Lean Inventory

View inventory as a waste

Inventory is a waste. According to lean principles, inventory is one of seven wastes you should
be working hard to eliminate. But wait a minute, don't you need inventory to make the things you
sell to your customers? Isn't inventory an asset? Well, actually, it's both a waste and an asset. Let
me explain why by viewing inventory in the context of the seven wastes of Lean. I've provided a
handout of these seven wastes and how they're defined. Let's take a look at a couple of these. In
some cases, you should be working hard to eliminate the waste. For example, eliminating defects
throughout the company is at the heart of every continuous-improvement culture. Likewise,
overproduction and overprocessing should be removed from every factory. But in some cases,
you can't totally eliminate the waste. For example, you need transportation to move materials to
your factory and to move products to your customers. The goal of Lean is to eliminate
unnecessary transportation so that you are as efficient as possible. The same is true of
inventory. You need inventory, but you must reduce unneeded inventory so that you can manage
the remaining inventory as an asset. Taiichi Ohno, the father of lean manufacturing, expressed
this best when he said, "The more inventory a company has, "the less likely they will have what
they need." He means that the only inventory of value is the inventory needed to meet
demand, inventory that fills specific customer orders on time. If you can lean down your
inventory by eliminating all the waste, you can now manage the inventory that is adding value
for your customer. Notice that these seven wastes are closely connected to each other, and
several of them have a direct impact on your inventory. First and foremost, by eliminating
overproduction in the factory, you will successfully reduce inventory throughout the entire
company. Overproduction means you are producing more than is needed by the customer, or in
the factory, more than is needed by the next work station. Producing only what is needed not
only will reduce your inventory of final products, it will also reduce inventories of material and
components coming into your factory. Reducing defects also impacts inventory by eliminating
and reworking scrap in the factory and reducing the number of customer returns. Likewise,
unnecessary transportation, motion, and waiting can create delays in the process that will lead to
increased inventory levels. So, it's a good idea to work on all seven of these wastes with a goal of
reducing inventory throughout your company. Toyota, for example, puts a lot of effort into
eliminating overproduction because they believe overproduction contributes directly to the other
six categories of waste. Where should you start to eliminate wasteful inventory? Wherever you
work. The factory, the distribution center, the purchasing department. Take a look at one major
product you handle. Do you have more inventory that is needed to satisfy your customer? Are
there places you can eliminate wasteful inventory?

Eliminate the three Ms of inventory

Shigeo Shingo is one of the most quoted experts on lean principles. He once said, "The most
dangerous kind "of waste is the waste we do not recognize." He means that you must first clearly
identify waste before you can work to eliminate it. Fortunately, lean helps you do that by
classifying three types of waste. It's important to understand each of these types, how they apply
to inventory management, and what solutions are offered to eliminate these wastes. The first type
of waste is muda, which is the Japanese word for any activity that does not create value for your
customer. For example, unnecessary movement of inventory within the factory adds no value. In
fact, additional steps can slow down the process and cause late deliveries to your customer. This
can also lead to higher inventory levels because the flow of material is slowed down by the
additional steps. In order to streamline this we can apply an approach called kaizen. Kaizen,
which means improvement, can help you eliminate any unneeded steps in the process. Kaizen
aligns with the continuous improvement culture found in most companies today. The most
common approach to a kaizen project is to first draw a diagram of the process. Once you have
this picture you can identify the steps and activities that are causing the unneeded movement of
inventory. Often these non-value-added steps can be eliminated by relocating equipment and
people into a more organized pattern. This is called value stream mapping and it is a valuable
tool for continuous process improvement. The second type of lean waste is mura. Mura is any
waste caused by the unevenness of flow in an operation. This can be a single process or the flow
through an entire factory. Some types of mura cannot be eliminated easily, like different batch
sizes within a factory flow. One machine, for example, may be designed to process 50 units at a
time, while the next machine in line only processes material one unit at a time. Clearly the flow
in uneven, but it would take a major redesign of all workstations to address this
mura. Unevenness of flow means that inventory stacks up in some parts of the system, while at
the same time other parts of the system run entirely out of inventory. Trying to manage this
situation is often the full-time concern of production supervisors. Lean offers a solution to the
principle of heijunka, or production smoothing. This is most commonly applied by simply
doing a better job of scheduling the different types and volume of products to be made during the
week. Of course the schedule is driven by customer orders, and it must be monitored closely and
adjusted as needed to meet demand. Heijunka is the key to any just-in-time program, which
dictates that inventory moves through the system only when it is needed by the next step in the
process. Muri is the third type of lean waste, which is created when people or machines are
overburdened or are worked at a pace that is too high. In short, you are asking them to do the
impossible, something they were not designed to do. For example, continuing to run a factory
machine past its scheduled maintenance date will ultimately lead to the machine breaking down,
and usually this will happen at the most inconvenient time. This unplanned disruption to the
factory is a waste. Such disruptions lead to inventory buildups and late deliveries to
customers. Muri can be avoided by applying standardized work, standard procedures, standard
processes, and standards of performance expectations all contribute to eliminating muri. The
three Ms are linked together, so your efforts to control waste should also be highly
integrated. For example, if you apply value stream mapping for muda, you will eliminate
unneeded activities. This will help smooth production flows, which will reduce mura. This can
lead to better standards of performance that decrease muri. I've provided a handout that
summarizes these three wastes. As you apply these lean tools to better manage your inventory,
always look for this system effect and make sure your efforts to control waste are well-
coordinated.

