Inventory: Boat Anchor or Life Preserver?
Topic: It's easy just to say that inventory (raw, work-in-process, finshed goods) is a waste. However, it's much harder to reduce it without risking business performance and customer satisfaction. What is a low risk way to begin making progress?
Insight: By now most business people know the Lean argument against inventory - specifically, since it represents materials and resources that are not immediately needed by a customer, it is a form of waste. Theoretically, in a perfect Lean business output exactly meets customer demand and the only inventory required is the small amount actively being processed. Anything more is analogous to an anchor that slows response to changing demand and market conditions.
However, back here on planet Earth, "stuff happens". Suppliers have shortages, machines break, key employees get sick and those darn customers never seem to buy what they are supposed to. All these reasons and more lead to inventory being the equivalent of a life preserver that keeps the organization afloat.
For many organizations the challenge becomes finding a low-risk approach that generates inventory savings while not yet giving up the life preserver.
From our experience there are two positive steps that can be taken in parallel. First, we often drive immediate improvement by using diagostic software to indentify inventory imbalances. (Yes, we understand that ERP/MRP is supposed to do this but please refer to the earlier section about being on planet Earth.) You can find more information about inventory improvement using diagnostic software on our website.
The second step is to validate production lead times. You'll notice we used the word validate (not improve) at this time. Eventually, we will invest quite a bit of effort in reducing production lead times. However, for quick improvement we often find that stated production lead times are padded with overlapping safety and "what if" factors. By involving all the responsible areas and applying conservative but realistic time estimates we often find that it is possible to replenish inventory faster than current planning assumptions. This, in turn, allows the diagnostic software to make even better decisions.
Obviously, these two actions barely scratch the surface of possible Lean improvements. But experience shows they are logical places to start and often generate the initial savings that can kickstart a comprehensive Lean effort.
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