WASTE ELIMINATION - Part 3

In  part two we have seen the cause , effect and solutions on Motion , Waiting and Overproduction wastes , in this post we are going to look in to rest of  wastes

Over processing:

Cause:

Processing activities are typically viewed as value added.  It is the manufacturing processes that add value to the product and to the customer.  Despite this, the process isn't valuable to the customer.  The resultant change to the product is what may be valuable to the customer.  This is an important distinction, because it is critical to assess every activity when eliminating waste.  It is easy to assume a process in the middle of a production line is essential, but under examination, many processes are found to unnecessary or overly complicated.

Simplifying processes is critical to the lean methodology, and it is at the core of eliminating processing waste.  Each activity in the production process should be assessed in detail.  The activity must add value to the customer, and must be an activity that cannot be accomplished automatically.  Otherwise, the activity should be eliminated or consolidated with other processes.  As with the other wastes, it is important to examine every activity or process through the lens of lean.  For this reason, it is preferable to look at all processes as potential waste.  This differs from the view of some lean practitioners who describe this waste as over processing, and encourage the acceptance of processing as value added.

The primary cause of some processing steps is a failure to recognize processing as a waste.  Every process in the manufacturing operation is often assumed to be value added.  This leads individuals to overlook processing as a source of waste.  The assumption is that the process wouldn't be there if it wasn't necessary.  In reality, many processes are unnecessary.

Another common cause of processing is complexity.  The more complicated a process is, the more likely there will be unnecessary steps.

In an office environment, processing is a very common waste.  This often comes in the form of reviews and approvals needed to make decisions.  Many steps in the approval process are likely to be steps that do not add value.  There may be necessary controls to ensure quality, fiscal responsibility and legal compliance, but each of these activities is inherently wasteful.  Streamlining or eliminating processing steps that add no vale can dramatically speed up an operation and reduce cost.

Effect:

As with the other wastes, processing adds costs.  It does this through the expenditures of materials and labor to complete the additional processing steps.  Each processing step introduces an opportunity for error.  If you only have one activity to make a part, there’s limited chance to introduce a defect.  If you have hundreds of steps, each step will introduce opportunities for errors.  Processing also slows an operation and extends lead times.  Each step takes time, and more importantly, the wait time between steps greatly increases lead times.

In an office environment, the increase in lead times due to processing steps is incredible.  Many tasks that require only a minute or two of actual work can take weeks or months to complete.  The more consolidated a process is, the faster it can be executed and completed.

Possible Solution:

The first step in eliminating processing is to recognize that processing activities can be wasteful.  Most professionals overlook processing as a waste.  Challenging these assumptions is critical to making your lean implementation successful.

The next step is to look for ways to consolidate processes.  If an activity is essential, look for ways it can be combined with other processes.  This strategy often leads to the construction of work cells that combine operations.

One of the most useful tools in eliminating processing is Value Stream Mapping.  Value Stream Mapping is a technique where a complete process is diagrammed in great detail, with processing times, queue times and batch quantities listed at each step.  Completing a Value Stream Map will often identify processing steps that are extremely costly, both in terms of resource costs and lead time increases.

In an office environment, Value Stream Mapping is an extremely valuable tool.  Many people will fail to recognize the complexity in routine processes because they only interact with a few steps in the process.  By mapping the processes, it can become clear that some activities are very process intensive with very little value added.

Defect :

Cause:

Poor quality and the resulting defects are a major source of cost for many companies.  This is also a cost that is often under reported as there are direct and indirect effects of defects.  A defect is any error in a process that makes a product or service less valuable to a customer, or that requires additional processing to correct the defect.

The adoption of lean at many companies started with a focus on quality.  Total Quality Management was a major manufacturing initiative before lean was adopted on a widespread basis.  It was easy for a company to recognize that defects were wasteful.  As a result, quality initiatives designed to reduce and eliminate defects are often some of the most mature lean initiatives in a company.

Defects arise out of processes that are poorly controlled.  A well designed process should produce acceptable results every time.  Few processes can achieve perfect quality every time.  Variations in raw materials, changes to machine setups, wear and tear on equipment, improper maintenance, poor training, and worker error can all lead to variations and quality defects.

In an office environment, defects also occur.  Poor planning, slow communications and inadequate training can all lead to errors in work.

Effect :

Defects cause both direct and indirect costs.  The direct costs are the lost materials and labor that went into the part that was defective, and the rework costs associated with correcting the defect.

