What Is Do It Right The First Time (DRIFT)?
Do It Right The First Time (DRIFT) is a managerial accounting technique or practice that centers around decreasing waste and increasing efficiency in the production process. Do It Right The First Time is part of inventory management, whereby only the inventory materials that are needed are ordered to reduce inventory costs. Do It Right The First Time can help businesses reduce production delays and boost efficiency. However, DRIFT has its drawbacks, including it may prevent a company from capitalizing on a surge in demand for the company's products.
- Do It Right The First Time (DRIFT) is used in managerial accounting, designed to decrease waste and increase efficiency in production.
- Do It Right The First Time is part of inventory management, whereby only needed inventory materials are ordered to reduce inventory costs.
- Although DRIFT can reduce costs and improve profit margins, companies can miss out on a surge in demand for their goods.
Understanding Do It Right The First Time (DRIFT)
The importance of Do It Right The First Time (DRIFT) arises from the goal of decreasing the costs of idle inventory or raw materials. DRIFT relates to just-in-time (JIT) inventory, which is a process of receiving only the materials that are needed, which is designed to lower inventory costs and improve production management. In other words, under JIT, companies don't begin production until sales are recorded, allowing inventory levels to remain low. The idea behind DRIFT is that management wants all of the processes that make up the JIT philosophy to be done correctly and efficiently, so there are no delays in the production process.
DRIFT attempts to address the limitations and potential pitfalls of the JIT inventory system. For example, if there's the slightest error at one of the stages of production, the whole production process can be affected. By "doing it right the first time" a company is able to run a smooth production process without the need to carry excessive inventory, which will help diminish the costs of production. As a result, DRIFT requires companies to have an effective communication system in place to record sales, make the resulting inventory purchases, and adjust production schedules as needed.
Criticisms of DRIFT
Companies that utilize DRIFT can experience lower costs and improved profit margins. Profit margin is the amount of profit generated for each dollar of revenue. Profit margin is an important metric because it accounts for expense controls as well as revenue growth. Profit or net income can increase with higher revenues, but if expenses rise at a faster rate, profit is eroded, leading to a lower profit margin. In the manufacturing process, DRIFT helps to address expense management and boost margins. However, there are some potential drawbacks to the DRIFT and JIT production strategy that can lead to lower margins.
Prevents Economies of Scale
Companies that use the DRIFT and JIT system lose the opportunity to achieve economies of scale. Economies of scale occurs when production increases but the average input costs go down. The reduced costs that result from output increases are due to the fixed costs, such as equipment, remaining the same or mostly unchanged.
Companies that use DRIFT and JIT also forgo quantity-based discounts when buying supplies. As a result, the company may pay more per item because it makes smaller, more frequent supply orders that don't qualify for price breaks from suppliers. The lack of discounts can lead to higher per unit supply costs and erode profit margins.
No Back Stock
With no back stock of inventory or materials, any supply chain issue or an unexpected surge in demand for the finished product can lead to delivery delays to end customers. The extended delays could lead to dissatisfied customers and the loss of orders.
On-demand production using JIT and DRIFT also means companies must find suppliers that are willing to ship frequent, small orders. If any disruption occurs, such as a natural disaster, the company could experience production delays if the supplier couldn't deliver the materials. Buying in bulk, although more costly than on-demand, allows companies to have ample amounts of stock to make it through supply chain disruptions.
Increased Shipping Costs
Frequent orders to suppliers also lead to additional shipping and handling charges. The result can increase the per-unit cost of a good and ultimately decrease the company's profit margin. In other words, the additional shipping costs could have the effect of wiping out the profit margin increases that the DRIFT production method was designed to create.