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Inventory: The Key Indicator of Lean

Lowering Inventory to expose problemsInventory reduction was a core element of Taiichi Ohno’s Toyota Production System. Excess inventory is one of the seven wastes, and Ohno focused heavily on flow and Kanban to reduce inventory, improve flow and help reduce the other six wastes. During that time a classic process visual was developed, showing that as water (inventory) was lowered, the rocks (problems) were revealed, which allowed problem solving to occur and thus continuous improvement.

As I tour many companies that are engaging in Lean efforts, one of the things I notice is that their inventory turns are very low. I see piles in the warehouse or on the production floor and as I read pallet tags, I see inventory that’s been there for months and even years. When I ask why their turns are low, executives often tell me that their focus is on productivity improvement and they have inventory to help assure they can meet their customer commitments. In other words, you can’t sell out of an empty wagon.

However, I’ve found that I can often double or even triple inventory turns while increasing customer delivery performance. I do this by taking a holistic view of inventory management looking at four elements: Demand Management, Supply Chain Management, Inventory Management and Product Management.

You can’t improve turns by simply buying less inventory. Lowering the water without removing the rocks is a recipe for disaster. However, if you look at the four elements above, it is possible to dramatically increase inventory turns. I’ve seen turns well into the teens and have reduced inventory for clients by 75% with improved profitability and service levels.

Don’t choke on your own inventory and don’t run your ship onto the rocks. Take a holistic view of inventory management and you’ll experience benefits beyond anything you can imagine.

© 2016 – Rick Pay – All Rights Reserved



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