Forecast inventory for lean

One of the most common misconceptions of using a lean strategy, is that you no longer have to
forecast customer demand. Forecasting means you are trying to predict some future situation or
event, in this case, you forecast to estimate customer demand for your products. But lean is a
just-in-time system. A just-in-time system means that materials move through the
organization only when needed by the next step. That need is activated by specific customer
order. So in a sense, the order is pulling material through the system until the final product is
delivered to the customer. So it makes sense that you no longer need to forecast. You know what
to make because the actual orders define your customer demand. Dell computer is a good
example of such a just-in-time pull system. Dell does not make a computer until you place your
customized order. Just like a restaurant does not make your dinner until you order the meal. Once
you place your order with Dell, they assemble and ship your computer within a matter of days. In
fact, fast delivery is part of their competitive strategy. But does that mean Dell doesn't
forecast? What about all the components and sub-assemblies that go into making a
computer? These all come from Dell suppliers, and it takes time for each of those suppliers to
produce their part of your computer. Dell can't complete your order in a few days if they must
wait for each component to be produced and shipped from each supplier. It would simply take
too long. So they must carry an inventory of these parts and components. So even though Dell
has this make-to-order strategy, they still must forecast their need for parts, and place orders with
their suppliers in a timely manner. And this forecast is based on Dell's estimate of customer
demand for their computers. So even in a lean business environment, using just-in-time pull
systems and a make-to-order strategy, you must forecast, which means you have
inventory, which means you must manage that inventory as efficiently as possible. Like many
companies that specialize in fast delivery times, Dell speeds up the ordering process by asking
their key suppliers to manage those inventories for Dell. By giving suppliers visibility into
customer orders, and current inventory levels, Dell allows them to determine when and
how components should be replenished. Parts are shipped to Dell only as they are needed, and
inventories are kept very low. The vendor manages their inventory, and Dell in turn, manages the
performance of the vendors. But this replenishment system still requires some estimate of how
many computers Dell will sell this month, this quarter, and this year, and that's a forecast. A
forecast of the number and types of parts, components, and sub-assemblies that will be needed to
meet customer demand for the final product. Do you work in a make-to-order company? How is
forecasting done for your products and materials? Do you use vendors to manage key inventory
levels, or do you do it yourself? These are key questions to answer so that you understand
how forecasting impacts your lean strategy.

Know your inventory

"There are three kinds of leaders. "Those that tell you what to do. "Those that allow you to do
what you want. "And lean leaders that come down to the work "and help you figure it out." That
thought comes from John Shook, and author and leading expert on lean management. He
perfectly describes the lean practice of gemba, which is the Japanese word for go see. The basic
principle here is for top managers to get out of their office and see what is going on in their
organization. Don't just rely on reports, meetings, and business presentations. Go see what is
actually happening in the workplace. This principles isn't new to American managers. Many top
US companies have employed management by walking around since the 1980s, when a business
book made this very popular. The practice can be very informal. I knew a vice-president at Avnet
electronics a few years ago. Avnet has a rather relaxed culture, one in which executives get their
own coffee. They took advantage of this by locating the coffee machines on the opposite side of
the building from the executives' offices. Each time my friend wanted a cup of coffee, he had to
walk through a maze of employees working on different projects. He made it a habit of stopping
off to talk with different people and see how their project was coming along. He stayed informed
on key developments and it gave each of these people a chance to get informal advice and help
when needed. When I was a first-line supervisor many years ago, I used this same informal
approach to inventory management. I always came in about an hour before the start of my shift. I
would casually walk around the factory, taking note of work stations that had large amounts of
inventory. I would visit briefly with the outgoing machine operator to see what problems had
occurred during his shift. At the start of my shift, when my lead technicians reported actual
inventory numbers at each work station, I already had a feel for what our priorities should
be. Even informally, the concept of go see can be applied effectively at all levels of the
organization. And it definitely can be applied directly to inventory control decisions. But the
gemba walk is usually more formal than this and contains some structure to ensure an effective
practice. Here are three principles of gemba that I think are very important. First and
foremost, go see with a purpose. Have a particular goal in mind or a particular aspect of the
business that you want to observe. It might be a process that is not running smoothly, or
customer complaints about late deliveries. The CEO of Arrow Electronics uses gemba to track
inventory accuracy throughout his company, and hopefully prevent such problems. Second,
always take the leader with you on the gemba. If you are visiting a factory, for example, make
sure the supervisor is with you. This ensures that you are getting a clear picture of what is
actually going on. Third, which aligns closely with the first two, gemba is not an inspection. You
are there to help. Ask questions, make observations, give advice and guidance, solve
problems. Regardless of your position in the company, a gemba walk can be an effective tool to
help you understand inventory problems and manage your inventory better. Schedule some time
right now to go see your inventory.

