Managing Inventory with a holistic approach in Small,Emerging Organization

In most of the organization, Inventory is a concern for the business head.

When we say inventory, it consists of Raw Material *+ Work in Process (WIP)+ Finished Goods Inventory.

* It includes raw material used in product + consumables + spares for equipment also.

Why inventory is a concern ?:

1. Holding  and funding cost of stock is a burden on working capital as this could be used for something else
2. High  inventory occupies more space, need more handling and people deployment
3. Despite having high inventory, delivery actualization is not met on time, holding inventory adds fuel to the inventory cost, in turn, manufacturing cost

From a basic understanding of waste from a lean perspective, inventory is waste, and it is only a symptom. Inventory cannot be controlled or reduced at symptoms level as the inefficiency of all the manufacturing, supply chain, and order procurement process and effectiveness impact the inventory level.

Hence if you want to reduce or control inventory significantly, the causes have to be managed with a holistic approach. It calls for strategic as well as tactic management.

Given the factors affecting the inventory either in RM stage or WIP stage or FG stage.

Depending upon the industry, the factors may vary a little bit, but with our experience in many manufacturing industries, the following significant factors to be revisited for better inventory management.

1.Manufacturing factors
2.Engineering factors
3.Supply chain factors
4.Customer factors
5.Internal System factors

1. Manufacturing factors :

Most of the time, the WIP inventory primarily based on the lot size, changeover time, machine/plant capacity, reliability of machine/ plant equipment, the overall flexibility of the resources and the capacity imbalance among the process concerning customer's order pace or takt time.

when you want to reduce or control WIP, the above factors have to be revisited and re-engineered.

2.Engineering factors :

It includes the no of parts in the components, standardization among the parts and modular systems, Processes involved in manufacturing those parts and the stages involved in manufacturing either internal or external sources and so on

3.Supply Chain Factors :

This factor is more of the strategic intent of the organization on the supply chain design. It includes the no of the vendors for each part, their location, pricing factors, lead-time to supply, the reliability of the vendor base and so on

4. Customer Factors :

It is more of an external driven. However, management has a choice to drive. It includes the customer profile either tier1, tier2 or OEM, the location of the customer, demand pattern, and forecasting accuracy, no of products or product lines, varieties, and volume in each variety. Those factors govern the inventory of RM+WIP+FG 

5. Internal system Factors :

Irrespective of external factors and industry type, the discipline, and internal management processes govern the inventory to some extent. It includes Norm fixation for each commodity or part wise, budgeting, buyer accountability fixing, regular reviews, and management communication system among the team.



Inventory control without affecting the customer's order delivery is a continuous management effort and calls for a holistic approach.!

My thought process on initiating lean manufacturing in small and emerging organizations

         Lean is achieving “more with less.” That is, making more production with

given resources or increased efficiency or achieving with less cost.

      Lean manufacturing system can be understood by relating to a human body. If the person is lean means general understanding is that he is free from unnecessary FAT in his body, hence free from unnecessary side effects like BP, Pain in joints, laziness, and the person is perceived as healthy, more flexible, and active.The same way if the organization is lean means, it is free from unnecessary fats like high inventory, high rejection, high breakdowns or line stoppages factors, etc  which leads to more flexible in delivery, less lead time , low cost of manufacturing and free flow of communication ( This is the way I introduce lean to new forums in my consulting workshop).Hence making the organization ( across all functions), extended supply chain system, any functional units (like machining, assembly, painting) need to be lean for increased efficiency, low cost, quality at first time and reduced lead time.

Lean is not a tool for cost reduction or cutting manpower or increasing efficiency alone, it is a culture building process or way of thinking and running a day to day business activities.When the lean is understood only as an application of tools like 5S, SMED, Visual management, poke yoke, it results in short-term impact in a particular cell or unit on a short time basis. It becomes difficult to sustain. Most of the organizations are keen on learning the tool and applying without understanding the big picture of linking with business objectives or culture building process.

Any lean initiative must start from CEO or head of the organization and more importantly, it has to be linked to the business need or goal.Moreover, lean should not be driven as separate initiative without linking with the business / functional objectives.When we drive as a separate initiative under one lean champion, lean efforts will be continuing as long as the champion is intense and driving as long as the entire team is undergoing a lean period in production or sales. Once demand /volumes pick up, the lean initiative takes back seat as it is perceived as EXTRA work for the organization.That is the reasons a few organizations are not taking the lean-to next level from grand inauguration ceremony and except few improvements on housekeeping and visual systems. 

In my consulting role, I am insisting lean implementation when there is full conviction from CEO, and there is a compelling need for driving efficiency, improving the bottlenecks for business growth and management agrees to work with us minimum six months to 2 years.
In some organizations, we failed to bring the momentum when the leadership team looks at lean initiatives as a quick remedy for their inherent problems.

To summarise, key ingredients I used in all lean initiatives are

1. Form cross-functional team
2. Involve CEO in reviews
3. Develop Business / Functional KPI's which are important for business / CEO to drive
4. Educate the team to see the waste in the system through VSM workshop or interviewing process
5. Make priority list along with the team to focus on waste elimination
6. For the identified waste, apply suitable lean tools starting from housekeeping (2S), Visual management, SMED, Best Maintenance practices, Daily work management like tracking hourly, daily output/quality issue tracking and reporting
7. Create forums for review meetings with operating team, cross-functional meeting among heads and weekly review meeting with CEO or business head
8. Review, Update KPI and tracking 

Becoming a lean organization is not a one-time event, it is a continuous journey.

