Inventory is a fact of life, but could it be damaging your business?

Catching up from the last article in this series, which focused on the waste caused by over-production, this time around we shall continue with a type of waste that is very related to our earlier discussion. This is type of waste is generated by the outcome of over-production. We call it waste generated due to inventory; that is, stock, goods, material, works in progress, or even, data and information.

The moment we over-produce, we throw ourselves into a situation of having to find the place, the way, and the right accountability management of the stock thus created.

This Lean Waste is commonly associated with anything that can be related to the holding of stock.  To mention a few key elements, one can speak of:

• the space occupied by such ‘stock’
• the infrastructure arrangements needed (climate control, security, etc)
• the resources needed to store such inventory (energy, people, etc)
• the management systems to maintain accountability, traceability, auditing, protection and prevention from pilferage and loss, etc
• damage and inefficiencies caused by slow-moving works-in-progress down a manufacturing line, or an administrative process (loss of documents, time-expired approvals, storage of and misplaced files, etc)
• subsequent loss from spoiling, shelf-life issues, obsolescence, and whatever it takes to safely dispose of such ‘out-of-use’ inventory.
  
   

These are but a few aspects that come to mind when we speak of inventory management issues.

We spoke about the stock of goodies held in the local café during an earlier article dealing with overproduction waste. Inventory waste is a direct subsequent consequence of overproduction waste.

As a person who has Lean concepts flowing within my DNA, one of my natural tactics as I walk into a potential client’s premises is to do my little observations of the surroundings. This could be done either as I am directed towards the boardroom identified to host me for my scheduled meeting at a prospective client, or during an anticipated ‘Gemba Walk’ – or site visit – across the client’s premises, as a result of an invite by my hosts.

The observation of stockpiles of ‘bits and pieces’, ‘documents’ or whatever it may be, along the walkthrough will generally give me a sound understanding of the level of help the potential client might need in regard to going Lean.

Use-cases: tangible industry

I recall walking through mountains of works-in-progress (WIP) subassemblies in a number of manufacturing plants, engineering workshops, and other operating environments. I have seen situations where the company holds loads of items in both the raw materials, the operating areas, as well as the finished goods warehouses. And I question why that stock is being held.

On another specific occasion, I recall debating with the top-tier management of a relocating manufacturing facility about their intention to create this massive warehouse. Their argument and objective were to ensure themselves of ‘having all the bits ready at hand’, when needed. Indeed, not a bad idea when you are based on an island. But the net result was that within less than three years, this same massive warehouse that they had eventually built, was holding just shy of 40 per cent of its stock in technology-expired and obsolete items. This dead stock (inventory waste) was simply sitting there and being managed, waiting for the right level of depreciation before it could be scrapped (… environmental issues?…Definitely!).

Use-cases: services

I can still feel the fear of seemingly scary piles of paper documents, files and folders stacked across desks, on the side of cabinets (God only knows what was inside!), down corridors, and on every window sill within several offices I have been inat a past client of mine.

A deeper dive into their operating processes soon confirmed the mass of wastes being handled by such intangible activities as administration services. People busy tapping away at keyboards, having somewhat lengthy discussions on their phones, rummaging through piles of files and papers. What were they doing? Were they actually generating value, or were they searching for that lost paper that they needed, or were they re-typing part of a report that ‘went missing’ from their crowded computer desktop?

On another occasion, the stock-piling of horrendous amounts of data within the servers of one British company I was visiting resulted in an avalanche of other wastes, also as a result of badly designed database queries. The company CEO was earlier in the week pompously (and nostalgically!) telling me about how they stored all company data on their servers: he was proud to tell me that they even had access to their very first stock transaction, some 20 years earlier. 

At a later interaction with one of his executives, we needed to run a database query to dig out some reports. This report – I was told – would ‘take a minute or two’ until it was completed. So, I was asked to go grab a coffee from the machine down the corridor – which I gladly accepted. At the coffee machine, this executive met a colleague who was also grabbing a coffee for himself. Without much effort, we must have spent a good 20 minutes over a casual chat about the upcoming BBQ the colleague was organising at his place across the upcoming weekend!