5S

You know your job is a lot easier if you approach it in an organized manner and being organized
starts with your work center whether it's a factory workstation or an office desk. Lean totally
agrees with you. In fact, lean principles include the practice of the 5S which are designed to help
you be organized and make it easier for you to do your job. The 5S are derived from five
Japanese words that begin with the letter S and they translate to five English words that also
begin with S. The first practice is sort. Determine what is needed for you to do your job and
remove anything that is not needed. This applies to a factory as well as each workstation. It
applies to an entire office building as well as each cubicle and desk. After you have sorted out
what you need, the next practice is to set in order. Arrange materials and tools so that they are
easy to find when needed. The third practice is shine. Keep the work area neat and clean. It is
much easier to spot safety problems or maintenance issues in a clean and organized area. The
next step is to standardize these practices so that they become the normal way things are done in
your company. In fact, you should establish standard procedures for sort, set in order, and
shine. Many lean companies extend this practice to all their general processes so that regular
activities are standardized across all departments. The last practice of five S is to sustain these
standard procedures through training and communication. Sustain also means that you work
steadily to improve these practices from day to day. In fact, most lean companies believe that
5S is the starting point of continuous improvement. Getting organized is the first step towards
adopting Kaizen which is the practice of small steady improvements to all processes. The 5S
help you to work faster, better, and more accurately. They are intended to help reduce
errors throughout the organization and that's where these practices align with lean inventory
management. An organized machine operator in the factory is less likely to make a processing
error. With less rework and scrap incidents, process inventory is reduced. An organized
purchasing department is less likely to buy the wrong material or the wrong amount of material
from suppliers. An organized shipping department is less likely to send out the wrong
order. Although most people associate the five S practices with factory operations, they should
be applied to every part of your organization and the result is lower inventory levels and better
inventory control.

Kanban

Kanban is the foundation of managing a lean inventory system. Kanban means signal in
Japanese. When you need more inventory, you send a signal to have that inventory delivered to
you. The signal is commonly a kanban card, but it can be any signal you wish to use. The kanban
card notes exactly how much inventory you need, and that's what is sent, no more, no less. Some
factories use a container for the signal. The container holds exactly the amount of inventory
needed. When inventory is needed at one work station, an empty container is sent to the
upstream work station, the container is filled and then sent back. Some distribution centers
designate a kanban area that holds a specific amount of inventory. When an item is taken from
the area, a replacement is sent. Again, the signal doesn't have to be a card. It can be anything you
wish. Kanban cards enabled Toyota to create a manufacturing system based totally on
demand. This is often called a pull system because inventory moves only when it is needed and
when it is specifically requested by a kanban card. The kanban system is based on three basic
principles that were created by Taiichi Ono, the father of the Toyota production system. First,
request only what is needed. Second, produce only what is requested. Third, do not produce or
transport anything without a kanban. Here's how it works. Let's use a retail store like Best Buy as
the starting point. Your local Best Buy store puts a certain flat panel TV on sale. They have six
TVs in the store, and they want to maintain an inventory of six throughout the sale. A customer
buys two TVs. The retail store sends an order to their distributor for two TVs. The distributor
sends two TVs. The store has requested only what is needed, rule number one. The distributor
sends only what is needed to replenish the store's inventory, rule number two. Placing the order
is the kanban that allows the two TVs to be shipped, rule number three. Now, this order creates
more demand throughout the system, and it is all driven by the kanban. Because the distributor
shipped those two TVs, he now sends an order to the manufacturer for two more TVs. When the
manufacturer receives the order, two TVs are produced. To make those two TVs, kanbans are
used to move inventory within the factory from one work station to the next. When the factory
ships those TVs, they then send an order to their suppliers for materials and parts needed to make
two more TVs. Using simple kanbans and these three basic rules will result in lower inventory
levels throughout the entire system. By only responding to demand signals that begin with the
retail customer, no one is requesting more than is needed and no one is making more than is
requested. And because of this, inventory is limited to a predetermined level everywhere. The
supplier, the factory, the warehouse, and the retail store. This is the essence of a lean inventory
control system, and kanban makes that happen. Using this signal method also enables
heijunka, the Japanese word for production smoothing. By smoothing the flow of
production throughout your business, you can eliminate mura, which is any waste created by
uneven flow. With kanban in mind, look at inventory control in your organization. Remember,
kanban can be anything, so you must look closely to find the signal that moves inventory. If you
can't find the kanban, you're not managing lean inventory.

One-piece flow

Every practice in lean manufacturing is intended to support a just in time inventory

strategy, which means you move inventory only when it is needed. One of the building blocks of
lean inventory management is the concept of one-piece flow. Now don't let the name fool
you. Most people define one-piece flow as processing one item at a time throughout the
factory from start to finish. That certainly is the ideal situation, and some industries like chip
makers have been working on this goal for many years. But some companies define the term
one as one customer order rather than one unit of product. That's a good measure because lean
teaches us that all our activities should be based on actual demand from our customers. No
matter how you define one piece, the idea is that products should move continuously through the
factory from one work station to the next. In fact, one-piece flow is often referred to as
continuous flow manufacturing. In other words, there is no batching of products. With batching,
a machine will produce a certain number of products before sending work to the next work
station. For example, if the company sells products by the case, material will move from one
work station to the next in batches of 12 units. This means that each unit of inventory sits at each
work station until the entire batch is processed. With batching, inventory begins to
accumulate throughout the factory. With continuous flow, each item or each order moves as soon
as it is completed, which keeps inventory from building up between work stations. From an
inventory management view, this is a very important benefit. One-piece flow also helps to reduce
muda, the Japanese word for any waste that is created by having non-value-added process
steps. With one-piece flow, employees don't waste time waiting for a new batch to arrive or
transporting large batches unnecessarily. But one-piece flow is not for everyone. There are
certain requirements for implementing this lean practice. First, your processes must be stable. If
you have many quality issues, your production line will be constantly shut down. With one-piece
flow, this means you will miss customer delivery dates. Second, your process times must be
consistent. A lot of variation between work stations means some stations will be storing
inventory while other stations are waiting for work to arrive. Third, your equipment must be
reliable. Machine breakdowns will interrupt the flow of material and cause late customer
deliveries. Last, your process times must match the rate of customer demand. This is called takt
time, and it is key to implementing continuous flow. For example, if your company is selling 10
units per day, your factory should be able to produce 10 units per day. Matching these two rates
as closely as possible is vital to success. Is one-piece flow right for your operation? It's worth
your time to investigate this. Because lean focuses on customer demand, looking into takt time is
a good place to begin. What's the rate of customer orders at your factory? What's the rate of
making finished products? If these two rates are closely matched, you may be a good
candidate for continuous flow manufacturing.
Single-minute exchange of die

