What is inventory lean management?
What techniques are used to make it successful?
More and more companies are implementing lean inventory management techniques to reduce costs, improve flexibility and have more time to focus on their customers.
Lean supply chain and inventory management enable small and medium-sized businesses (SMEs) to improve efficiency and increase profits.
As companies seek to reduce waste, increase turns and be more flexible with their inventory, management professionals have sought to figure out how to use Lean techniques to build a flexible and collaborative inventory.
Recent references such as APICS (American Production Inventory Control Society) show that almost 30 percent of companies apply lean principles in their inventory management.
What is Lean Inventory Management?
“Lean” refers to a systematic approach to adding value to a company’s inventory by identifying and eliminating wasted materials, labor and time through continuous improvement in the pursuit of perfection.
The lean movement is credited to Henry Ford, who applied the concept of “continuous flow” to the assembly line process in the 1920s. Over the years, the concept has been modified and applied to almost every industry.
These techniques are based on five principles:
- value: Define the value your business will derive from lean inventory management.
- Flow: Understand how inventory flows in your warehouse and apply Lean principle: 5S removing all obstacles that don’t add up.
- Pull (Lean principle: Kanban): Only move inventory when requested by a customer.
- Responsiveness (Lean Principle: Kaizen/Continuous Improvement) Able to adapt to changes.
- Perfection (lean principle: Six Sigma): Continuously refine your inventory management processes improve qualitycycle time, efficiency and costs (Six-Sigma: DMAIC).
In the 1980s, the concepts of Total Quality Managements (TQM) and Six Sigma, advocated respectively by WE Deming and Bill Smith, were reintroduced to US companies.
Lean inventory management uses the concepts of TQM and Six Sigma to eliminate. The result is usually cost reduction and quality improvement. Value Analysis (VA) can be used to reduce costs and maintain quality. Six Sigma used Voice of the Customer (VOC) techniquesthe result exceeds the customer’s expectations.
Lean management is a combination of a tool set, Philosophy, and a system.
As a tool, companies can use the principles to choose the right technique or methods to improve what needs to be improved.
As a philosophy, Lean emphasizes minimizing or eliminating waste in all resources used in various operations of the company.
As a system, lean allows companies to reduce costs and improve customer satisfaction.
The success of Lean depends on how an organization best implements the principles to meet its needs. The greatest use of the principles is in identifying their key attributes and applying them across functional boundaries.
Attributes of Lean Inventory Management
Building and maintaining lean inventory management revolves around six key attributes. These are:
Demand management:Inventory on customer request. To manage demand effectively, companies need to plan their sales and operations, review inventory management practices, request signals, and require collaboration.
Cost and waste reduction:While Lean Inventory Management appears to focus on reducing waste and costs, it should only do so to the extent that it does not negatively impact customer value.
Process standardization:This enables a continuous inventory flow in the company. Some barriers such as transportation, batch processes, and queuing work can slow inventory delivery.
Industry standardization:Process and product standardization at traditional partners can still lead to waste, especially if common components are not optimally standardized. While standardization can improve service delivery and bring benefits to the customers who use the products, it also reduces a product’s proprietary nature, making other competitive factors more important.
Cultural change: Existing partners, from suppliers to customers, must work together as a team to deliver value to the end user.
Cross-company collaboration:Cross-company collaboration through the use of teams can help define value and understand the value stream to maximize value for customers.
The benefits of better inventory management are clear: reduced number of stock keeping units (SKU) and inventory levels, increased use of standards in processes and materials, improved collaboration, and an overall reduction in cost of sale compared to companies that don’t use lean principles.
A lean supply chain and inventory management contribute to the bottom line.