Sources of Waste: Inventory

Waste caused by unnecessary inventory should be eliminated for two main reasons. The first and most obvious to any operations manager is that holding unnecessary inventory locks up money in materials and parts, which has direct and indirect impacts on liquidity. Directly through the costs generated by the maintenance in stock (carrying costs: handling operation, space, administrative tasks associated with the maintenance and control of inventory, insurance, etc.) and indirectly through the losses of possible conversions of the stock into profit.

It is therefore essential that this money be released by minimizing product inventory at all stages of the process, from stocks of raw materials to stocks of finished products and through stocks of products in progress.

As an example, one need only look at the curve for determining the economic quantity ordered (the Wilson formula) to see that no optimum can be achieved with large quantities stored (cannot be associated with any gain).

The second reason is that keeping unnecessary inventory impedes the detection of problems (defects).

Among the reasons that seem less obvious why waste is caused by unnecessary inventory, we can cite worker safety, because by minimizing unnecessary inventory, several handling operations will be eliminated or optimized (risk related to cohabitation between pedestrians and handling equipment such as forklift). In addition, risks of ergonomic nature will be more manageable by acting on the redesign of load units, for example.

To find the causes of waste caused by unnecessary inventory, it is necessary to look at two different aspects, namely, the method of inventory management, and production management. Generally, the excessive stocks are caused by overproduction (which is another of the 7 sources of waste) in order to reduce the risk associated with delivery times, especially when demand is both uncertain and no method is used to establish forecasts.

Unnecessary inventory can also be caused by poor installation planning or poor workflow balance.

To tackle the problems of waste caused by unnecessary inventory, it is imperative that the principle of lean manufacturing, in particular with just-in-time (JIT) manufacturing, be put in place and to opt for a flow that is more pulled than pushed, to reduce overproduction.

It is also very useful to review the balancing of production lines and cells and to determine the optimal rates (Takt time and Kanban (看板)) and better control non-production times (e.g., single-minute digit exchange of die (SMED)).

Finally, it is important to remember that improvement in waste caused by unnecessary inventory will undoubtedly have a positive impact on the overall level of worker and installations safety and in a company, because it will allow action on elements of risk such as handling equipment.