The term order interaction point refers to the location in the fulfillment process where a specific item becomes attached to a specific customer. The order interaction point is, in effect, the crossroads of supply and demand. It is the intersection of the sales and the fulfillment processes.
The term order interaction point is seldom used in practice, but the effect of it on an operation is significant.
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The precise location of the order interaction point depends on the characteristics of the product, the degree of customization, the lead time of the order, the capacity of production, the cost of inventory, and a host of other factors.
In a make-to-stock company, the order is attached to the item as it is pulled off a warehouse shelf and ‘picked’. In a make-to-order company, this occurs somewhere further upstream in the production process.
The order interaction point might be at the end of the assembly line when options and accessories are added. Parts might be held after fabrication to wait until an order arrives to designate the color that they should be painted. When there is a substantial cost, if the product is particularly large, or if it has significant customization, the production team may not even pull raw materials until they have an order in hand.
The benefit of early interaction is that there is little risk that something will be produced without demand. The downside is that it must go through the entire production process, adding to the customer perception of lead time. There is also less capacity flexibility if a flood of orders all arrives at the same time. It is hard to do level-loading without having some unattached work-in-process.
Late interaction points mean shorter perceived lead times, but there is also a higher chance that the right product will not be available. Similarly, there is also an increased chance that there will be a surplus of the wrong model.
Benefits of Lean on Order Interaction Point
For stock items, or those with low customization, a company selects the order interaction point according to how they want to manage risk and inventory. Lean companies have a big advantage in this situation. The short lead times that come from well-designed production processes allow for companies to keep very little finished goods inventory, even for standard items.
When there is a high degree of customization, Lean has an even bigger advantage. Both Lean and batch manufacturers cannot build before they have an order. The smaller the lot size, the lower the number of orders that have to be collected to start production. This means shorter lead time and less inventory spread throughout the value stream.
Order Interaction Point Strategy
Create a process where products are flexibile for as long as possible, and then make it fast to complete the rest of the build. This allows good control of inventory, while still retaining flexibility for the customer to get exactly what they want and the speed to deliver quickly.
Product configuration strategies also help delay the order interaction point. The fewer base configurations you have, the more you can use heijunka to flatten out the peaks and valleys in your production areas. In many cases, there is a Pareto effect to the way customers order. The majority of your customers likely order only a handful of configurations, even though there might be countless possible mixes. Most customers might not even notice the reduction in the number of choices. The benefit to them in terms of shorter lead times generally outweighs the cost to the few who cannot get the precise configuration they want.