Net take-home message: hoarding unnecessary volumes of data (also considered as inventory waste), resulting in inefficient query execution and database processing.  On this particular occasion, this resulted in at least one man-hour’s worth of unproductive work! Whilst the report sat on the desktop waiting for us to look into it, perhaps a minute or two after being requested. As we walked back to the office, I thought and realised that this was very customary within the organisation.  It was certainly not the first time that a one- or two-minute report processing delay results in unproductive hours spent by the coffee machine!

Overcoming inventory waste: flow

These few real-life based cases demonstrate how inventory waste can severely damage your business efficiency and bring on unnecessary costs to the operation.

Had the report query in the latter case been designed to run more efficiently and to go through lesser data elements (and not 20 years’ worth of data/inventory) then the executives requesting the report would not have been encouraged to leave their desk in the first place!

I can possibly tell several other stories related to inventory waste, and the associated inefficiency and ineffectiveness in operations, resulting in unnecessary costs, management efforts, facilities and infrastructure use, etc. Such situations have been experienced both locally, in Malta, as well as abroad within different European and Middle Eastern countries. This tells me that whilst some nations are in fact more streamlined by nature, in general, inventory waste might not be something that is solely culture-driven. I believe it is more of a human thing. 

We, as humans, tend to feel safer when we store and hold on to stuff – perhaps out of lack of security of supply, or ‘just in case’ we might need it, or simply, we store things out of nostalgia perhaps?  … recall how the CEO was nostalgically telling me about the company’s first transaction history!

Inventory is a fact of life. It is value in the shape of product, material or information that is being held at a cost. Poor planning and weak monitoring systems will increase inventory. Meanwhile, profit margins are reduced because overhead must be paid to maintain the inventory while it is stored. Storing masses of data and information requires infrastructural overheads and management effort. In reality, the value of that information that might be sitting in your databases may fast be losing its value as it becomes out-dated by other more recent and up-to-date facts.

Just like over-production, holding on to excessive or unnecessary inventory is a means for hiding other problems such as machine capacity issues, long and inefficient machine setups, equipment and machine breakdowns, the generation of rejects and defects, skills shortages within your team, supplier-imposed problems, delays dues to transportation matters and scheduling, to mention a few.

Thanks to technology, today, there are multiple solutions that facilitate the mechanism for accurately managing inventory (data and/or goods) and to manage this aspect of the business in a more smart and intelligent way than we might have done traditionally. Maintaining real time inventory counts, analysing current usage patterns through clever intelligence algorithms, and anticipating future trends are all available tools that enable one to better manage inventory and reduce associated costs and inefficiencies brought about by this type of waste.

The core question remains: are decision makers within businesses ready to explore the changes needed within their operations? Decision makers should seek and evaluate what returns can be achieved by doing and managing things differently.  Evolution of otherwise traditional models can lead on to what I call Lean Digital Future State designs that seek to streamline operations and introduce the right level of readily available technology, depending on the organisation’s readiness to change, and their associated digital maturity.

The net result is that whatever we hold on to, needs to be managed. 

Whilst I cannot – hands down – simply say that there is an easy solution to minimise, if not eliminate, inventory waste, I can definitely suggest that when designing processes, we must try to think of flow rather that inventory. Flow of data, flow of information, flow of raw materials, flow of WIP, flow of finished goods. 

The main principle of Lean remains: making value flow at the pull of the consumer.

By working on eliminating – or reducing – any of the wastes being discussed through this series, business owners can find themselves saving on their total cost of operations. Every Euro saved is a Euro back into the business, and into its profits.

Ing. Joseph Micallef is a freelance Consulting Advisor, bringing with him over 30 years’ worth of experience across various sectors. Working in areas related with quality, lean, business process transformation and project execution and programme management he can be contacted directly on m +356 9982 2244 or e: [email protected]