Is Inventory Reduction an Objective or a Result?

Inventory is one of the eight deadly sins (wastes) in Lean manufacturing. This waste is often one that hides other wastes in our businesses. I think most are familiar with the river and boulder analogy. The water level in the river is the level of inventory and the boulders in the river and the problems in our business. As we lower the water level or inventory level those boulders or problems stick out.

It is fairly well understood the financial impact of inventory. Certainly, in these economic times it is not a surprise that many companies and their CEO’s are focused on cash flow. Yet, well-intentioned efforts to reduce inventory, more often than not, get only temporary results. Without effective business process changes, the organization can easily slip back to old ways with inventories (and costs) just climbing up again. I think question is should inventory reduction be an objective of the business or a result of say implementing improvements.

The numbers on the company balance sheet do not tell the whole inventory story. The overall inventory of an organization can be divided into 3 major groups: 1) Raw material, WIP, and Finished Goods 2) MRO inventory (inventory of tools, maintenance spares, misc. production items, etc.) and 3) Distribution inventory (all materials in-transit of stored outside premises). Traditionally, inventory reduction efforts have focused mainly on the first category. However, this typically accounts for less than 40% of the overall inventory of a company.

One of the major impediments to inventory reduction is the mistaken notion that just improved inventory management is all that is required to get the job done. The real culprits are the inefficient business processes that cause excessive inventories to exist in the first place. It is often the case that the real causes of excess inventory lie outside the purview of the supply chain managers.

The mantra here is that in order to get a bigger piece of the cake, one should increase the size of the cake itself. So the objective should be one of continuous improvement. We should consider improving production scheduling, reducing cycle times, increasing manufacturing flexibility, improving quality, improved forecasting, and developing and partnering with suppliers as the goal. By addressing the cause of the increased inventory the gains can be sustained. Reduced inventory quantities and dollars are then the resultant of said improvements in the business system.

Management who do not truly understand lean teachings are often results orientated in our performance driven society. This can be summarized quite effectively by these two quotes:

• “Leaders may be judged by he numbers they deliver, but that’s not the way they should run the company” – Rowan Gibson

• “The winners will be those companies that focus on their processes, not their results” – Art Byrne

Free Lean Resources from Catalyst for Change

I am always looking for lean resources to help along the way on this journey. Recently, I was made aware of a UK company called c4c, which refers to Catalyst for Change. c4c was formed to provide the catalyst and support for businesses to change through implementing Lean and Six Sigma practices and culture.

On the c4c website is a collection of documents they have assembled on topics including:
· Lean introduction and culture
· Value added and waste
· Problem solving tools (5 why’s, brainstorming, cause and effect, Pareto, FMEA, VSM)
· Workplace organization (5S)
· Measurement and total quality management (TQM)
· Process changeovers (SMED)
· Total productive maintenance (TPM)
· Project management
· Facilitating a lean workshop

I believe that we should not re-invent the wheel so shamelessly stealing from others is a prudent practice. This collection of documents also includes a number of editable files for your convenience. So to use c4c’s mantra maybe these can be the catalyst for your change.

You can access this free information from the following company link: http://www.c4c.ltd.uk/

Can you implement without auditing?

“How can you implement 5S without auditing?” This question was recently asked of me by a plant manager trying to implement 5S. I followed this up with another question “Why?” I don’t think I can get management to do that. My response simply “you can not”.

Plainly, how can you make it better, if you go backwards instead of forwards? The thing is that, no matter how well you do on the previous elements of 5S, if you don’t sustain the gain, you move slowly back to square 1. Believe me, there are a lot of companies out there that failed in implementing and sustaining a successful 5S program. 5S succeeds in environments where there is discipline and self regulations in place to ensure standards are kept, this being owned by the workforce itself. Standards are typically maintained through a simple daily auditing system.

In order to sustain you really need commitment. You usually commit yourself to particular course of action in which the consequences of keeping to this course of action is greater than the consequences of not keeping to it. A good example is starting an exercise program where you decide to work out at the gym 3 times a week. You may find this difficult to sustain as many Americans do. This is because forces, in our life, such as limits on time and energy challenge this plan. However, if the rewards of sticking to it (feeling better, lower weight, more energy, clothes fit) are greater than not (more time for other stuff), your commitment will increase. So if you have seen the benefits of the first 4 S’s being a safer workplace, higher productivity, fewer defects, and more a satisfying job then why wouldn’t you want to commit to sustaining these benefits.

The last S, “Sustain” is essentially about involving and motivating all members of the organization in assuring that the standards are applied and improved through employee empowerment and autonomy. Lean Manufacturing is more about engaging and empowering the full intellectual capacity of the organization then it is about tools and methods.

You Won’t Get Lean, Until You Get Visual

Visual Factory (or Visual Management) refers to a lean tool that results in more than just a pretty workplace. 5S is the foundation for Visual Factory specifically in the areas of cleanliness, order, and discipline, but it doesn’t stop there. However, true Visual Factory goes beyond a clean, well organized factory; it’s a company-wide “nervous system” that allows all employees to understand how they affect the factory’s overall performance.

In the game of baseball why do fans repeatedly look at the scoreboard when the action is clearly on the field? The scoreboard answers important questions about the status of the game. It tells us how our team is doing in relation to the goal, to win the game! Visual Factory is the scoreboard for our business.

Visual Factory provides a clear and common understanding of goals and measures of the business. With this information employees are able to align their actions and decisions with the overall strategic direction of the company. It is also an open window to factory performance, and it provides the same unbiased information to everyone, whether owner, manager, operator, or visitor.

The goal in Visual Factory is to create a “status at a glance” in the workplace. This refers to an operating environment where anyone can enter the workplace and:
See the current situation (Self-explaining)
See the work process (Self-ordering)
See if you are ahead, behind or on schedule (Self-regulating) and
See when there is an abnormality (Self-improving)

Visual Factory techniques can be used in a variety of ways. This offers an unlimited number of opportunities creating a significant variation in the actual application of Visual Factory.

There is irrefutable evidence that a “shared vision” is critical to the success of today’s businesses. Visual Factory communicates the “shared vision” along with an understanding of how each individual should contribute toward that success.

Visual Factory is the language of the Lean production system. Without it we can’t see the wastes in our factory, which are the greatest source of potential improvements in customer service and business performance. Visuals ensure that what is supposed to happen happens on time, every time by everyone involved.

About A Lean Journey

Welcome to "A Lean Journey" a blog dedicated to the Quest for True North. It is not about the destination but the direction or path you take toward this idealistic place. Lean is not something you check off your "To Do List". It is about the constant, persistent, even relentless pursuit of improving your current situation. And this improvement brings you to the next current state and so on.

In my opinion leaning out the waste is not necessarily the difficult part of this process but rather the identification of the wastes. Waste is all around us yet many can not recognize it. I like to say that "activity does not equal productivity". The real challenge is to break status quo, get out of your comfort zone, and learn to "see". This means observing the actual condition at the actual place at the actual time.

Lean also commonly refered as TPS (from it's originators) is the "Thinking People System". It is about learning to see waste and solve problems through the development of people. This is a frequently missed and even understated purpose in lean. Lean is truly about people because tools don't solve problems, people solve problems.

I hope that my experience in the pursuit of True North can be educational and help others along the way. This also serves a source of reflection along my own journey which is so important. Without reflection there can be no improvement.