What is top priority for any organisation? Profit – Obviously. Isn’t it? If an organisation is profitable, then only it can sustain and grow. Many companies focus just on improving bottom line (Profit) and they neglect other factors which are affecting in a better Bottom Line. There are several factors which any company need to consider. One amongst them is Inventory. Often organisations consider Inventory as one of the cost factor which is of less relevance but in actual it is one of the major costs in any organisation.
When we think of Inventory, only finished goods comes to our mind. But inventory is not only Finished Goods but it includes Raw-Material, Work-In-Progress as well. If we calculate the total amount of all three, we can actually find how much cash flow is blocked because of improper inventory management.
Inventory is one area where there are significant opportunities to improve processes and we can identify waste clearly and can reduce those waste. Proper Inventory Management can lead to improved cashflow, can release lots of space, can obsolete spares not in use and can reduce stock-outs. Proper flow of Inventory can lead to reduced lead time.
Following are some insights from one of the articles “Are you overlooking Inventory as a focus for Process Improvement and Waste Reduction?”:
When you see excess inventory you can be sure that processing issues are being hidden. Here are a couple of basic truths:
The longer any form of inventory sits, the colder the trail becomes to find and solve problems. Early in your journey this almost always leads to finding the process failures too late to avoid excessive rework, scrap and missed customer commitments. Our objective is to know about process variation, outside the norm, as close to real time as possible. The same premise goes for the supplier base as well. [See the figure below on how inventory hides problems — we don’t know what the No. 1 issue to attack is until inventory is reduced enough to expose it.]
Excess RIP (RM + WIP) always exposes poor scheduling practices and the need to substantially reduce cycle times. This is often a major contributor to No. 1 above. Reducing cycle times/inventory can be a driving force to improve plant performance; so can a bold objective to significantly increase RIP turns.
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