Lean Inventory

Definition

The term ‘lean’ refers to a systematic approach to enhance value in an organization’s inventory by eliminating excessive waste of materials, and performing tasks with minimum effort and time through continuous improvement. Lean production is carried out from the perspective of the client, or customer who will be purchasing the product or service.

The Lean inventory management practice has been inspired by the Toyota Production System(TPS) synonymous with Just-In-Time inventory system , and designed to improve overall customer value.

7 Types of Wastes In Lean Inventory

The Toyota Production System identified seven kinds of wastes that can impact productivity and product quality.

  1. Overproduction
  2. Waiting
  3. Transporting
  4. Processing
  5. Inventory
  6. Motion
  7. Defects

Lean inventory management techniques are mainly built upon 5 principles-

  • Value
  • Flow
  • Pull
  • Responsiveness
  • Perfection

5S Framework

5S is a visual control tool used in Lean systems to support a smooth flow in the production line. It includes a list of actions, used to create a continuous improvement process and to eliminate accumulated waste that leads to defects, errors and injuries in the work environment. The 5S`s are:

  1. Sort: sorting through items in the work area, to separate items into rarely or never used from what is often used during the work. Then marking the unwanted items with red labels to dispose them.
  2. Straighten: making a specific and permanent place for each of the remaining items according to their usage, so that workers can easily locate them while working.
  3. Shine: trying to maintain cleanliness, so that any pre-failure conditions or abnormalities that might impact quality can easily be exposed.
  4. Standardize: creating rules and procedures to maintain the continuous workflow without confusions
  5. Sustain: supporting the 5S by making the workplace stabilized to continuously improve work processes.

Must-have characteristics of Lean Inventory Management System

  1. Demand management and fulfillment– this means providing inventory when requested by the customers. Companies can maintain effective demand management through collaboration between sales and operations for accurate demand forecasting. Those insights can be handy for production to check inventory management practices for producing optimal amount of inventory.
  2. Waste reduction- the primary aim of lean inventory management is waste reduction. However, it is important for companies to make sure they do not compromise on the quality of products while implementing lean production.
  3. Standardization- lean inventory management focuses on waste reduction in order to improve production, processes need to be standardized first, because if they are changing all the time, any improvement in the process will only create a variation of it. Standardization is a detailed documentation and visualization of processes in a system.
  4. Teamwork- every stakeholder, from suppliers to customers must work in synchronization to provide highest value to the end user.

How to Implement a Lean Inventory Management System?

The goal of a lean inventory management system is to minimize wastes as much as possible. Out of the seven wastes identified in lean manufacturing, inventory is one of them, and probably the most important. Thus, in order to ensure successful deployment of lean inventory principles, these are some of the best practices that you can make use of.

Updated Inventory Records

Maintaining accurate inventory records requires real-time visibility into inventory levels. One of the ways that can be achieved is by using an inventory management software. In fact barcode and RFID scanning has also been significant in furthering the inventory management process, and software like these, that are compatible with the latest technology can be of huge help.

An inventory management system monitors the movement of inventory, be it raw materials or finished goods, throughout the supply chain, providing timely updates from supplier to customer.

Good relations with Suppliers

In the effort to minimize wastes and stock optimal level of inventory, your supplier could prove to be your right hand. While obviously suppliers want to sell as much as possible but what they value more is maintaining a stable, long-term and mutually conducive relationship with clients. To best way to achieve this is by sharing your production and replenishment schedule with suppliers. Also ensure there is a certain level of flexibility between you and suppliers, like partial payment and returns, stock reordering on short notice, etc.

Safety stocks

Safety stocks are buffer stock to save you during any unexpected production issues, supplier delays or sudden rise of customer demand. The key is to maintain safety stock at optimal level. A detailed analysis of past stock out situations, sales and purchase history can done to arrive at the right level for keeping safety stock.

Benefits of Lean Inventory Management

Now you know what is lean inventory, its principles and how we can implement it. Lean inventory management also comes with its fair share of benefits. Let’s take a look.

  • Better product quality– Improved efficiency of employees allows greater amount of resources for innovation and quality control that would have previously been wasted.
  • Shorter lead times– With standardization the manufacturing processes are streamlined. Consequently businesses can better respond to dynamic customer demands and changing market conditions, resulting in fewer delays and shorter lead times.
  • Eco-friendly and sustainable business practices– Less waste and better adaptability to combat fluctuating demands decreases environmental repercussions and makes your business eco-friendly and better equipped to thrive well into the future.
  • Boost employee morale– Without a principled approach, workers are burdened with unnecessary work, that ultimately affects their productivity and morale. Lean inventory encourages specific work processes to boost productivity and in turn employee satisfaction.

Increased profits– Obviously, increased productivity with less waste and higher product quality will lead to a more business and revenue.