Shigeo Shingo is considered the world's leading expert on the Toyota production system. In fact,
he developed several of the lean principles used by Toyota today. And one of his most
significant contributions is called Single-Minute Exchange of Die, or SMED for short. The term
exchange of die addresses changeover time, which is the time it takes to change a machine from
making one product to making a different product. In making automobile parts, for example, this
changeover or set-up time can be many hours or even several days because large, precision-
molded die must be replaced in heavy machinery. Most people would think that reducing set-up
time to one minute is simply impossible, but that's not what Mr. Shingo intended. He defined
single minute as less than 10. Single digit exchange of die is actually a better description of his
idea, but even that is an ambitious target. In practice, the goal of SMED is to
continuously improve the process so that changeover time is as low as possible. And that
certainly aligns with the lean principle of Kaizen, which is the Japanese term for making
small, steady, continuous improvements in all processes. To shorten those set-up times, the
SMED process has a very simple three-step approach. Step one is to separate the setup into
internal tasks and external tasks. Internal tasks must be done while the machine is down, like the
actual changing of parts, for example. External tasks can be done while the machine is
running, like ordering any parts that are needed for the changeover. Step two is to determine if
any internal tasks can be moved to external tasks. For example, instead of the technician getting
supplies as needed during the changeover, all materials can be gathered and staged in
advance, while the machine is still running. Step three is to continuously improve all
tasks involved in the changeover. Find ways to make all tasks more efficient so that you continue
to shorten the changeover time in small incremental stages. These improvements have a
significant impact on inventory levels within your factory. And here's why, when a machine is
down for changeover, it produces no output. If the machine is down for a long time, downstream
work stations run out of inventory, and they are now producing no output. Until the machine is
set up and running again, the factory has a gap in production that could lead to missing customer
deliveries. To avoid this situation, most factories will buy machines that can produce more than
is needed. So before the machine is down for a changeover, they will over-produce. And
downstream work stations will batch excess inventory so they have work to do while that key
machine is down for the setup. This inventory buildup in lean terms is a waste. By continuously
reducing the changeover time, SMED eliminates the need for this extra inventory. With short
setup times, there's no need to over-produce in advance. For many years, long changeover
times were accepted as a constant and no one considered ways to improve the situation. Mr.
Shingo changed all that by insisting that changeover times are a variable that can be controlled,
managed, and improved. And he once said, "Improvement usually means "doing something we
have never done before." Creating the SMED process certainly fits that description. I encourage
you to evaluate changeover times in all your operations. Pick a key work station. Does it have
long setup times? How is this impacting your inventory levels? Maybe SMED can help you
better control your downtime and your inventory.

Poka-yoke
What if you were perfect? What if no one in your company ever made a mistake? There would
be no reworks or scrap material in your factory. Purchasing agents would never order the wrong
material or parts. The warehouse would never send out an incomplete or incorrect order. Your
drivers would never deliver to the wrong customer. There would be zero returns anywhere. What
would be the impact on your inventory? Clearly, inventory levels in every part of your
company would be lower. In fact, some inventories, like factory rejects, would be zero. I think
you'll agree. This would be a huge competitive advantage for your business. Now, lean can't
guarantee to eliminate every mistake, but there is a lean concept that's designed to help you
reduce errors throughout your entire organization. It's called poka-yoke, and it's the Japanese
word for mistake-proofing. And this is one of the easiest lean concepts to implement. You
probably have already experienced poka-yoke. The last time you placed your order at a
restaurant, did the waiter repeat the order to you? That's poka-yoke. The goal of poka-yoke is to
prevent the error from happening. In the service industry, like in the restaurant example, the
customer is asked to verify there are no errors. Once this is done the order moves forward. But
what about poka-yoke in the manufacturing area? In assembly operations, for example, parts can
be made so that they connect in only one manner. It's not possible to assemble the component
backwards, so reworks are avoided. At a factory workstation, if four bolts are needed to perform
the required task, the bolts would be provided in packages of four. When the package is
empty, you know the task is complete and the product can be moved to the next
workstation. Again, reworks are avoided. Poka-yoke can be implemented in just about any part
of the organization. And remember, it's all about preventing the error from happening in the first
place. If you want to implement poka-yoke where you work, a good place to start is with a
specific customer return. Ask why the customer returned your product. Then keep asking why
until you discover where the error was made. That's where the poka-yoke is put in place. Poka-
yoke may be rather easy to implement, but finding the true cause of the error is often not so
easy. Many companies use small quality teams to explore this. Once you find the right place to
add the right poka-yoke, you should be able to prevent that mistake from happening again. By
reducing customer returns, you can improve customer service and lower the amount of
inventory in the return cycle at the same time. That's good news for everyone.

