The stack of inventory, that resides in processes between Raw Materials and Finished Goods, is a major part of hidden waste in a factory. It is often seen as a “root of evil” in the world of lean manufacturing and hinders the effectiveness of continuous improvement if it is not addressed.
Much emphasis has been placed on reducing inventory levels with systems such as Just-In-Time (JIT) and Economic-Order-Quantities (EOQ), where the primary focus is on cost-reduction. Lean Manufacturing, however, adopts a different approach to inventory reduction. In lean organizations, the primary purpose of inventory reduction is problem identification.
Holding excessive inventory often hides problems because it provides large buffers that exist to cater for inefficiencies. Reducing the inventories exposes these inefficiencies and focuses attention on the root causes.
Inventory is identified as one of the 8 Wastes in Lean Manufacturing – where inventory represents excess products and material which is not being processed.
Businesses can directly affect cash-flow by adopting a lean manufacturing strategy and focusing on reducing inventories. Apart from the actual cost of inventories themselves, there are other associated costs, such as warehousing and holding costs. However, a drawback of this strategy does exist: Reduced inventories will limit the organizations ability to react to fluctuations in customer demand. This means it is critical to plan correctly in order to align elements of these risks.
Seasonal products often require larger inventories in order to absorb radical fluctuations in demand. Manufacturers who export low cost products in high volumes are compelled to use sea freight for export transportation, due to high costs of airfreight. Companies are then forced to hold inventory to meet shipping schedules, due to the relatively infrequent visits by ships, as well as customer and supplier lead times.
Inventory management is a systematic approach to obtaining, storing, and profiting from non-capital assets. The right stock, at the right levels, in the right place, at the right time, and at the right cost. Haldan Consulting offers a range of solutions and services which are purpose-built to effectively align your stock management with best practices, based on reliable information.