Indirect costs from defects can be crippling to a company.  Every defective part that is produced uses capacity.  When demand is high and a bottleneck exits, defects will lead to lower revenues.  If defects are not identified and corrected, they can reach the customer.  A dissatisfied customer could be a best case scenario when you consider that substantial lawsuits are often a result of product defects.  There are numerous examples of defective quality leading to crippling liability awards in food, medical device, pharmaceutical, automotive, toy making, and other industries.

In an office environment, defects can be even more substantial than in manufacturing.  Office workers are often responsible for product design, service delivery, planning and scheduling, and compliance and corporate governance.  The failure to correctly assess risks at Lehman Brothers, or the failure to recognize improper trading by investors who trusted Bernie Mad off were high profile errors in risk management processes.

Possible Solution:

Improving quality and reducing defects have been studied and refined over a number of decades.  Total Quality Management is a great framework for improving quality.  Poke-a-Yoke is the lean activity where a process is error proofed.  More recently, Six Sigma has grown out of the TQM movement into a set of tools for refining processes and improving quality.

Overall, the lean methodology can be viewed as a set of tools and techniques for removing defects.  Streamlining processes and removing waste are activities geared toward delivering consistent value with minimal waste.  This can only be accomplished when processes are well designed and developed to ensure high quality products and services with minimal expenditure of resources.

The below table is showing the waste elimination of seven common wastes at any business entity

Seven Deadly Wastes	Description	Solution (Lean Tools)
OVER PRODUCTION	Making something before it is truly needed. This is a particularly serious form of waste because it leads to excess inventory that is often used to mask other underlying problems and inefficiencies.	Pace production so the rate of manufacturing matches the rate of customer demand (Takt Time). Use a pull system to control how much is manufactured (Kanban). Reduce setup times so that smaller batches can be economically manufactured (SMED).
WAITING	Time when work-in-process is waiting for the next step in production (no value is being added). It can be truly illuminating to look at the time from order to shipment and ask how much of that time is actually spent on true value-added manufacturing.	Design processes so that the flow is continuous and there are minimal or no buffers between steps in production (Continuous Flow). Use standardized work instructions to ensure that a consistent method and consistent times are used for each step of production (Standardized Work).
TRANSPORT	Unnecessary movement of raw materials, work-in-process or finished goods.	Design a linear, sequential flow from raw materials to finished goods (Value Stream Mapping). Make sure work-in-process is not placed into inventory (Continuous Flow). Avoid continual changing of job priorities (Theory of Constraints).
MOTION	Unnecessary movement of people, movement that does not add value.	Ensure that work areas are logically organized (5S). Consider alternate arrangements of equipment that reduce motion (Value Stream Mapping).
OVER PROCESSING	More processing than is needed to produce what the customer requires. This is often one of the more difficult wastes to detect and eliminate.	Compare customer requirements to manufacturing specifications (Kaizen). Look for potential simplifications to the manufacturing process (Kaizen).
INVENTORY	Product (raw materials, work-in-process, or finished goods) quantities that go beyond supporting the immediate need.	Bring raw materials in only as they are needed (Just-In-Time). Reduce or eliminate buffers between steps in production (Continuous Flow). Refer to Overproduction countermeasures (Takt Time, Kanban, and SMED).
DEFECTS	Production that is scrap or requires rework.	Design processes so they are less likely to produce defects (Poka-Yoke). Design processes to detect abnormalities so they can be immediately corrected (Jidoka). Look for the single most frequent defect and determine why it occurs (Root Cause Analysis). Create work instructions that provide a consistent method of manufacturing the part. (Standardized Work).

There is a 8^th Hidden waste at all the business entities. Top management is least bothered about it , that is a Untapped Human potential. Its Under utilizing capabilities, delegating tasks with inadequate training.

In normal practice any managers expect from his work man to work in the direction he has given or  as per the written work instructions or SOP. While working with the set work instructions these workman become expert in their  process and they are the one who are good in improving that process which may reduce the rest of 7 wastes.

A suitable training program and a recognition upon suggesting or implementing a new method eventually leads to more production and less waste. Every manger should have a training program schedule for his operations right from down the line helpers up to his direct sub ordinates. He should think in ways and means where down the line people will start thinking out of box and put their full efforts in improvement and eliminating the 7 wastes.

WASTE ELIMINATION - Part 2

In part one we have seen the cause , effect and solutions on Transportation and Inventory wastes , in this post we are going to look in to some more wastes.

