Overproduction occurs when you produce merchandise before the need arises or produce them in a quantity larger than necessary. It is one of the worst mistakes that you can make as it obscures other problems in your supply and creates stock excess.
Overproduction causes you to lock-up your money in work in progress, raw materials and finished goods. It eats into your working capital and causes misappropriations in capital allocation. If your operating capital is locked up on something like excess inventory, you cannot use it to produce items that are in demand and inevitably your business fails. Overproduction or stock excess also causes money to be lost in storage and movement of the inventory. You hire people to move the excess inventory for which they require machines and containers and storage spaces. All this comes from your pocket which, of course, is bad for the business.
Companies often produce inventory in huge batches creating huge amounts of excess inventory when they could just as well reduce the batch sizes and improve upon their overall workflow. This occurs mostly because most equipment have a long setup time. Therefore, to maximize output the batches are made bigger. This causes accrual of inventory before demand or the excess production of inventory that is expected to be in demand. Miscommunication of forecasts and changes in demand can also lead to overproduction.
The first thing you need to do to reduce overproduction is accepting you are overproducing and take action towards reducing stock excess. One way of reducing overproduction is by implementing JIT- Just In Time Manufacturing. It identifies stages where resources are wasted and eliminates those clogs in the process continuously to better the working cycle. This also include reducing waste from overproduction. Controlling scheduling and forecasting can help reduce overproduction. Providing incentives to the employees to prevent overproduction can help. As long as they see overproduction as a good thing they will continue overproducing it, therefore identification and acceptance are important. A shift from make-to-stock ideology to make-to-demand ideology can tremendously help reduce overproduction.
