Traditional methods of product production planning, control and costing have been largely discredited.
This is because these methods place emphasis on reducing unit costs and increasing efficiency variances, which can result in increased stocks of work-in-progress, unsold finished goods and a reduced cash flow.
Producing to order, with suppliers geared up to deliver 'just in time' reduces stocks and improves cash flow. However, this approach needs to be carefully implemented to ensure the 'just in time' philosophy does not become 'just too late'!
A New Approach - The Implications
Producing to order for many organisations requires a new approach to thinking about roles and relationships with suppliers. Changes of this type will involve business cultural issues and new software systems are likely to be needed.
These new software systems will cover areas such as the initial procurement process right up to the automatic importing, approval and payment of invoices. In addition to new software your warehousing and distribution needs may be managed more effectively by subcontracting these out to specialist firms.