Six Ways to Handle Small Orders in Manufacturing
Small orders can be surprisingly expensive to manufacture.
A customer orders a small quantity of a product. In a make-to-order environment, manufacturing schedules a run, changes over the equipment, produces the order, and changes over again.
The equipment may be capable of producing thousands of units per hour, but the customer only needs a few hundred.
The changeover can take longer than the production run.
Sometimes that's simply the cost of serving the customer. But when small orders become a regular part of the business, it's worth asking whether manufacturing each order individually is the best way to fulfill that demand.
There are several ways to approach the problem. None is universally right, and a company may combine them into a custom solution.
1. Fulfill small orders from inventory
One way to separate customer order quantity from manufacturing run quantity is to fulfill individual orders from inventory.
For products sold in small quantities or custom pack sizes, a pick-and-pack operation may allow the company to serve customers without repeatedly interrupting manufacturing.
Advantages: Faster order fulfillment, fewer manufacturing changeovers, and greater flexibility in customer order quantities.
Tradeoffs: More inventory, storage space, handling labor, packaging costs, and possible obsolescence. The economics also depend on how easily the product can be stored, divided, and repackaged.
2. Assemble to Order — Stock Components, Not Finished Products
Another approach is to keep common components in inventory and assemble the finished product when the customer places an order.
Think about Subway.
Subway doesn't need to keep an inventory of every possible sandwich combination. It stocks bread, meats, cheeses, vegetables, and other ingredients. The customer chooses a combination, and the sandwich is assembled to order.
Manufacturers can use the same principle.
Instead of stocking dozens of finished-product configurations, a company might stock common components and perform final assembly, configuration, or packaging after receiving the order.
This can be especially useful when customers order small quantities of many different product variations.
Advantages: Reduces finished-goods inventory, allows customization, pools demand for common components, and can provide relatively short customer lead times.
Tradeoffs: Requires overlapping product designs, sufficient component availability, assembly capacity, and a reliable way to translate customer orders into component requirements. Final assembly also adds work after the order arrives, so the customer promise must allow enough time to complete it.
The approach works best when products share many components and final assembly can be completed economically within the promised lead time.
3. Manufacture less frequently
If demand for a product is relatively low, the company may be better off manufacturing it less frequently in larger batches.
Instead of producing a small quantity every week, perhaps it makes sense to produce enough for several weeks of demand.
That can reduce changeovers and allow manufacturing to operate more efficiently.
Advantages: Fewer setups, longer runs, and a more predictable production schedule.
Tradeoffs: More inventory between runs or longer customer lead times, depending on how orders are fulfilled. There is also the risk of producing more than customers ultimately need.
Shelf life and product quality can make this option impractical. Some products simply cannot sit in inventory for very long.
4. Use a dedicated small-run line
Another possibility is to separate small runs from high-volume production.
A smaller or more flexible line may be better suited to short runs, frequent changeovers, or unusual products.
The objective isn't necessarily to manufacture small orders at the lowest possible unit cost. It may be to protect the capacity and efficiency of the larger, faster lines.
Advantages: Fewer interruptions on high-speed equipment, more flexibility for smaller quantities, and equipment better matched to the work.
Tradeoffs: Additional equipment, labor, maintenance, and floor space. The company also needs enough small-run demand to justify the arrangement.
A dedicated line may be a good solution even if its unit manufacturing cost is higher, provided the overall business benefits justify it.
5. Produce for current orders and the next replenishment cycle
Sometimes the best answer is to manufacture enough to fulfill current orders and replenish inventory for the small orders expected before the next production run.
For example, a liquid-products manufacturer might produce enough totes to fulfill current customer orders plus a few additional totes for anticipated demand.
The company can then fulfill subsequent small orders from inventory rather than scheduling another short run.
Advantages: Current customer orders trigger production, while the additional quantity replenishes inventory for anticipated small orders. This combines make-to-order responsiveness with some of the efficiency of make-to-stock production.
Tradeoffs: Requires reasonable estimates of demand, sufficient storage, and attention to shelf life and product quality.
This approach is closely related to manufacturing less frequently, but it explicitly considers the quantity needed to cover demand until the next planned run.
6. Build inventory of fast-moving products to create room for small runs
This is one of the more interesting alternatives because it doesn't necessarily change how the small orders are manufactured.
Instead, the company changes how it manufactures other products.
Suppose a production line makes several fast-moving products along with a collection of low-volume products.
The fast-moving products have predictable demand and can be stored without significant quality concerns. Some of the low-volume products have limited shelf lives and need to be manufactured closer to the time they're ordered.
The company might produce larger batches of the fast-moving products and carry additional inventory of them, knowing it will turn over relatively quickly.
That reduces how frequently those products need to be scheduled, creating room for smaller runs.
Advantages: Creates scheduling flexibility, may reduce total changeovers, and allows short-shelf-life products to be manufactured closer to demand.
Tradeoffs: Higher inventory investment, additional storage, and the need to manage replenishment carefully. The company must also have enough available capacity to build and maintain the additional inventory.
In this case, the company deliberately increases inventory in one part of the product portfolio to make manufacturing another part easier.
The important distinction
None of these approaches is inherently better than the others. Each represents a different set of decisions about how the business will operate.
Some require investments or changes to equipment and processes. Others may only require changing production frequencies, run quantities, inventory policies, or scheduling practices.
The objective isn't necessarily to eliminate inventory, minimize changeovers, or maximize equipment utilization. It's to choose the combination that best serves the company’s business objectives and customer promises.
A small customer order does not necessarily require a small manufacturing run.
Customer order quantity & frequency and manufacturing run quantity & frequency should be considered independently.
Inventory can bridge the difference. Production frequency can change. Equipment can be configured differently. The company can even change how it manufactures high-volume products to create room for low-volume ones.
The appropriate choice depends on the customer promise, available capacity, operating system, inventory economics, and product characteristics.
Sometimes manufacturing small orders individually is exactly the right decision.
It should be a decision, not simply what happens because the customer ordered a small quantity.
Before trying to make small runs more efficient, it may be worth asking whether the company needs to manufacture every small order as a separate run in the first place.