Got some suppliers that don’t deliver on time? Not a problem. Just carry a little raw material safety stock.
Machine breaks down? No worries. We’ll just hold some WIP (Work In Process inventory) between operations so as to allow the rest of the plant to continue operating until we fix the beast!
Our production folks aren’t terribly reliable about hitting the schedule? It’s OK. We keep lots of finished goods around to protect our customers.
The list goes on and on. Traditional plants use inventory as a hedge against all sorts of operating, scheduling, procurement, customer, etc. problems. And as long as they do, there is no real urgency to fix the underlying problems.
I recall a simple quiz from early in my career. The instructor asked us to take out a sheet of paper, draw a line down the middle, and write “Important” on one side and “Urgent” on the other.
He then asked us to list the things that we did in our jobs that fell under each category.
Then the critical question: “Where do you spend most of your time?”
Every one of us said we spent the vast majority of our time on the “Urgent” items.
In a nutshell, what inventory reduction does is to gradually change “important” items to “urgent.”
The familiar “rocks and water” analogy helps illustrate this concept.
The good news is that in most companies, the initial inventory level is considerably above the rocks! This allows for rapid cash generation while requiring minimal expenditures (see “Part 1” of this series).
As we reduce the inventory further we’ll eventually expose a rock (problem). We are then faced with a decision: Do we raise the water levels (add back some inventory?) Or do we fix the problem?
We are pragmatists. Some problems will, indeed, be so large, i.e. require so much time and/or resources, that it makes sense to “cover” them with inventory,… for now.
Most problems, however, are readily fixable. The Lean Toolkit contains most of the techniques required to fix the underlying problem, so that we can now operate efficiently at this new lower level of inventory.
OK. We’ve dropped the inventory and fixed the problems. Now what should we do?
That’s correct. Lower the inventory some more!
How much inventory should you have? Less than you’ve got! The process is never done.
All the best in your lean journey.