Why Inventory Management is Central to Lean

Opportunities for ERP systems to improve efficiency of operations and the level of customer satisfaction abound, yet no other reason is more compelling than the benefits of Lean management systems when applied to inventory management. Countless managers blame poor fulfillment and needless manufacturing downtime on inventory management problems, however these are symptoms, not root causes.

Think about it – missed promise dates usually occur because the necessary inventory wasn’t available to meet the requirement. The real question is “Why did this happen?” The path to answering this question begins with performing Lean analysis. By focusing on the “value stream” for inefficiencies, it’s possible to take a deeper dive and a broader look into the root causes. In other words, to address these problems, its essential to fix lack of functionality that created a less than optimal inventory atmosphere in the first place.  Below is an assessment of how these issues may have arose in the first place:

The Seven Wastes

Over-production: Too much output, too soon, and not according to actual need.

Wait Time: Shop floor managers and workers idle, waiting for equipment or inventory such as components, raw materials, subassemblies, intermediates.

Transportation: Inefficiencies in material movement, from suppliers to final destination.

Processing: Any activities or production steps that add no value.

Inventory: Is demand/supply in balance and continually monitored?

Motion: Wasted jockeying of physical objects: human capital, machine, or materials.

Defects: The cost of poor QA is immense: repair, rework, or scrapped output.

As with all application of continuous improvement, the goal to is to implement new practices and processes to reach the highest possible levels of efficiency.

Applying Lean to Inventory and Bill of Materials (BOM)

Starting with the reality that inventory problems are never the problem but symptoms of inefficient or broken processes, it makes sense to look carefully to see the various issues. The pain points can then be used to perform a deeper dive to identify the cause. This informs us where to apply Lean principles.

Typical Inventory Challenge #1

Excessive (or too little) inventory:

Where does the problem originate? Is it in the BOM structure?

Far too many companies never identify the BOM as an input, but it is the most important function in an ERP system.

Unfortunately many managers or those tasked with overseeing production simply are not trained in how to structure an efficient BOM. These, then are the relevant questions to ask in order to gain sufficient clarity to implement Lean for your inventory management:

  • Is the planning flawed? Or, are people not following the plans?
  • Are there problems in scheduling? Or, are the schedules in place being ignored?
  • Is it shop floor execution? Almost always this can be traced back to the product structure.
  • Is the forecasting/demand planning faulty?
  • Are there blind spots in sales and/or sales planning? (Specifically, within make to order, configure to order, assemble to order, engineer to order environments)?
  • Is finance involved in the form of costing, unit of measurement (UOM), etc.?

Lean principles for solving inventory management problems:

Better Quality Control: By removing defects wherever possible and using well-defined controls to standardize production and solutions to quality issues, product quality can be maintained and improved.

Continuous Improvement: Central to any Lean-based organization is the tireless pursuit of better processes, better outcomes, better products.

Establish Pull System: Limit as possible inventory and work in process (WIP) components with the objective of goal striking a balance between having enough materials for production but avoiding overshooting the mark which leads to waste.

Payoff: The end goal is to save time, money, and to deliver quality to the customer.

What should your ERP system offer for your Inventory Management?

In each client engagement our objective is to ensure our customized ERP system creates value across your entire organization. Lean principles can solve inventory management challenges and will serve as a springboard for you to gain greater efficiencies in other areas within your business. For more information, book an appointment with one of our consultants today.

Attivo All-In-One, powered by SAP Business One has the most powerful and fully integrated analytic and reporting tools in the ERP software sector for small to mid-sized businesses. This makes it easier and more efficient to design and implement customized quality control processes and methods across your organization.