Motion :

Cause :

 As we have seen in my previous post the Transportation waste which deals with movement between processes, Motion is similar to transportation but it’s within a process, it may be between two machines or two work stations or between two departments. It’s a common waste both in manufacturing as well as service industry.

In manufacturing, motion is easy to see.  It occurs when a material, tool or person moves.  The shorter the movement, the faster the process will be and the more efficient the process.  Some activities naturally have large amounts of motion built into them.  For example, a warehouse pick operation requires an employee to visit different locations to fill orders.  If the worker visits locations randomly, the motion between pick locations can be huge.  If the pick routing is optimized, the worker will always move to the next closest pick location.  (Note: Some may consider this movement transportation instead of motion since the worker is travelling between operations.  For this example, the warehouse is defined as the work centre and the movement is defined as motion within the process.  Either view could be considered correct.)

In an office environment, motion is more subtle.  Work is often completed with a computer.  The motion isn’t a physical motion.  Instead, the worker must navigate complex file structures and computer programs that make it difficult to complete basic activities. Motion is typically a result of the physical design of a system.  Some architectures place essential elements far apart, requiring a machine or person to move between the locations.  In some cases, this is a result of efforts to make a process safe.  For example, an operator may be required to leave an area before cycling a machine so that the machine doesn't impact the operator.  In other cases, the designer didn't adequately consider motion when setting up the process.

In an office, motion can occur in a number of ways.  It can result for the organization of files and materials on a desk.  It can result for the computer file structure.  It can be due to a program with an unnecessarily complex navigation and interface.  The design of technology often creates added navigation as important information is stored in different places.

Effect :

Motion is the main reason for slowing processes, increasing worker fatigue and increasing wear and tear on equipment.  Motion also creates safety hazards as greater movement of equipment risks impacting workers, and greater worker movement can lead to increases in strains and other injuries.

In an office environment, motion slows work and increases frustration levels.  The amount of time spent jumping back and forth between programs can be substantial.  This motion adds no value, but slows the employee and causes the employee to have to stop and start their work repeatedly.

Possible Solutions:

If Motion waste has to reduce there is a requirement o designing machines and work stations to suite one piece flow which minimizes the movement of people working on that job.  

This often requires layout changes and is typically an early step in the adoption of lean.  One important element in reducing motion is ensuring that tools are available where they are needed.  This makes 5S a great program for reducing motion waste.  Tools and other essential materials are positioned for optimal placement and minimal motion.  All non-essential items are removed from an area.  The result is a work cell that is more productive with much less motion.

In an office environment, eliminating motion can be accomplished a number of different ways.  One of the easiest is through training.  Every computer program comes with shortcut key combinations that will speed productivity.  Most people know at hitting Alt-Tab on a Windows computer will change windows, or that Ctrl-C will copy text and Ctrl-V will paste it.  There are hundreds of shortcuts that can speed productivity and reduce motion.

Another step that improves productivity and reduces motion is changing the monitors employees use.  A study by NEC found large monitors or dual monitors greatly improves worker productivity.  With text editing tasks, workers completed 8-hours of work in 5.5 hours when switched they from a conventional 20” monitor to a 24” wide screen monitor.  Workers with spreadsheet tasks had similar gains when switching from a single 20” monitor to dual 20” monitors.  This means buying four employees a new monitor would yield as much additional productivity as would be gained by hiring another employee.

Redesigning computer programs and directory structures can also yield substantial results.  Many companies have adopted strategies to improve the usability of their systems with tools such as information dashboards.  These tools present information from a variety of sources on a single screen so an employee can quickly review and assess an entire process or project.  Tools like this greatly reduce the motion wasted by employees switching screens and looking up information.

Waiting :

Cause :

The most easy to recognise waste in any business entity is Waiting waste which is one of the most important waste in 8 Deadly Waste at manufacturing.

Eliminating time spent waiting has been a focus of manufacturing improvement activities since the industrial age started.  The motivation to eliminate wait time has been the driving force behind many of the other wastes.  For example, to eliminate any chance of an employee waiting, large queues of WIP would be accumulated throughout the production process.  Reducing wait time is an essential objective and important component of lean, but it is just one of the seven wastes.

When people think of wait time, most picture a worker in front of a machine waiting for material to arrive or for the machine to cycle.  This is one of the common types of wait time, but there are more subtle instances that are every bit as costly.  Wait times are a major challenge in supply chain operations, as companies must wait days or weeks to replenish raw materials.  Wait times also occur in many administrative functions, including the delays in the flow of information or approvals from one department to another, or the delay of waiting for an open position to be filled.

