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How Much Is Too Much?
As far as evils go, is inventory necessary?
by Gary Kirsch
Do you have too much inventory? Nearly everyone who has studied continuous improvement methods recognizes that inventory is one of the original seven wastes of lean (transportation, inventory, motion, waiting, overproduction, overprocessing and defects).
Some might ask, “Doesn’t inventory help smooth out those inevitable bumps in the production road and keep things moving along? Why would anyone consider it a waste?” There are three primary reasons:
- Although accounting rules may regard inventory as an asset, it also can be a significant liability. Inventory represents cash that you are not free to use. It restricts you from investing in areas critical to the growth of your business. That’s why many financial people properly recognize it as a frozen asset.
- Inventory has a negative effect on your operating efficiency and costs. Transporting, storing, preserving and tracking excess material takes time and often absorbs a lot of resources.
- Design changes and market conditions can render your inventory obsolete, requiring either rework (there goes the production schedule) or, worse yet, a complete financial write-off.
Because of their intimate understanding of and profound desire to eliminate the seven wastes of lean, manufacturing experts at Toyota developed management tools that are now regarded as the basis for lean manufacturing. The quick changeover technique we know as single-minute exchange of die (SMED) eliminates the need for buffer inventories during long tooling setups. Other familiar examples are poka-yoke (error proofing) and total productive maintenance (TPM).
The well-known Toyota industrial engineer Shigeo Shingo, referred to by some as the Thomas Edison of Japan, worked on many of these projects and had a lot to say about inventory. To him, any level of stock was a serious problem.
Shingo called out manufacturers, namely those in North America and Europe, for their philosophy that inventory was a necessary evil. He complained that organizations paid too much attention to inventory being necessary and not enough attention to it being an evil. He was adamant that inventory was a total evil that needed to be recognized as such and not as just a minor irritation.
A habit-forming drug
Shingo even likened inventory to a habit-forming drug. He described it as having a narcotic effect because it immediately alleviates—and disguises—the pain associated with a number of production problems.
To maintain this pain relief, more and more inventory is needed. Increasing tolerance for inventory leads to dependency and feelings that reliable production requires additional large doses of inventory. Satisfying the taste for this drug ultimately results in inventory levels spiraling out of control.
While this may be a somewhat harsh analogy, it shows how serious Shingo was about the evils of inventory. Most importantly, he and his associates went further than just observing and criticizing these evils. They took action by creating processes like SMED, poka-yoke and TPM to address and solve the production problems that lead to dependency on excessive inventory.
Do you struggle with too much inventory? How do you feel about it? How do you plan to handle it? As a necessary evil, or an absolute evil that needs to be identified and eliminated?
- Shingo, Shigeo, Non-Stock Production: The Shingo System for Continuous Improvement, CRC Press, 1988.
Gary Kirsch is a project advisor at Endeavor Management in Houston. He earned a bachelor’s degree in chemical engineering from Purdue University, and is a member of ASQ and the Society of Petroleum Engineers.