single Minute Exchange of Dies (SMED) has been around for many decades, it just needs to be applied to all the relevant processes in the supply chain.

It’s a good idea to check whether your organisation is taking conscious steps to improve its flexibility. If not, then it runs the danger of being left behind in its agility journey.

Large batches are one of the main causes of supply chain inefficiency. I strongly recommend batch size reduction as an important lever to achieve more agility, happier customers and higher profits.