The most basic cause of wait time is an unbalanced process.  When one part of a process runs faster than a previous step, there will be waiting in the process.  Another common cause of waiting is when materials are not available.  This can be due to material handling processes not operating effectively or due to stock outs, as when replenishment inventory is out of stock with production.

The most common causes of wait time are poor communication and poor decision making processes.  When employees do not have sufficient information and are not empowered to make decisions, wait time enters the process.  This cause of wait time is extremely common in administration functions.  The more bureaucratic an organization is, the more wait time due to slow communications and decision making.

Effect :

Waiting is pure waste as a resource goes unused.  This lost opportunity is easy to see, but is only one type of loss due to waiting.  Most companies will not allow workers to sit idly for long periods of time.  Even if the cause of waiting is not resolved, the company will usually seek to resume work.  The effect of waiting is therefore a change in the plan, and resources are deployed to less than ideal uses to avoid wait time.

Forced plan changes resulting from a desire to avoid wait time cause a wide range of the other problems.  One common example is when a raw material is out of stock.  The company cannot produce the product required by the customer.  Instead, the company overproduces the products for which raw materials are available.

Another common effect of wait time is to paralyze decision making.  When information is not available quickly, decisions cannot be made.  Often, this leads to missed opportunities.  By the time the information is available, the opportunity to use the information is no longer open.  Even worse, when information isn’t available and a decision cannot be postponed, people with make less accurate decisions.

Finally, wait time is a primary cause of inefficiency.  Every time an employee has to stop because they lack resources or information, they waste time shifting to other activities.  In today’s office environment, where an employee may work on dozens or hundreds of tasks every day, wait times can bog a person down and destroy productivity.  This type of wait time appears innocuous – a few seconds here, a minute there.  Over the course of a day, it adds up to hours.  Some researchers have estimated that the average office worker is unproductive more than 35%.  Others have estimated that unproductive time is the much more pervasive, with value added time constituting only a small fraction of a worker’s day.

Possible Solutions:

Eliminating wait time is usually a straightforward process once the wait time is identified.  Eliminating bottlenecks is a typical strategy, as this allows for more balanced processes.  When wait time is caused by slow communications and decision making, the company requires structural change.  Systems need to be upgraded to ensure information reaches the people that need it.  The workforce needs to be empowered to make decisions so that individuals do not have to wait for a decision to arrive.

The most subtle causes of wait time are distractions that slow a worker’s productivity.  Eliminating potential distractions is an important step.  Often, the distractions appear to be essential.  For example, many employees set their computers to notify them when a new email arrives.  This notification immediately removes the employee from productive work and places the employee in a wait mode as the employee assesses whether they should act on the email now or later.  Some companies have instituted email-free times, when employees shut down their email programs and focus on a single task.  Tactics like this are common when implementing lean in an office.

Overproduction :

Cause :

Overproduction occurs when a company manufacturers a product before there is a customer demand. Overproduction can occur with individual processes or across the entire value stream. The result of overproduction is excessive inventory, higher capital requirements, high obsolete and excess inventory expense, and additional product damage.

Incentives can create an environment that unintentionally encourages and rewards overproduction. At the corporate level, the accounting policies will often incentives overproduction. This is a result of the way companies account for expenses. Materials, labor and overhead are allocated to finished goods as product is manufactured. This is designed to properly tie expenses to the products that generated the expenses. Because overhead expenses are fixed, when the costs are absorbed does not change the costs. The result of tying absorption to production independent of demand is a system that encourages overproduction.

Make-to-stock systems create overproduction by design. In a make-to-stock system, goods are produced in advance of demand. This is the definition of overproduction.

Forecasting errors will cause overproduction. Organizations that manufacture to a sales forecast instead of actual demand will have errors. The errors will cause too much of some products and too little of other products to be made.

Poor communication from customers can lead to overproduction as information about demand changes is not rapidly communicated to the production planners.

Poor quality can also lead to overproduction. When the quality of a process is unpredictable and uncontrolled, planners will schedule more production than is needed to ensure an adequate number of good parts make it through the process. When process yields are better than average, the number of good parts produced will exceed the plan.

Effect :

The most obvious result of overproduction is an increase in inventory levels. This occurs as the extra production must be stored until it is needed (or disposed of). There are a number of other problems and costs associated with overproduction.

In processes with bottlenecks, any overproduction of an item could result in a capacity or material shortage of another, more urgently needed item.

Overproduction will often increase motion and transportation waste as bigger lot sizes result in less efficient work cell designs and more movement to and from storage locations.