Standardize parts

Variation breeds inventory. I don't know who actually said that, but I certainly do agree with the
thought. If you have a lot of different parts, you must keep and manage a relatively small batch
of inventory for each different part you use. If you can standardize major parts of your
product, you can eliminate many of those small batches of inventory making your management
job a lot easier. Here's how that works. At Toyota and just about every car company, they
standardize car parts as much as possible. For example, they might use the same steering
wheel in all their economy cars and a different steering wheel in all their more expensive
cars. They may have 12 different car models, but only two different steering wheels. In the same
manner, all mid-sized cars made by General Motors have the same frame. Each model has a
different body style, but the frame it is attached to is the same no matter what brand. Chevrolet,
Buick, Cadillac, all mid-sized cars use the same frame which means the General Motors
factory making mid-sized cars only has to manage one type of frame in their inventory and
worldwide, Toyota only has to manage two different steering wheels. By standardizing
parts, inventory management is improved in two distinct ways. First, small batches of
customized inventories are eliminated throughout the company supply chain. Inventory control
efforts are focused on only a few different parts and overall inventory can be reduced
drastically. Using the steering wheel example, if you keep a small inventory of three for each of
the 12 different parts, you will have 36 steering wheels in inventory at all times. As parts are
used, you order replacements from these 12 suppliers. If you standardize to only two types of
steering wheels, you can double your inventory to six for each type and you only have 12
steering wheels in stock. This simple example reduces the inventory by 2/3. By reducing the
number of parts, you also are reducing the number of suppliers needed and that's the second
improvement. By focusing on these two key suppliers only, you are able to partner with them for
better inventory management. Volume purchases may result in lower prices and lower your cost
of inventory throughout the organization. Partnering with your key suppliers can also give you
better delivery terms, allowing materials and parts to arrive just as they are needed. This will
lower your cost of holding unnecessary inventory. Some companies will jointly manage critical
inventory parts in partnership with their key suppliers often giving the suppliers authority to
determine when parts are shipped. In support of such strategies, purchasing departments today
are moving away from simply making purchases and shifting their efforts to managing
relationships with their key supply partners. Using more standard parts can reduce the total
amount of inventory you carry, how much it cost you to keep it in stock, and the effort needed to
manage that inventory. So this is definitely worth some time to investigate. Pick one major
product from your company. How much variation do you have in materials, parts, and
components? Standardization just might help your inventory management efforts.

Level preventive maintenance schedules

Machines break, and when they break it's usually at the worst possible time. Your car breaks
down on the way to work. A factory machine stops running in the middle of an order for your
most important customer. You try to prevent these problems by taking care of your car and your
machines. You change the oil in your car so it will not break down on the way to
work. Likewise, you perform preventive maintenance on your factory machines to ensure those
important jobs aren't interrupted. So preventive maintenance is a good thing. But at the same
time, it's a bad thing. Because each time you stop a machine, you disrupt the smooth flow of
production through your factory. For that period of time, the machine has no output. Rather
quickly, the downstream machines have no material to process. Production abruptly stops. So,
the longer a machine is down for preventive maintenance, the more this disrupts heijunka, the
lean concept of having a level and smooth flow of output. Here's an example. A machine in your
factory is scheduled for preventive maintenance each day. This is usually just a few routine
checks, and it takes about five minutes. This is not really a concern. Every week some additional
maintenance is done, and this takes about one hour. This is also okay. But every month,
preventive maintenance is scheduled for one shift, and every year the machine is taken down for
one full day. These maintenance downtimes are clearly a concern because they will create major
disruptions to the production flow. Now by the way, I'm using time periods in this example, but
you can just as easily schedule preventive maintenance based on the number of units
processed. The traditional solution is to buy equipment that can produce more than is needed and
then simply overproduce before each scheduled downtime. The other work stations have material
to process until maintenance is finished and the machine is operational again. The problem with
this approach is that it builds small batches of inventory throughout the factory. Material moves
through the system in these small lumps, which certainly is not the definition of smooth
production flow. Because of these small batches, the overall inventory level is higher than
needed to meet customer orders. This unneeded inventory is a waste. The solution is to level the
preventive maintenance schedule so that you support level production flow. Maintenance is done
more often but in shorter periods. You want to avoid those long periods of maintenance
downtime. Here's how it's done. Instead of having an annual downtime of one day, divide those
maintenance tasks into four equal amounts and do one portion each quarter. Each task is still
done annually, they are just spread out. The machine is now only down for six hours rather than
24. This is less disruptive to the factory. But don't stop there. Perhaps the six hours could be
further reduced by doing some of those tasks monthly. You can divide the monthly
maintenance into biweekly periods. Maybe some monthly tasks can be distributed throughout the
weekly schedules, and some once a week repairs can be done throughout the week. Your new
schedule might have periods of downtime that range from 15 minutes per day to three hours per
quarter. The smaller, incremental downtimes make it much easier to manage a smooth,
continuous flow of inventory throughout the system. And, you eliminate those small batches that
are aren't really needed. It takes time to implement this lean approach to preventive
maintenance, and it must be done carefully to avoid disrupting the factory. What's the best way
to start? One work station at a time.

