On the first day of the Baseball Trade Show I was approached by a manufacturer/distributor of licensed merchandise for Major League Baseball about some issues he expects to encounter.
His current business model includes manufacturing merchandise in China and shipping it to a warehouse/distribution center in New York City where the orders are processed. His business is growing, and he expects to bring more leagues in as customers very soon.
His problems are demand planning, long lead times, and inventory levels. This past season the Pittsburgh Pirates, normally a bottom-dwelling team in the National League’s Central Division, started the season well and an abnormally-large rush for Pirates merchandise hit. He couldn’t keep up with the demand because of products made overseas and he could only quote lead times of eight weeks. In this day and age of immediate turnaround times and quick shipments, that’s completely unacceptable. In order to prevent stockouts he has to have a large warehouse of every item he sells, but that still doesn’t wholly prevent demand spikes like the Pirates’ success presented. And now he is adding leagues to his list of customers – this means his warehouse would have to be even bigger!
Sure, making products in China with the inexpensive labor sounds worthwhile, but what about the waiting for products to arrive? What about the large order quantities necessary to make shipment by boat worthwhile? That doesn’t even account for lost sales due to customers looking elsewhere because they want the products immediately, not 6-8 weeks from now.
I introduced the idea of just-in-time (JIT) manufacturing to him. This idea implies producing merchandise right when it is needed instead of weeks in advance. The benefits of JIT include lower inventory levels and ability to adjust to actual demand and lessened reliance on demand forecasting. For JIT to apply to his business, he would have to look at bringing his overseas production back stateside, stock standard materials and substrates (i.e. standard blank t-shirt colors) that can be used for multiple products, and manufacture products with team customization as orders came in.
In this scenario, perhaps lead times are cut by 4-6 weeks and perhaps inventory levels and warehouse space needed is cut by 80-90 percent. Without knowing all the ins-and-outs of his business model, would the waste reduction result in cost savings that make the manufacturing price points better with domestic production rather than foreign dependence? It’s entirely possible. This doesn’t take into account the sales he had previously lost due to long lead times.
This gentleman has a pretty solid opportunity to make a difference with his company by using lean. I certainly hope to work with him, if nothing else but to have a discussion about how he can do it better.