Monday, April 16, 2012

A classic oil and gas story of over production

I was given this extreme example of over production this week by a snior staff member with over 30 years experience in manufacturing and field service.  It went along the lines of:
"When I joined the company 30 years ago one of the first jobs I was give to do was make ten 3" valve plates.  We sold the last one 6 years ago, it was rusted to rot.  Actually I think it took us about 4 years to sell the first one."
Not all examples are as extreme as that.  But the incidental costs here to the company over the 30 years must have added up.  Most companies don't have parts that sit on the shelve for 30 years.  Instead they have 30 parts that sit on a shelf for one year and cost the company even more.
Over production is called the worst of the 7 wastes because it in itself will cause all 6 other wastes.  For many Alberta companies the cause of over production is the unreliability and lack of co-operation within their supply chain. Parts and material are frequently not delivered on time.  From my experience the oil and gas industry has some of the worst supply chain practices I have come across.   So to cover these problems more stock has to be kept in stock.  Which adds to prices and also adds to more batch ordering which itself can contribute further to supply chain issues.
How to escape is another question.  There are two things companies can do.  The first is be open and honest with their customers, at least then their customers can make a good decision.  The second is be reliable themselves.  The more reliable in delivery a company can be then the more confidence the customer can have.  Two small steps that together can make a big difference.

1 comment:

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