Embrace quality at the source

"It takes less time to do a thin right "than to explain why you did it wrong." This quote came
from the great American poet Henry Wadsworth Longfellow, who lived in the
1800s. Longfellow is saying that quality is your responsibility. Quality is everyone's
responsibility. The Lean philosophy agrees. This Lean principal is called quality at the
source, which means that each individual is responsible for the quality of their own work. If you
do it right, you don't need anyone to inspect your work because you are your own inspector. You
don't allow a defect to pass from your work center to someone else. In a production factory, for
example, if something is wrong with any part of the process, the entire line is shut down until the
problem is resolved. In a distributions center, orders are correct before going out to the
customer. In a purchasing department, buyers ensure each contract is correct, before sending it to
the supplier. This has a significant impact on inventory. The factory strives for zero
reworks, zero scrapped inventory, and zero product failures. The distribution center wants zero
customer returns due to shipping errors. The purchasing department works to have the correct
deliveries from suppliers every time. Quality at the source is much more than a practice, it must
become part of the company's Lean culture. It becomes the way business is done here. The Greek
philosopher Aristotle said it best, "quality is not an act, it is a habit." Developing habits,
changing corporate cultures aren't quick and easy to do. Embracing quality at the source takes
time. And once that culture is established, it is a competitive advantage in business. Expert Lean
companies like Toyota have carried this concept one step further by helping key suppliers
develop this habit. When both partners embrace quality at the source, it supports a true, just in
time delivery system in which material does not arrive at a Toyota factory until it is
needed. Suppliers are not delayed by inline inspections or by having to perform a final
inspection before shipping to the factory. Toyota is assured that everything is within
specification limits, so no inspection is required when the material arrives. Materials go directly
from the receiving dock to the factory machines with no delay. The receiving department wants
zero inventory. I always laugh when I receive an online order and the packing slip is stamped by
an inspector. Or I buy a pair of pants and there's a tag in the pocket from inspector number
eight. That's not quality at the source. Is quality ingrained into your company's culture? It's pretty
easy to tell.

Deliver on time

Companies don't want late deliveries to interrupt their schedules and cause them to miss
customer due dates. Today, everyone wants inventory delivered just in time. Just in time, or JIT,
means exactly that: deliver when I need it, not before and not after. To do this, many companies
have adopted an agile supply chain, one that focuses on fast responses to customer demand. This
is done in two ways. First, establish your facilities as close to your customer as possible so that
your transportation time is reduced. For example, if you distribute products to retail stores and
your number one customer has a lot of outlets in Los Angeles, you might lease a warehouse
there. When a store places an order, you can deliver much faster because you're so
close. Shortening the distribution channel like this aligns very well with lean practices to
eliminate unnecessary transportation. The second way to have fast response times is to deliver in
less than full truckloads. This ensures on-time delivery and prevents a stock-out at the retail
store. Inventory arrives at the right time in the right amount. But, delivering in less than full
truckloads is not lean, it's a waste. The cost of transportation from your warehouse to a store is
the same whether the truck is full or half empty. Less than full truckloads means you are making
more trips, which increases your total cost of delivering the inventory. That's a problem. The
solution is called leagility, which is a hybrid approach that uses both lean and agile practices to
enable you to deliver inventory just in time but at a lower cost. Continuing our example of
delivering to the retail stores, there are several ways to apply this method. First, when a partially
filled truck needs to leave right away, you can often add in some routine products that the stores
orders on a regular basis. For example, the truck's departure might coincide with the store's
monthly order of office supplies. But most likely this won't fill the truck. So a second approach is
to fill the truck with an order going to another Los Angeles store. By scheduling two different
deliveries together, you can deliver on time without having transportation waste. A third
approach is to combine this on-time delivery with an order going to a different customer in the
area. Again, you are reducing inventory transportation costs for each of these orders by putting
them in the same truck. There's a famous story of how several small trucking companies in the
Chicago area used the leagility concept to form a delivery consortium. Each trucking company
had many just in time, less than full truckload customers. Even though they were direct
competitors, they combined their different customer orders throughout the area and were able to
deliver inventory on time at much lower full-truckload costs. Take a close look at your
company's transportation system. Do you deliver just in time? What's the cost of your
delivery? You just might be a good candidate for the leagility approach for on-time delivery.

Rationalize the product line

Some companies adopt a business strategy that provides one-stop shopping for their
customers. They offer a complete portfolio of products so that their customer buys exclusively
from their company. But what does this strategy do to inventory management? Inventory levels
can become bloated with batches of products that are slow sellers and all this variation in the
types of inventory must be managed. Cost can quickly get out of control if not watched
closely. This certainly does not support a lean inventory approach. Offering a complete portfolio
of products is not the right strategy for everyone. Today, many companies have moved in the
opposite direction. They are applying the process called Product Line Rationalization which
simply states that if it doesn't make sense to carry a product in inventory, you should eliminate
it. That analysis is going to be very different from company to company, but there are three
general rules you can apply to investigate the products in your portfolio. First, you should look at
the profit from the product. In general, products that don't make a profit should be
eliminated unless there is a strategic reason for keeping it. Second, look at the profit from the
customer. Some customers only buy products with low profit margins. They're like the customers
that only buy items on sale in the grocery store. These customers and the products they
buy might not be worth keeping. A third approach to rationalizing product lines is to look at the
level of customization you have. For example, a product introduced in blue is now sold in 12
different colors. A quick investigation reveals that 90% of your sales are for blue products and
5% are for red products. Does it make sense to carry the other 10 colors in your
inventory? Maybe some colors should be eliminated. Product Line Rationalization has huge
benefits for inventory management. First and foremost, overall inventory levels are
reduced when products are eliminated and this lowers inventory costs. Second, those small
batches of inventories no longer must be managed. Therefore, more attention can be paid to
managing the remaining inventory and applying lean techniques for improvement. And third,
those non-profitable customers no longer must be managed. Therefore, more attention can be
given to the remaining customers and their inventory requirements. Hopefully, this will lead to
better customer relationships, higher customer satisfaction rates, and more sales to your
profitable customers. Product Line Rationalization should be a continuous effort and it certainly
should be done carefully. Having too few products to offer your customer can be just as bad as
having too many. Your company's business strategy and objectives will determine the right place
to be. Can your company benefit from Product Line Rationalization? Highly customized
products are a good place to start an investigation. Do 90% of your sales come from just one
model?