Overproduction will also increase the amount of obsolete and excess inventory that needs to be discarded. In a make- to-order environment, there should never be obsolete or excess inventory. Every item produced is earmarked for a customer.

Possible Solutions:

In the short run, companies can implement tighter controls on scheduling and forecasting to reduce variances and overproduction. As lean techniques are implemented, more significant changes can be undertaken. One major shift is from make-to-stock to make-to-order. As a company shifts to a pull system, overproduction is naturally eliminated since production is originated by customer demand.

Increasing communication between the company, suppliers and customers can also reduce overproduction as changes and demand are reacted to much faster.
Any activity that shortens lead times will allow for the reduction of inventory and a corresponding reduction in overproduction. Quality improvements will also allow for lower overproduction.

It is essential for a company’s incentives to be re-designed to minimize overproduction and excess inventory. As long as overproduction is rewarded, it will continue.

WASTE ELIMINATION - Part 1

As we have seen in my last post there are 8 Deadly wastes @ Manufacturing** TIMWOOD + UHP ( Untapped human Potential ) *** in all business entities, In this post we are going to look for the causes , Effects and  possible  solutions for Transportation and Inventory wastes.

Transportation

Cause :

A well known and co-ordinates system of transport plays an important role in the sustained economic growth of a country. The present transport system of India comprises several modes of transport including rail, road, coastal shipping, air transport, etc. Transportation in India has recorded a substantial growth over the years both in spread of network and in output of the system. but it is also a fundamental waste to be eliminated.  As important as it is to get a product to the customer, transportation does not add value to the product.  This can be easily seen.  Imagine you are in a store looking for product and find two identical products on the shelf.  One was transported from a factory 500 Kms away, and the other was produced 5000 Kms away.  Would you be willing to pay more for the product that had been transported farther?  Of course not.  For many products, particularly perishable products like food, long transportation times can actually reduce the value of the product.

Transportation can also occur within a facility.  When materials are moved around a factory, they are not gaining value, but resources are expended to move the materials.  This is an easy waste to identify. Although it may be impossible to eliminate all transportation costs, this should be the goal.  Otherwise, companies will grow complacent and accepting of transportation costs.

Most of transportation costs are generated by moving raw materials to a factory and moving finished goods to a customer this is because of  the centralized production of a product, and the design of the supply chain supporting production.  In most industries, large scale centralized production is a thumb rule.  The result is a product that may be produced hundreds or thousands of Kms away from where it is needed. The supply chain has a big effect on transportation.  Sourcing raw materials locally can reduce transportation costs.  When making sourcing decisions, the transportation costs are typically included in the total cost of the material being acquired.

Inside a facility, transportation is caused by wait time and inventory.  Every break in a process that causes wait time has the potential to allow WIP to accumulate.  As WIP accumulates, it needs to be stored, and in turn, transported to and from storage locations.  With high finished goods and raw material inventories, transportation costs also raise.  The bigger the warehouse, the higher the transportation costs expended in the warehouse.

In some companies the production has to take for heat treatment or cold treatment after 1^st stage to the different company in or out of city which will bring back the same place for the 2^nd stage , the transportation cost and the total time consumed is again a transportation waste.

In office environments, there are still significant transportation costs.  In this situation, the transportation is typically of workers and not products.  Many companies recognize the transportation costs of employees travelling.  Whether driving or flying, it is expensive to send a person on a trip.  Transportation costs also occur inside a facility.  If sales and production planning need to meet regularly, but are on opposite sides of a production facility, employees will end up walking back and forth a lot.

Effect:Transportation costs money, in equipment, fuel and labor.  Transportation also drives up lead times.  This is most commonly felt with imported raw materials.  A component from China can take weeks to arrive, and the company must either increase inventories or increase customer lead times to accommodate the transportation time.

Transportation also drives up other costs.  Every time a material is moved, there is a potential for damage.  Securing a product for transportation also requires labor, as the product must be stacked and packed to minimize damage.  For products shipped outside a facility, theft and security costs are also a factor.

In office environments, transportation can slow communication and cooperation.  Employees working in separate locations typically do not build strong relationships.  Even inside a facility, employees who are far away will be consulted less.  The barrier created by distance then slows communication of critical information and the ability for organizations to develop consensus.

