Posted by: knightbird | January 26, 2016

Observations About Inventory

It was an interesting workplace with inventory problems. Managing inventory had been ignored because of the expense. Some inventory is required, when you consider that computers, desks, phone systems, copiers and other equipment, fixtures and furnishings need to be accounted for. That wasn’t happening because of the lack of available resources. That happens at a non Lean Company.

But there was another interesting inventory phenomena. Ordinary products were bought in quantity when they were on sale, and then the savings were touted because of the reduced price. But was it really savings? Did we account for the human involvement in the acquisition of the products.

The cost of inventory includes what it takes to acquire the asset, storage, movement and accounting for it. And in some cases, the shrinkage that occurs because someone helps themselves to part of it. In one example, I saw 4 different storage areas for janitorial and maintenance supplies. It was pretty obvious that the needs list hadn’t been thought out in a realistic way. When there was a sale at a local store, lots of product was purchased and stored. We didn’t think to calculate how much cash we had in inventory, nor how much of it disappeared. I did have to be stored and that took away space that might have been used for other purposes. When we did a 5S and put together a use and utilization analysis, we ended up with a more organized inventory and knowledge about what products were needed, and how often they needed to be replenished. By putting together a standard checklist and a standard ordering time, you can reduce the effort required and ensure that there are the required products available. And you can assign the responsibility to a staff member with time and at a lower rate of compensation.

This same phenomenon was true everywhere in the organization. Certain products were not available and others were rarely, if ever, used but took up space.

A good Kansan system (just in time inventory system) can help a lot. When you know what you order and how frequently, you are able to find a supplier to meet your needs, and perhaps work out a discount arrangement with them. If they know you are giving them business regularly, it’s easier for them to discount your purchases. After all, with Amazon and other suppliers shipping free and selling the same product, you do have options. I always liked to keep purchases local because that’s where our customers lived and worked. But you do have options.

You can also work out a billing process like an open PO that is billed on a regular basis. This eases the burden on your accounting function.

And you don’t have to worry about product expiration dates. During our 5S in one location, we found product that had actually expired decades earlier. It had just never been cleared out.

I realize this post is boring. But Lean is not always exciting. I just learned that about 80% of savings in a Lean implementation accrue from front line ideas, and this is a perfect one for those actually doing the work.

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Responses

  1. Not boring at all!


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