Monday, May 27, 2013

Is Inventory a waste or a cover-up of deeper waste?

By Al Norval

It’s an interesting question since we all know that Inventory is one of the seven classic process wastes called “Muda”. We often see this as we walk the factory floor. Piles of raw materials, stacks of WIP (work in process) and as we leave the manufacturing organization and enter the arena of distribution, we see inventory stored as Finished Goods.

This inventory represents cash tied up waiting to be processed into something which has value to customers. Accountants would see this as an asset which is positive but that’s a blog for another day. We in the Lean world see this inventory as waste to be reduced or eliminated.

But how do we reduce or eliminate this waste of inventory?

I see many Lean practitioners and organizations make a fundamental mistake when it comes to this. The Lean purists in the organization say “Reduce the waste, reduce the inventory” and the obliging organization goes ahead and does so often with disastrous consequences. They reduce their inventory too far and find that all material flow grinds to a halt. They have uncovered some rocks but don’t have the time or horsepower to fix them through countermeasures aimed at root cause. In the meantime customer service suffers and the organization engages in a serious session of firefighting while everyone scrambles to keep customers happy. Many times this happens at the end of a financial quarter or year end.

We all want to reduce the waste of inventory but what’s a better way reduce inventory?

As we develop our eyes for waste, and begin to see the waste that surrounds us in an organization, we need to be able to get to the root cause that’s driving the waste and eliminate the root cause.

Inventory always hides a deeper source of waste. We need to be able to learn to see that and understand the root cause that’s driving the waste of inventory. Only then, after the countermeasures are in place, can we take a step change in inventory.

In fact, sometimes we need to add some inventory back in to stabilize the material flow and give us time to work on countermeasures to the root cause of the waste. Doing this eliminates much of the firefighting which in turn creates time for proper problem solving.

I’m not saying – don’t reduce inventory to expose the rocks. Rather, I’d suggest, reducing the inventory, seeing what rocks (problems) surface and if you can’t problem solve rapidly, add the inventory back in while you address the root causes. Stabilize the material flow, keep your customers happy, drive to root cause, problem solve.

Reduce the waste by eliminating the causes of it.

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