Manage supplier inventories

Companies no longer compete against companies. Supply chains compete against supply
chains. As someone who has taught supply chain management courses for 17 years, I certainly
endorse this notion. But what does this mean exactly? Your supply chain is made up of your
company and all the other companies you partner with to deliver products and services to your
customers. Those other companies include suppliers of materials and parts to your
factory, retailers who sell your products to consumers, and trucking companies that move your
goods through the system. Because you are so dependent upon these partners for your
success, it's the capabilities of the entire team, your supply chain, that make you
competitive. Companies like Unilever, Cisco, and Intel maintain the world's top supply chains
year after year, continuously strengthening their position in the marketplace. Especially in
today's global business environment, with key partners and customers all around the
world, supply chains compete against supply chains. Because of this, it is not enough for your
company to be lean. Your key partners must also be lean. It is not enough for you to manage lean
inventory. Your key partners must also manage their inventory with lean practices. The burden is
on you to make that happen. It's your supply chain, so you must lead the team in the lean
direction. Toyota serves as a great example of this. They partner with their key suppliers for
success. If a supplier runs into a problem, Toyota does not hesitate to send a team of engineers to
help find a solution. When a supplier's making a new product for them, Toyota sends a training
team to assist with the production startup. And of course, lean practices are being
continuously taught and transferred with these visits. Motorola is another terrific example of
supplier training. When I worked for Motorola in the 1990s, several times they sent me for
managerial training at their headquarters in Chicago. That's where I learned the principles of Six
Sigma, for example. In every key training course at Motorola University, 20% of the seats were
reserved for suppliers, so as Motorola educated their mid-level managers on new techniques,
they also educated the mid-level managers of their key supplier companies on those same
techniques. As they informed their executives of new strategies and programs, the also informed
their suppliers' executives. That's the kind of approach you need to get the most benefit from
managing lean inventory. You and your key supply chain partners should work together to learn
and practice the lean tools and tactics for inventory control. Because an excellent supply chain
treats inventory as one continuous flow of materials, parts, and products through the entire
network. So in a sense, you should be managing supplier inventories as your own. To help you
do this, your suppliers should also be lean. Ask if you company has a supplier development
program. Most major corporations do, and it's usually managed by the purchasing
department. But if you work for a small or mid-sized company, developing suppliers might be
done more informally. Perhaps it's time to introduce lean inventory practices to your supplier
management program through formal or informal training courses. After all, everyone wants to
do a better job of managing inventory.

Manage inventory buffers

Lean inventory management starts with you and it must extend to everyone in your supply
chain. The supply chain is made up of all the key companies that help you move your products
and services to your customers like suppliers, distributors, and retailers. All of you should be
working together to move inventory from one partner to the next just in time, just as it's needed
to meet customer demand. You accomplish this by establishing strategic inventory buffers, by
keeping a certain amount of inventory on hand at each stage of the supply chain. You set targets
at each stage, allowing just enough inventory to serve the next partner in the supply chain. Here
are some examples of strategic buffers. A factory typically sets an inventory buffer for
manufacturing lead time which is the amount of time it takes to make the product. The buffer
allows you to fill orders immediately when customers need products right away. If you have a
long lead time, you must keep more buffer inventory because it will take a long time to replace
those items. In a like manner, your suppliers will keep a strategic buffer to account for their own
manufacturing lead time. A second type of inventory buffer is for material delivery time. If
suppliers are located far from your factory, it takes longer to receive material so your factory
must keep a buffer inventory of supplies and material. This extra cost is usually offset by
attaining a lower price from your global supplier. A third type of buffer is safety stock which you
might call just in case inventory. You want to maintain an extra buffer of finished goods in case
customer orders increase unexpectedly. You also want to maintain a little extra inventory of
materials and supplies in case there is a problem with your supplier or the delivery service. Each
of these strategic buffers must be managed carefully using lean inventory tools to maintain
them at the lowest level possible. You want to have enough buffer inventory to meet your
goals, but you also want to control your costs. To help you maintain the right amounts of buffer
inventory, nothing is more important than information flow. Sharing information within your
company and with your supply chain partners will help ensure you are maintaining the right
amount of inventory at all times. It's important to note that information has three distinct
characteristics. First, there is velocity. Sometimes information moves quickly. Other times it is
rather slow. The second characteristic is volatility. Sometimes you get a lot of
information. Sometimes no information at all. Third is accuracy. As we have all experienced, the
information you receive can be right or wrong. Your objective is to maintain a smooth
continuous flow of updated information about inventory throughout your supply chain. Inventory
levels, including strategic buffers, should be visible to everyone. If managed correctly, this
strategy can significantly improve your capability to continuously meet customer
requirements. Does your company use the strategic buffer approach? Make a visit to your
factory's receiving and shipping departments. See how much inventory is there and talk to the
supervisors about how it's being managed.