Definition of Waste in Manufacturing Setup

Waste in Manufacturing can be defined as follows

1. Useless or unnecessary  resource consumption or expenses

2.Use of  resources , but without adequate return 

1. Useless or unnecessary  resource consumption or expenses

For example , in a manufacturing environment , we will be running the machine or equipment for producing additional  or compensating for rejection etc ..In this case , we are running unnecessarily and the machine is used LESS


2.Use of  resources , but without adequate return 

For example, machine or equipment is operated , but we will not be getting the RIGHT output or RIGHT quality output .In this case, we are running necessarliy,but not getting the right return.

Waste is alternativly termed as "Non Value Added" activities.

Waste tends to be present in manufacturing or in service activities and the aim to completely eliminate the waste or reduce the impact as much as possible.

Important Steps in OEE Improvement Process

ü  Identify the facility or equipment or line to be measured

ü  Understand the current OEE  level

ü  Collect shift wise/ day wise data for specified period

ü  Identify the loss pattern

ü  Classify the losses in each category

ü  Prioritize the losses

ü  Choose the right lean tool for elimination or reduction of losses

ü  Implement the solution

ü  Monitor the OEE trend and loss 

Why do Lean initiatives fail in some organization?

• Lack of CEO and Top Management involvement
• Not educating or creating awareness about Lean and its purpose
• Delegation to down without support
• Changing priority based on the production volume
• Not understanding the Big picture of organizational problem and prioritization
• Keen on technical knowhow of tools and not on implementation
• Lack of people involvement or engagement
• No Indepth implementation of tools
• Lack of facilitation and patience
• Aversion to experimentation and trial

Misconception about Lean

There are some misunderstandings about lean and its application .Some of the misconception about lean are

• Lean means cost cutting

No.Cost cutting means cutting down the expenses whether it is essentially required or not .Lean focusing more on cutting down the waste or unnecessary expenses, which is not adding value to business

• Lean is for manpower productivity

Partially true. Lean is focusing on waste elimination or reduction in any form like man, machine, material, and method. By eliminating or reducing wasteful activities in format, manpower, material, machine, or process efficiency is improved. Hence, it is not only on manpower productivity alone.

• Lean is applicable for manufacturing organization only

No. As said, lean is all about waste elimination. As long as activities are there in any organization, waste will be present .Wherever waste is there, Lean is applicable. It is not only applicable for manufacturing.

• Lean can be implemented only in large organization

No. One of the assumptions is that implementing lean requires investment and only large organization can afford lean. Actually, understanding the lean concept, tools, and techniques is easy and does not require investement.Lean thinking and practices can be implemented in any size of the organization. In fact, Lean can be easily implementable in small and medium scale organization because of its size and activities involved.

• Lean is all about 5S and Visual Boards

No. Most of the people think that doing Housekeeping (5S)  and putting display boards is lean manufacturing.Ofcourse fundamental requirement for waste elimination is housekeeping , ie keeping the workplace in order ,but that alone is not constituting Lean system. Lean is beyond implementing housekeeping practices.Similary visual management is one of the elements of lean system in which display and control boards are part of it. Hence, Lean is beyond 5S and visual boards or even it is beyond any lean tools and techniques. It is philosophy and way of conducting daily management.

• Lean is for during lean seasons

One of the most misconception is that lean implementation is for not peak season as everyone is busy with activities and lean is for during lean season. Lean is nothing do with the busyness of people either peak or lean period. Lean is for waste elimination or reduction. In fact, implementing and practicing lean concepts during peak period may give more savings.

• Lean can be useful during recession

Same as above assumption. There is no right time as recession or booming economic environment. In fact, if Lean is understood well and lean thinking is implemented internally, external factors will not affect the organization much

• Lean is only for automobile and ancillary organizations

No. As said, Lean is nor for specific to any industries. Wherever there are activities involved, Lean can be implementable. Why it is popular in auto and ancillary industries is that the lean concept was evolved and tested first in auto industries.

• Lean  implementation is time bound

No. No organization can claim that they implemented lean system thinking ,because fundamental of lean is zero waste, zero accident , zero defects and it is impossible to achieve and thus it calls for continuous improvement or excellence journey .Lean implementation is a process or journey .. It is not a destination.

What is Lean and Lean Manufacturing ?

         Lean is achieving “More with LESS”. It means achieving more with given resources or  achieving more with less resources .Mainly it is elimination  or reduction of waste .

         Lean manufacturing system can be understood by relating to the human body. If the person is lean means general understanding is that he/she   is free from unnecessary FAT in the  body, hence free from unnecessary side effects  like BP, Pain in joints, laziness etc.  And the person is perceived as healthy, more flexible, active etc.. The same way if the  Lean manufacturing  means , manufacturing system  is free from unnecessary fats like high inventory, high rejection, high breakdowns or line stoppages factors etc  which leads to more flexible in delivery, less lead time ,First time right , low cost of manufacturing and free flow of communication etc .

         Similarly, Lean System  or Lean Organisation means  free from unnecessary waste in the entire value chain starting from extended supply chain  system to  customer, even after sales service system .

Lean system Thinking is more than application of Tools and Techniques. It is a culture  or a way of working  or mindset of  everyone working for the organization.