Continuous Improvement Training Program
A Continuous Improvement Program
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Lean Manufacturing Simulation Game 

We Are Not Toyota, and We Do Not Process Chickens

Attempting inventory turn comparisons across industries is inappropriate. Issues relating to products and processes make such comparisons meaningless. Process industries, for example, make tremendous investments in plant and automation, often operating 24 hours a day, seven days a week. Inventory turns is far less significant in these environments than utilizations and yields. Automotive assembly plants have substantial plant investment and have narrowed the processes they perform to very specific assembly activities. In addition, these assemblers are in a position to dictate major elements of their supplier relation­ships, forcing many component inventory costs onto suppli­ers. Even attempts to compare inventory turns within a single industry are suspect. Differences in the products each com­pany supports, their processes, market position and brand issues, distribution logistics and a variety of other structural differences may preclude meaningful comparisons.

Most companies have their own set of process, customer, supplier, plant, product, capitalization, management, work force, material or other issues that don't allow them to emulate highly publicized companies that have achieved hyperturns. How does a company pursue hyperturns when its major customers require finished goods safety stocks or their processes involve extended durations? There is no perfect solution, but there is a useful approach that can focus efforts to achieve hyperturns within those elements of the business where such opportunities exist.

Inventory Segmentation: Achieving Hyperturns

If you don't think you can achieve hyperturns, think again. In all of the performance improvement programs I've seen, improvements come within specific segments of the overall business. But each segment-specific improvement makes a contribution to the performance of the larger organization. For example, changes to supplier relationships or purchase replenishment planning may provide major improvement in terms of purchased materials investment but may have no impact at all on WIP and finished goods inventory investment. It is a rare and wonderful opportunity that impacts every element of inventory investment.

One of my most successful projects has been a program that improved inventory turns of a finished goods product family from 46 turns per year to 180 turns per year. The solution involved reorganizing the planning and execution activity in a plastic injection molding operation. The changes moved the planning of production to a lower level in the product structure and provided signals to producing work stations that were driven by prioritized, discrete customer orders. That segment of the business came to embrace a philosophy that product should only be produced to ship to a customer. And, as suggested earlier, the turns improvement, though well received by management, was a less significant benefit to the operation than the improve­ments in customer response, on-time shipping, production flexibility and reduced inventory storage space requirements.

I'm currently working with a manufacturer of branded automotive after-market products. The products this company manufactures are assembled and packaged into many branded variations. The operation has historically produced to the branded end item level and stocked inven­tory at this level. Their new approach involves stocking generic subassemblies and reorganizing final assembly and packaging operations to produce the branded end items to customer order.
Neither of these two examples has an impact on raw materials investment and the impact on WIP is negligible. In addition, there are other product lines in both of these operations for which finished goods inventory is not re­duced. These inventory segments have their own opportu­nities and their potential for inventory investment reduc­tion may be even greater than that achieved in the targeted finished goods segments.

Summary

Improvement in inventory turns is one of many measures of operational performance. In some companies, opportuni­ties for improvement in this measure promise very signifi­cant benefit potential throughout the company. These benefits typically include improved profitability, reduced capitalization requirements, improved customer service, faster product change introduction, increased manufactur­ing productivity, and improved quality. Common and very real obstacles to achieving improvements in the measure of inventory turns include product issues, production process issues, logistics issues, customer issues, industry issues, supplier issues, engineering issues, business process is­sues and management issues.

Realistically, not every company is going to achieve com­pany level turns of 26 or more. But evaluating segments of inventory and their related processes can reveal unrealized hyperturn opportunities in every company.