3D concurrent engineering

A good system shortens the road to the goal. This excellent quote comes from an American
author you probably never heard of. His name was Orison Swett Marden and he wrote
exclusively about how to be successful. In fact, in 1897, he began publishing Success
Magazine. Mr. Marden is telling you that the path to success is first to identify the elements
needed to reach your goal, and then, create a system in which all those parts work together to
achieve that goal. The key is to look not at each element individually, but to look at them
together as a whole. Today, this is called systems thinking. Now, how does this apply to lean
inventory management? The concept is called 3D or three-dimensional concurrent
engineering. And you apply this concept specifically to the process of developing new
products. New product development is traditionally done in three distinct stages. First, a new
product is designed by a team of engineers. After your product is created, the second stage is to
specify the processes required by the factory to make that product. You then move to the third
stage, which is to design the business processes needed to deliver that new product to your
customer. Traditionally, these three stages are considered separately and sequentially. For
example, you don't begin stage three until you create the new product and you specify how to
make it. With 3D concurrent engineering, following the idea of systems thinking, you realize that
these three stages are very interrelated. For example, complex products may require detailed and
difficult manufacturing processes. This in turn, may require that the product be made in small,
customized batches, which will determine where it is made, and how you deliver it to your
customer. Therefore, the three traditional stages should be managed as three interrelated
elements of the system needed to bring a new product to market. 3D concurrent
engineering simultaneously designs the product, the processes to make the product, and the
supply chain to deliver the product as efficiently as possible. With this systems approach, lean
tools and practices can be applied to all three elements of new product development. This has a
direct impact on inventory, and how it's managed. First, applying lean principles to the design of
the product will most likely reduce the number of parts and components. A simpler design will
result in less inventory and better control of that inventory. Second, lean tools can streamline the
manufacturing processes for this simpler product and greatly reduce factory inventory. Third,
lean processes can better manage inventory for on time delivery to your customers. Developing
and delivering new products with a systems approach, means you are planning, controlling, and
managing inventory from the very beginning. A systems approach might be right for your
company's new products. Managing lean inventory from the start can provide a significant
business advantage. It's worth some time to investigate this.

Continuously improve

I'm sure most of you work in a continuous improvement environment. Companies realize they
must improve daily just to keep up with their competition and the changing expectations of their
customers. Jessica Savitch, a US news broadcaster once said, "No matter how many goals you
have achieved, "you must set your sights on a higher one." That's the essence of Kaizen, which is
a Japanese word meaning continuous improvement. The idea is that all employees in the
company work together to get better everyday. Everyone's goal is to make steady, incremental
improvements to their business processes. Kaizen started on the factory floor, but most
companies today recognize that every department should be working toward steady
improvement. Regardless of where you work, perfecting your processes will improve company
performance. And that's where inventory management comes in. Because inventory control is
such a critical factor for success, it should be incorporated into every Kaizen effort. Before
changing a process, you should consider the impact on inventory levels and inventory
practices. For example, suppose a buyer in the purchasing department is considering a new
supplier for factory supplies. The new supplier is offering a lower price than your current
supplier. Before the decision is finalized, inventory must be considered. If the change is from a
local supplier to an international supplier, the delivery time will be longer. Longer delivery times
usually mean that the factory must keep a larger inventory on hand to keep from running out
before the next delivery. This will increase inventory cost and could offset any price savings. In
this case, the change might not be a good decision. As another example, changing to a lower-cost
trucking company might create some late deliveries for your retail store customers. Those retail
stores must increase their inventory to prevent stockouts. And this will increase their operating
costs. They might do that short-term, but in the long run, they will find someone else to do
business with. Throughout every department in your company, when processes are being
improved and decisions are being made, the impact on inventory must be considered. And it
should be top of mind, one of the very first considerations before implementing the change. Over
time this can become part of your corporate culture. Inventory calculations just become second
nature, something you do automatically. Support from top management is important when
changing company values. But adopting this mindset can start at any level of your
organization. Before implementing any change to your process, ask the question how does this
affect my inventory?
Establish a lean culture

Successful people never reach their goals alone. I've seen this quote used as the title for many
recent online blogs and articles. They are talking about mentoring, advising, and training a
younger associate. It's quite common in the business world. Mentoring can help you establish a
corporate culture that embraces lean inventory management. In lean terminology, mentoring is
done through the senpai-kohai relationship. These are the Japanese words for senior and
junior. The senior member of this relationship can be someone who is older, or it can be
someone who simply has more experience, perhaps even an expert in a particular subject. By
putting lean inventory management as a top priority in all mentoring activities, it won't take long
to establish this as part of your corporate culture. If senior managers keep a focus on inventory in
their conversations, it becomes second nature for junior employees to consider inventory before
making process changes and business decisions. Another excellent approach to establishing a
lean inventory culture is to use a sensei. This is the Japanese term for teacher or someone who
has mastered a particular subject. Within your company, a lean sensei may be a mentor or an
instructor in the training department, or a computer expert in the information technology
department. Many times a sensei comes from outside the company, like a specialist or a
consulting firm. For example, it's common practice to hire a university professor who applies
academic theory to help solve organizational problems. Using a lean inventory sensei on a
regular basis can help informally train your organization to think about inventory first when
solving problems and implementing changes. Formal training activities are also used
extensively to implement major cultural and strategy changes. In the 1980s, for example, large
American companies introduced quality management programs to their employees through
formal training classes. These classes introduced the concept of cross-functional teams, which
has become a vital part of US corporate culture. Cross-functional teams assign members from
different departments so that solutions will address everyone's concerns. A team assigned to
improve a production process, for example, would include operators, technicians, engineers, and
supervisors. By the way, this idea that changed the way problems are solved in American
companies was copied from the quality circles developed by Japanese companies. For you to
effectively manage lean inventory, it must be part of your corporate culture. You consider
inventory in every decision. You may not be in a position to move your entire company in this
direction, but you might be able to change the way inventory is viewed in your department or
your team. Mentoring, consulting, and training are excellent ways to help you make that change.