James Heidrich in Supply Chain Management, Entrepreneurs, Business Founder • BVO Consulting GmbH Sep 12, 2019 · 1 min read · +300

The “I” in Tim Woods: Inventory

The “I” in Tim Woods: Inventory

Previously, we revealed that the first waste of lean manufacturing is transportation. Today we will examine the second waste associated with lean manufacturing, inventory. Whether it’s raw material, works in progress, or finished products, these items are being stored until they are turned into something with more value or sold to consumers. 

Costs Associated With the Waste of Inventory 

With every item that is placed in inventory, there is a physical cost that is associated with storing it. The longer an item stays in inventory, the less value it has. Tying up money in inventory can prevent a business from putting it towards something else that may be more profitable. 

Other costs associated with inventory include transportation, damages, and losses that occur during transportation, space to store inventory, and containers to stow away the product. 

With many costs associated with inventory, it can increase lead times and result in unhappy customers who take their business elsewhere. 

Causes Associated With the Waste of Inventory 

The primary reason for the waste of inventory is overproduction. Often businesses make more than what is in demand or in preparation of demand. Without the demand for products, companies will have to find space to store excess product. In anticipation of a busy season, businesses may decide to overstock their inventory in preparation of the demand.

A surplus in inventory is also a result of lack of trust. To be “one step ahead” of suppliers, process, and customers, businesses will often create a stockpile to act as a buffer. 

Waste of inventory can also be the result of a poor workflow. During the production of a product, there may be a build-up at a certain process. This can cause a rise in the number of products that have to be stored until they are completely done. 

Solutions to Reducing Inventory 

To address inventory waste, first, look at the layout and flow of your production process. Examine the process to see if there is any build-up between processes. Other solutions to reducing inventory include using accurate forecasts, reduce lead time, getting rid of obsolete stock, and avoid minimum order quantities

A dramatic way to cut inventory costs is by implementing a Just-in-time inventory (JIT) management. JIT is a form of lean manufacturing that would eliminate inventory in the warehouse as well as the associated cost. However, this method would require businesses to order everything they need at the moment that they need it. 

At the end of the day, the inventory should reflect the demand for the product. 

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