Ten years ago, I worked with a manufacturing department that was beginning their Lean Journey and it was standard practice for them to produce 10% over the customer order quantity in case there were problems in the downstream operations. In many cases, this extra 10% was still not enough to cover the order after defective product was removed from the lot. Another production run then had to be started to fulfill the customer order quantity. These additional runs not only caused delays to the shipment, but it ultimately increased the cost to the customer: There were additional equipment setups, lot-release inspections, scrap product, inventory management time, packaging time, certification paperwork, etc.
Of course, it is a natural reaction to “up the standard” so that next time you don’t have to run twice – Simply adjust the standard order quantity to be 20% more instead of the normal 10%, and all the problems go away, right? Slap your forehead now, please.
Fast forward to present day. The company now runs exactly the order quantity requested by the customer – no more. In a recent case a customer-requested change to the part design required modifications to the tooling required to make the part. This change therefore needed additional parts above the order quantity to verify the tooling was modified correctly. This additional inspection went unplanned and subsequently there was a shortage of parts, requiring the need for an additional production run. In this case, this error led to problem solving in order to resolve why the error had occurred. Had the production team produced a standard overage quantity, the overage would have covered up the need to perform root-cause analysis and the problem would surely arise again in the future.
Where in your operations do you cover up problems with inventory? I would argue that excess inventory is a rampant inhibitor to improvement in most organizations. In many cases, inventory itself may not be the “big” waste – but rather the opportunities for improvement (problems) it hides. In many situations, the extra inventory isn’t a burden on cash or floor space – it’s easy, and relatively “cheap”. However, when we do this we need to remind ourselves that it is not the cost of inventory that is the real waste to be concerned about – the real waste is all of the other problems that are going undiscovered with our processes.
Inventory waste is certainly not related to just manufacturing. It’s a problem in all organizations: service organizations, healthcare, non-profits, education, government… Here are some recommendations to help reduce inventory in your organization:
- First, be the voice to educate others the real waste with inventory is the waste associated with all the undiscovered problems. You need to deliver the persistent message to point your organization towards the ideal state.
- Reduce any standard “overage” quantities you have. This may be done gradually or quickly, depending on the case. If potential problems may be “large” and challenging to resolve, you may want to go slower at first.
- Look for inventory waste in the office and other indirect support areas. These often suggest eye-opening problem areas.
- Look at inventory as anything in “excess” – padded lead times for example. Extra lead time works exactly the same as extra inventory to cover up problems.
- Use “Five-Whys” or fish-bone diagrams when looking at excess quantities to help determine the deeper problems that are going unresolved.