The Benefits of Production Stabilization and the Sorcery of the Product Wheel
Volatile demand is everywhere, and companies facing it typically choose between two options: One, attempt to meet demand as it arises (chasing the volatility). Two, maintain a certain inventory level as a buffer from volatility. Of course, there are situations where option one is viable, but option two is the one that most companies take. Still, pursuing the benefits of production stabilization, even in this environment, is worth the effort.
The product wheel is a framework for consuming capacity by making specific products – on a particular asset, in fixed quantities – over a defined time horizon. Therefore, the ability to populate the wheels with products that can conform to smooth production is essential. Determining which products work with this strategy and which don’t is an analytical effort requiring product segmentation, statistical forecasting, replenishment policy selection, and inventory parameter development.