In a recent discussion on setting up a new line, a question came up: Should we make a single line (or generally a production system), or should we establish two (or even more) separate independent production lines? There are usually a handful of arguments for either side, and cost is only one of them. Sometimes the issue is clear, but sometimes you have to judge the different factors to decide. This post will give you an overview of the different factors that are relevant. Let’s dig a little bit deeper on how to approach this issue.
The Initial Situation
Assume you have to make more of a product or a product type. This could be a completely new type of products (i.e., a new production system), or a larger production volume for an existing type of products (i.e., you are producing them already). In any case, you need more capacity. If you already have a line, maybe you could expand the existing line or build another line. If it is a completely new product, you could establish one or two lines (or even more).
This is influenced if you make multiple (similar) products: Do you make one large line that can produce all, or do you make dedicated lines that can produce only one product (or a subset of your product group), with multiple lines dedicated to different product subgroups?
Cost of a Second System
Probably one key factor is cost. But this is a multi-faceted aspect. If you have two lines, you need twice the equipment, twice the tools, and twice the floor space. However, depending on the situation, this is probably not double the price tag, as the different machines could be smaller and may not be as expensive. For example, if you need an oven, two smaller ovens are not twice as expensive as one big oven. At the minimum, you could get a discount from the tool maker for buying two ore more of the same tools. Overall, a single larger system can usually produce items cheaper than two smaller systems.
Fluctuations
One big advantage of one larger system is the economy of scale, especially reduced fluctuations. While the absolute fluctuations of a larger system will be bigger than that of a single system, the relative fluctuations are reduced. Let’s take, for example, an inventory that is managed using a reorder point method. The image below on the left shows a single large system, where the inventory fluctuates between the reorder point (the safety buffer) and the inventory limit. Using the same material at different locations makes the absolute fluctuations at each location smaller, but the combined fluctuations at both locations are larger. You need, in total, more safety buffer, and more inventory between the reorder point and the inventory limit. Altogether the combined average inventory of two separate systems will be more than the average inventory of a single system with twice the production volume.
This applies to many different fluctuations related to your production system. You need to establish two logistic chains. If it is in the same plant, the logistics only differ inside of the plant. If it is in different locations or on different continents, you need to create two separate logistic systems. This will increase your overall work in progress, as you now have material fluctuations on two (or more) different locations. This may not be twice the inventory, but providing material at two locations needs more material than providing at one location. Similarly, you may need slightly more workers to cover the fluctuations of absences. You may also need slightly more maintenance personnel. Overall, the management of fluctuations is usually a big reason for having one system instead of two systems.
This is also the primary reason that Toyota pushes for flexible assembly lines that can produce multiple models, as this allows them to merge multiple products in one line and reduce fluctuations proportionally. If product A is popular and B not so much, then the line can handle it. If a little bit later B is now popular and A not, then the line adjusts and can also handle this. Usually a larger system provides more flexibility, but please note that there are exceptions for batch processes. A larger oven (or similar batch process) can process more products, but this may require larger lot sizes. And lean manufacturing does not like larger lot sizes. It may be better to install two (or more) smaller ovens that allow you to process in smaller batches and hence smaller lot sizes. This reduces your inventory and has many benefits that are hard to measure but are still substantial.
Management Effort
You definitely need more management effort and attention, as someone now needs to manage and maintain two production systems. Please do not underestimate this, both for the initial set up (e.g., calculating the number of kanban) and the effort in running the line. If the lines are in different locations, two managers/supervisors need to learn how to manage the line. If they are in the same plant, the same manager can handle both lines, which eases the learning curve, even though it is still more effort than a single larger line.
Benefit of Different Locations
One factor is the location. Do you have one production system in one plant, or do you have production systems in different locations? A common reason for having a second production system elsewhere is to be closer to the customer. This reduces delivery time and delivery cost. It may also make your production system more robust against human and natural disruptions. Having a second independent location elsewhere may make your production more resilient against natural disasters (earthquake, tsunami, …), plant disruptions (fire, strike, …) political upheaval (war, closure of borders, …). It may also give you brownie points with the political caste for producing “made in [a country],”, both internationally but sometimes also within the same country (Made in Alabama?).
