For manufacturing and distribution businesses, inventory needs careful management. Inventory ties up working capital, leads to increased overhead costs associated with stock management (eg storekeepers, storage equipment, floor space, systems) and rework (eg impact of failures and changes) and a profit impact from redundant and slow moving stock. Significant inventory reduction is a high business priority for many businesses.
Following the Just-in-Time movement, much is known about simpler and better stock management methods. It is very common to see businesses tackle the inventory reduction challenge by using problem-solving teams to implement these techniques. An approach like this will take years to deliver, if ever, because it fails to understand and address the reasons why inventory builds up.
Inventory is required when the customer’s rate of demand exceeds the supplier’s rate of supply. The inventory is used to improve customer service. For the supplying organisation to reduce inventory it needs to radically improve its operational process to reduce the response time ie the operational process needs to be as short and robust as possible.
To deliver real improvements in inventory reduction requires the redesign of the operational process. This involves understanding the nature of the customer demand and developing the most straightforward process for meeting it. The best way to undertake this work is to use a full-time Task Force or project team trained in a process redesign methodology. Compared to this approach the piecemeal implementation of the Just-in-Time techniques will produce small benefits which are swallowed up in the overall complexity of the process.
Hartswood Management Ltd
Removing the roadblocks to delivering real improvement