This Week’s Topic:
Break The “Inventory = Service” Paradigm
Question: Our company seems to go through the same cycle over and over again. First, we hear that inventories are out of control and there is a crash program to reduce them. Very soon customer service levels fall due to material shortages in manufacturing and finished goods stock-outs. How do other companies break this cycle?
Insight: We have real empathy for the people in the materials organization at most companies because they walk a very fine line. On one hand, if inventories grow they get a monthly slap on the wrist. However, if a material shortage ever leads to lost sales it can be a CLM (Career Limiting Move). No wonder that most material professionals are biased to maintain a little excess inventory.
The companies we know of with truly world class inventory management share two characteristics. First, they use their Lean and Six Sigma capabilities to drive down replenishment times at all levels (Raw, WIP and FG). Second, they don’t depend solely on MRP systems for inventory management. While these systems have an essential role, they are notorious for overloading the organization with more action items than can be effectively managed.
Several very effective systems are available to interface with MRP and provide diagnostic capabilities to make sure the organization is working on the biggest opportunities. The reduced shortages, significant cash flow and better balanced inventory often pays for the investment in weeks or months.
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