Do you feel comfortable? Are you sitting pretty just you can service any order that comes in, no matter what the size? Then you’re playing the dangerous game of Over-Inventory.
Inventory is a tide. As is rises, your ship (the business) is buoyed higher and we stop worrying about the rocks (the inefficiencies) beneath the surface. As we build a “comfort stock” we tie up valuable cash on gambles and lose track of other Wastes that are draining our resources.
Let’s follow your processes. As your raw material moves through the steps to becoming a finished product, more dollars are pumped into it.
Over-Inventory, and Overproduction, it’s nasty cousin, stem from a blend of idealism and disengagement. We fall for the “make it and they will come” myth and, at the same time, crave the comfort of knowing that we’re ready for any sized order.
Do you shop at Costco thinking it saves you money? Mythbuster: it usually doesn’t once you factor in all the Food Waste that comes from buying bulk.
Same rules apply for your business. Suppliers tempt us with percentages off if we buy in bulk, which sounds like a good idea; you’re going to use it all anyway, right? Wrong. It’s more often a cash-killer.
Buying in bulk clogs up receiving areas, leading to temporary storage popping up and inviting Waste in everywhere. The possibilities of double-handling and potential spoilage (depending on the material, of course) set in.
What’s the lowest amount of inventory you can carry before production grinds to a halt? Can you balance your freight to deliver smaller loads, even if that leads to milk-running? Get close to the rocks; get uncomfortable.
You’ll have multiple steps in your assembly process (depending on your product). Waste can happen in any of them if you haven’t synced the processes between them.
If one process is faster, the partially assembled inventory will build up and as it accumulates, it’s more likely to get moved, damaged, dirtied, or lost.
Make continuous flow your goal. Sync your processes with each other, so that even if inventory accumulates before the next step, it’s predicted and managed.
Finished inventory is the biggest Waste. Think of all the money that goes into one finished widget. Now imagine each widget as a frozen chunk of that cash that can only be thawed and used again when bought.
Catastrophic Waste happens when your finished products accumulate to the point of paralyzing your cash flow. Comfort turns to panic on a dime, and product will often need to be discounted to keep operations moving.
You can’t operate with zero finished inventory; when customers call, they expect rapid delivery. But what is the lowest amount you reasonably need? Do the math. What orders can you expect in a month? What is a baseline of unexpected orders to come in? Unless your production process takes a long time, plan to carry less than the baseline.
Make it uncomfortable. Efficiencies will follow.