Overproduction, the scourge that threatens your production line

Several situations can lead your company to make or store more products than you can sell on the market:

• The poorly controlled modernisation of your supply chain
• The mismatch between supply and demand
• Difficulties in following your production process

Understand the causes of overproduction in these three scenarios, and anticipate the impact on your production chain.

Do you know how to diagnose a situation of overproduction or excess storage?

Scenario 1: You are having problems identifying the levers for modernising your production chain

The arrival of Industry 4.0 raises new challenges for industrial companies. But although you may be sure that you need to adapt your business to be able to produce better, you may not have identified the levers of modernisation yet.

Your production needs to be modernised if these situations are familiar to you:

•  The site's production techniques and/or organisation are obsolete
• Employees are reluctant to change their work habits on the production line / supply chain
• The machines are almost always on because turning them off and on again takes too much time
• The maximum capacities of each position are badly planned, which leads to congestion in the supply chain
•  Production errors paralyse your production activity and/or render unusable all or part of your stock

The failure to modernise your manufacturing site often leads to excess production, as it is not very flexible.

Scenario 2: You are worried about not having enough finished products to meet demand

Your business is going well. So well that sometimes you have trouble meeting demand. So you increase your rate to reach more customers, and you even start to produce before the demand actually exists.

As a precaution, you decide to put a little more pressure on your suppliers. Better to schedule too much than not enough. You have already had cases where you did not received enough components in time to finalise an order. Therefore, you anticipate this problem again, and decide to order sooner and in larger quantities.

Result: raw materials, components and packaging clog up your storage area, and you do not know where to keep the work in progress and the finished products.

For sectors where products have a limited shelf life, or if sales are highly dependent on consumer tastes, such as in the textile industry, companies may have to dispose of or destroy products. 30% of the brands [garments] produced end up in the waste bin according to the artistic director of the "Vetements" collective.

Some questions to ask yourself to determine the state of your stocks:

• Do you know the actual demand for your product?
• Do you buy your components and raw materials very early on in the production process?
•  Do you still produce the same amount of products, even in the event of declining demand or increasing competition?
• Is your stock turnover low, or is it tending to decrease?

Scenario 3: You have trouble keeping up with your production process

Sometimes it's hard to follow what's happening from one end to the other of your production line. The poor flow of information causes delays and management problems:

•  Your teams have trouble tracing quantities of components, work in progress, and finished products
•  Your teams have trouble working out how much to produce to meet demand
•  Your flow management is hampered by merchandise returns

This may mean that you are trying to maintain a higher rate than your various workstations can deliver on, which causes bottlenecks in your production chain. The Hungarian glass processor OROShazaGLAS needed to open a new lamination line: the old one was too small, four teams had to work shifts to produce all the orders, and delivery times were difficult to meet.

Production monitoring can be facilitated by installing software solutions. These solutions streamline monitoring and exchanges between the various parties involved - suppliers, service providers, and customers - and improve the management of the risks of overproduction and excessive storage.

Four consequences of overproduction in your company

If you identify the problem in time, you can absorb the excess production. Otherwise, the consequences that follow can affect your staff, your products and, as a result, your profitability.

1 - Staff and equipment are tied up unnecessarily

Surplus products must be stored before they can finally be sold. Consequently, you must assign employees and machines to take components, work in progress, and finished products to your storage area.

This is all the more true in the event of successive upgrades of your production line that are carried out without rethinking the overall coherence with your supply chain and your industrial buildings.

2 –  Product defects are hidden until the products leave storage

When production is excessive, stocks are also overloaded. Even if your checks are carried out at different stages of production, there are simply too many products and work in progress in circulation. Identifying all the defective batches, as well as the dysfunctional processes, can cause productivity losses:

• The analysis of production steps takes up the time of your quality control department
• The identification and the destocking of non-compliant products requires additional staff
•  Product destruction or recycling lowers profitability

3 - Profitability decreases due to poor inventory management

Overproduction slows the turnaround time of your stocks. The space you use is larger than what you really need. Failure to optimise the space, or of certain stages of your production, has repercussions on your profitability.

In fact, storage includes many costs (handling personnel, maintenance, insurance, premises, etc.). The more you clutter up your inventory with old items, the less flexible you have to store new products.

4 – The legal risks of selling at a loss

In case of overproduction, the only way to sell your goods is to reduce the price. But this is not a lever to use in the long run. In France, it is forbidden to charge prices lower than your production costs if it is undertaken to eliminate a competitor or its product from a market, or to eliminate access to the same (Article L420-5 of the Commercial Code). A sale at a loss exposes you to fines of €375,000 for your company, and €75,000 for yourself[1].

Overproduction or over-storage represents only a part of the waste that can affect the performance of industrial enterprises. There are other levers you can take action on to improve the performance of your business. Through this ebook, decipher the other causes of industrial waste, and take stock of the situation for your company.

[1] Sale at a loss: in which cases is it possible? L'Express