Possible Solutions :In a perfect world, there would be no transportation and everything would happen where it is needed.  Manufacturing operations would be located near customers.  This may seem unrealistic, but some industries are set up with local manufacturing by necessity.  Every restaurant is a make-to-order manufacturing facility located as close to customers as possible.  In this case, a hot hamburger fresh of the grill loses substantial value if it is packed in a box and shipped across the country.  Companies strive to develop supply chains that minimize transportation (and other costs).

When implementing lean in a facility, any effort that streamlines a process should reduce transportation.  Combining operations and eliminating a wait step will reduce WIP and the handling of that WIP.  Reducing lead times will reduce the amount of inventory held, and reduce the transportation of that inventory to and from storage locations.  The biggest steps a company can make are likely to be the development of process lines that transform raw materials into finished goods without any intermediate stops, along with a make-to-order scheduling system.  In this case, raw materials are the only items that need to be stored.  Once production starts, the only transportation inside the facility is the movement of material from the production line to the shipping trailer.

In an office environment, there are opportunities to reduce transportation costs.  These start with technologies such as video conferencing and document collaboration tools.  Designing an office around the processes within the company is also important.  Most companies organize employees by function, with all the purchasing people in one area, engineering in another, production planning somewhere else, and sales in another location.  Reorganizing this into cross-functional groups can speed information flow, improve collaboration and reduce transportation costs.

Inventory :

Cause :Inventory is one of the most important  waste in the lean system.  Because inventory does not add any value to the business as non of the customers will pay for the inventory running cost, but It has significant costs association with a smooth running of a business.  Many companies use inventory as a crutch to minimize the impact of inefficiencies in their processes.  The inventory appears essential and valuable, but as per as Lean is concern, the inventory becomes unnecessary.

Some versions of the 8 Wastes refer to this waste as “excess Inventory” instead of “Inventory”.  The reason being is that manufacturing cannot operate without  inventories.  This form of the 8 Wastes tries to introduce pragmatism into lean.  It is true that zero inventory may be impossible to achieve.  To achieve zero inventories, you would need to process incoming raw materials as soon as they arrive, process them in one operation or a linked series of operations, and dispatch the finished goods immediately.

Although it may be impossible to achieve zero inventories, it is important to strive for the possibilities.  Introducing an acceptance of a waste into the lean methodology compromises the lean philosophy.  Practitioners should continually strive to reduce inventory no matter how low the level.  There will be times when further inventory reduction is not possible or cost effective with existing processes, but that should not lead to a permanent acceptance of inventory as necessary.

Overproduction, one of the 8 Wastes, is a primary cause of inventory.  Processes and incentives that encourage producing too much product will lead to higher inventory levels.

Inventory is viewed by many as insurance.  It protects against unexpected events such as a material shortage, machine breakdown or natural disaster.

Poorly controlled processes lead to large lot sizes, inaccurate forecasts, poor communication with suppliers and customers, and errant management decisions.  All of these limitations will result in higher inventory levels.

Effect :The most common effect of inventory on the business is the blocking the capital required to carry the inventory.  The cost of inventory is significant, and that cost is  not generating any revenue .  It just sits idle.  By reducing the inventory required to operate, the business can reduce the capital it requires in order to support those operations.

Inventory affects a wide range of other expenses.  As inventory levels go up, the capital investment in warehouse space also increases.  Large warehouses mean more time is required to move product into storage and out of storage locations.

Higher inventory levels also drive up obsolete and excess inventory expenses.

Damage to inventory also increases as more inventory is stored for longer times.

The larger the inventory, the more labor is required to maintain inventory accuracy.  A plant that has one day’s inventory on hand will have an fast and easy physical inventory compared to a plant with a year of product in storage.  The number of cycle counters and inventory adjusters also increases with inventory levels.

 Possible Solutions:It is necessary for any business entity to streamline processes and reduce lead times.  Every reduction in lead times leads to a reduction in the inventory held.

Eliminating work in process (WIP)can be achieved by creating a one peace flow  through the production process. Every break in a process requires WIP to be stored and moved between processes.  Eliminating these breaks allows the elimination of WIP.

Better forecasting and a shift to a pull based scheduling system will eliminate the large forecast variances that lead to overproduction and increases in inventory levels.

Any effort seeking to reduce inventory must have incentives to motivate employees to minimize inventory.  Managers need to treat the capital tied up in inventory as a negative to be minimized.  This can involve charging a plant for the cost of capital or by making inventory levels part of the bonus calculation.

The most important thing to remember when looking at inventory is that all inventories as waste.  Too often, inventory’s ability to cover up for other problems makes people think inventory is essential.  In reality, correcting the underlying problems will make the inventory unnecessary.