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IndustrialManufacturing Process Improvement: Eliminating waste in inventory
While many people traditionally count inventory as an asset, Lean manufacturing considers it more of a liability. Inventory in any form represents money you’ve spent for raw materials, parts, and labor, but you haven’t converted it to real income yet.
The more inventory you have, the more “waste” you probably have. Why do Lean principles say inventory is a waste? From a business point of view, cash is one of the most important resources you can have. With cash, you always have a wide variety of options open to you. You can hire more people, buy new equipment, and purchase more parts or raw materials. However, once you convert cash to anything, like raw materials, you’ve limited your options. Every dollar you have in raw materials is a dollar you can’t use to meet payroll or other expenses. At a certain point, you may need to start borrowing money to meet your ongoing expenses. That creates the additional burden of interest payments, which cut into your profits. Following the Lean principles, you only want to have enough inventory on hand to do work until your next shipment of raw materials arrives, along with a slight buffer to handle potential problems. What you don’t want to do is build up warehouses full of parts or finished goods, just because you have an idle machine and you want it to look busy. Inventory waste can also be present in your finished goods. If you ship 100 items a week, you probably don’t need to have a warehouse holding 10,000 of them. This would represent waste of the amount of money you’ve spent on the parts to build them, the cost of the warehouse for storing them, and the risk of them becoming obsolete and lose their value. How can you reduce the amount of inventory you hold? There are three things you need to know to reduce the amount of inventory waste you have. First, you need to know what the demands are for your current orders. Once you know your production requirements, based on their use per day (or whatever time period you decide on), you’ll be able to judge your demand. Second, you need to know how long it will take you to receive more raw materials or parts needed for your current orders. Once you know the amount your suppliers can deliver, and the frequency they can deliver them, you can determine the minimum you need to meet your demand. Third, you need to decide on the amount of excess inventory to hold as a buffer. You obviously need to have some inventory on hand to handle emergencies, or spikes in sales. If you’re concerned about a late supplier causing you problems with your production, you need to determine how likely it is they’d be late, how long they’d be late, and how long it would take you to find another supplier. Use that information to determine how much excess inventory of parts you should hold. Once you have this information, you’ll know the amount of inventory you need to keep on hand. If it’s significantly lower than you’re used to, and you’re worried it won’t be enough, you can gradually decrease it while checking to see if it hurts your ability to deliver your finished products. You can talk about... Manufacturing Process Improvement: Eliminating waste in inventory Tags: • production requirements • finished goods • idle machine • expenses • payroll • lean principles • liability • inventory • waste • manufacturing • excess inventory • how long • lean manufacturing • raw materials • process improvement • manufacturing process • inventory waste • Related articles:
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