When inventory is not waste – The Manufacturer.com
It's unfortunate that one of the early (1983) popular books about lean (or “just in time,” as was the fashion of the day) was titled “Zero Inventories.”
Many people who didn't read beyond the title, mistakenly thought lean meant getting rid of your inventory. I've seen this first hand, as my master's internship was spent at a division of a company that thought they had previously “gotten lean” and cut their finished goods inventory to the bone.
Problem was, the production process had hundreds of steps and process yield variation was very unpredictable (semiconductors) … so they weren't meeting customer demand. It was brutal. They were the bottleneck for a high-tech end product that they couldn't sell enough of at the time. My job was to come up with a methodology for determining what inventory levels SHOULD be, given the lead times and variabilities involved (while using lean to try to drive down the variability, which would allow you to then reduce inventory).
One of my early lean mentors made the point very well. I'm paraphrasing his broken English, but he basically said:
“First flow, then low inventory. Shutting down line is not lean.”
That's a lesson that has served me well. Variation shouldn't be a “forever” excuse to hold inventory, but you can just cut inventory without fixing the variation.
I was reminded of all of this reading the linked article, it gives this example:
“… their corporate anorexia may have made them look svelte but not necessarily beautiful in the eyes of customers. Take the example of the Industrial Controls Division of Moog, Inc., which found that, along with its many clear benefits, lean had also produced an embarrassing tendency to miss customer due dates. “
Here's another case where people might say “Lean nearly killed us,” but it's more likely another case of “L.A.M.E.” (or “Lean As Misguidedly Executed.”). How is it “lean” to miss customer due dates? Sheesh.
The article goes on to describe how Moog utilized the services of Professor Mark Spearman, co-author of the wonderful textbook Factory Physics (yes it's worth the price!) and founder of the firm of the same name. Spearman is one of my favorite people in the manufacturing world (he was a professor of mine when I was an Industrial Engineering undergrad at Northwestern) and many of the invaluable lessons of my early manufacturing career are thanks to him.
Spearman's company and software tools allow you to determine “optimal” inventory levels that trade off service levels and inventory costs. I'm sure the tools do the job, but I also assume that Moog, Spearman, and company are not assuming that today's variation HAS to be that way forever. This is the same idea that you can't assume that today's long changeover times ALWAYS have to be that way (thus justifying large batch sizes). Reducing setup time allows you to reduce batch sizes. You don't just arbitrarily cut batch sizes (in many cases) the same way you don't (or shouldn't) arbitrarily cut inventory levels.
On the demand side, working with customers (or salespeople) to help level load sales will reduce demand variation, allowing you to reduce inventory. That's the “heijunka” principle at work.
On the supply side, using TPM tools, for example, will improve your production stability (reducing lead time variation), which will allow you to, again, cut inventory levels.
Just to be clear, I'm not calling Dr. Spearman “lame”!! Companies and managers who make arbitrary decisions without considering the consequences to their customers are L.A.M.E.
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Mark,
Mr. Earls of “The Manufacturer” did a great job of addressing the tradeoff issues that every company encounters. Your blog follows on with great points–there are lots of L.A.M.E. practices out there. At Factory Physics, we see that folks get caught up in these L.A.M.E. approaches mainly because they are trying to manage without a good understanding of the practical science behind manufacturing logistics. The science is not quantum physics but it’s also not simple. After 20 years in manufacturing, I am still somewhat incredulous at how little some executives know about what drives operations performance. A pharmaceutical company would never think of developing drugs without applying the principles of chemistry and biology. In manufacturing though, the attitude all too often is, “It’s just manufacturing, put smart people out there and they’ll figure it out.” Some do, a lot don’t. The Factory Physics approach provides a structure and the math behind the structure to quickly and effectively get the best performance possible out of manufacturing strategy and operations. I realize I’m biased because I work for the company but, on the other hand, I have seen no one else provide a more practical, quantitative approach–and I have seen a lot of approaches. Factory Physics is out to change the world. We believe that companies should not have to manage by slogan or by initiative. There is a better way. Thanks to folks like you and Mr. Earls for firing up the discussion.
Ed Pound
COO
Factory Physics Inc.
[…] over time by solving the problems that lead to us otherwise needing to hold MORE inventory. “Zero inventories” is never achieved, even at Toyota, and we might cause many problems by trying to cut costs […]