Capacity
Another major constraint is capacity. Can you fit all your products through a single production system? Or does the capacity of a single line no longer suffice to satisfy the customer demand? Often there are some workarounds like a capacity improvement, bottleneck detection, or simply additional shifts. But night shifts are more expensive, and it may be not economically sensible to improve capacity.
Summary
Usually, I try to go for larger systems to benefit from the economies of scale, unless there are reasons not to. Reasons for making separate production systems are if it is important to be close to the customer, or if the (reasonable) capacity is maxed out, or for political reasons, or a demand on robustness requires additional locations. I may also choose multiple smaller systems for batch processes if it allows me to process smaller batches and hence reduce the lot size. Now go out, build one (or two?) production systems, and organize your industry!
PS: Phil Ledbetter on LinkedIn added that different quality levels (e.g. Lexus vs. Toyota) may benefit from different lines, since the attitude towards the product needs to be different. Thanks, Phil!
PS2: Marco Dannerhill on Linkedin also added the very valid point of robustness. if one line breaks down, it is easier if you have a second one.
Great post!
These are all factors that would either add or subtract value from your supply chain, depending on the circumstance. I liked how in the initial situation section, it was mentioned how your product variation plays a major role in this decision. If you are a company with a large set of offerings, it may be in your best interest to have a multi-production system in order to cut lead times and save overall costs.
Thanks for this interesting article.
I think that 2 sites of production or 2 lines in same facility are 2 different topics as advantages and disadvantages are different (i.e. customer intimacy, customer delivery).
However, there is a common aspect. Indeed, Capex intensive equipment or scarce skills would benefit from mutualization in both cases. Consequently, there is a cost and performance benefit to isolate these critical activities from the lines to avoid duplication. Moreover, a reduced variability would generate better usage of the scarce ressources. On the other hand, positive impact on inventory could be offset by synchronization issues as operation will usually address it with safety stock.
Regarding noncritical activities, investment on 2 lines at different period give opportunity to adjust capacity ramp up to sales growth and eventually to phasing out. Replacement or upgrading cost would also be distributer on longer period.
Good point, Patrick. Two different locations (countries, continents) make production more robust against outside disruption like diaster, war, or politics.
Good article! Thanks for sharing.
There are more considerations to the typical challenge of “we need to make more widgets!”. I would like to start with the constraint(s). Using, for example, an operator/machine balance chart or Yamazumi and determine how those constraints are removed. In my experience, many capacity gains are achieved with only a few changes in the line and not necessarily an entirely new line. Also, as commented earlier, the type of products may dictate the actions. For example, using the ABC approach, you may be able to move some of the slower movers (BorC) to a different smaller cell, therefore, increasing the output of the A products or, if there is a commonality in the sub-assemblies, perhaps a kanban system will allow you to increase your final production output by maintaining smaller cells running all the subassemblies to meet the kanban quantities. But then, if the additional production line investment is inevitable, the financial and risk aspects come into play. Many companies want to minimize the risk of supply disruption until they see the price tag of duplication of production lines or facilities. Of course, this cost is far less than losing revenue due to, for example, a natural disaster or the next pandemic.
This article helped me understand the pros and cons of a single line vs. two or more separate independent production lines. I think an advantage of two lines is that it increases a factory’s value added space. If a company has non-value added space, they should try to add value there. For example, a factory can create more value by decreasing the warehouse space and creating more production lines, this would increase value added space. It was also interesting to read about the difference in fluctuations between a single line vs. two separate and how two will have twice the production volume. In my opinion, the key advantage of a single line is the benefits from the economies of scale. It is hard to decide what method is best, but it is important to consider all factors listed in this article.
Hi Patrick, I really enjoyed your post about the pros and cons of splitting up your production system into 2. Personally, I think the idea of splitting production this way can be better in a variety of situations. Smaller batches and more lean processes can help companies create more efficient manufacturing processes. I also liked how you brought up that splitting the production systems, and them closer to the customer who will receive the product can help reduce delivery expenses if done correctly. In your experience, have you seen any specific instances where splitting the production line would be beneficial? Also, on the other hand, have you seen any that would not benefit from this?