Implementing LEAN - Part 2: Inventory

LEAN is a principle that all manufacturing companies should master. It helps companies become more profitable by reducing non-value added activities.

In this second of a 8-part LEAN series, we will discuss how manufacturing companies can reduce Waste in Inventory in their operations.

What is Waste In Inventory?

Inventory refers to materials stored in the facility at different stages of completion.

It could be raw materials, work in progress (WIP), finished goods, products waiting for repair, etc.

Inventory is essential to sustain daily operations. However, too much could result in waste, directly impacting profitability.

Until goods are shipped to customers, it is not generating revenue. They could become liabilities if it is being held for too long.

Why Is Inventory A Form Of Waste?

It may not seem obvious, but every piece of inventory has a cost associated.

• Funds to buy raw materials have not been paid back by customers.
• Materials in the warehouse are taking up space. The company is paying the overhead and insurance cost.
• There is a risks of aging inventory to become obsolete or expired, and need to be written off.
• Etc...

What Are The Forms Of Inventory Waste?

It can appear in many forms in manufacturing environment.

• Overestimating forecasts and purchasing more raw materials than necessary.
• Defective products are not repaired quickly.
• Producing and storing more products than customers need.
• Kanban quantity levels are too high.
• Obsolete materials are not dispositioned on time.
• Etc...

How To Reduce Inventory Waste?

There are different ways to reduce it.

• Establish realistic forecast with customers. Update forecast regularly to pull in or push out supply chain when necessary.
• Track defective assemblies and repair them quickly.
• Reduce processing time to lower the cost of finished goods.
• Produce just enough products for customer's needs. Do not buffer too much for unexpected losses such as failures, repairs, scraps, etc.
• Review Kanban quantity levels to match production run rate. Adjust when there is a change in product, process or customer demands.
• Establish processes to check slow moving materials and dispose of them regularly.
• Adopt JIT (Just In Time) method to receive, produce and ship products.

Conclusion

Being LEAN is something that all manufacturing companies must master. It could directly impact the company’s profitability. However, different companies operate at different ideal inventory levels. Thus, lowest inventory level may not always be the best approach. Carefully managing incoming, in process and outgoing materials while aligning with business model will help reduce waste in inventory.

How has your company reduced Waste in Inventory? Let us know by leaving a comment below.

This article was originally posted at www.EMSEngineer.com - http://wp.me/p8hPPt-dB