Continuous Improvement Training Program
A Continuous Improvement Program
Featuring 8-Training Modules by Bill Gaw

Increase the effectiveness of your
Lean Manufacturing Training Program
Lean Manufacturing Simulation Game 

Why Inventory?

Per the inventory classification detail, as discussed above, review (at the micro level) each classification and determine why the inventory is at the identified amount. A flow diagram of the current environment from a functional (organization) viewpoint can provide an understanding of procedures or policies that impact inventory levels or decisions. This process will identify areas of improvement or opportunities. Reasons may include some of the following:

• stocking programs—parts/raw material
• safety stock
• desired customer service level or fill rate
• minimum order purchased quantities as set by the Supplier and Purchasing
• economic order quantities
• obsolete material/product
• excess material
• distribution pipeline—internal or external
• raw material lead time
• seasonality of business/commodity/supplier
• stock strategy—raw material to protect supply
• purchasing/supply pipeline
• Supplier delivery problems
• foreign sourcing—extended intransit time
• critical material—long lead time
• spare parts—to service obsolete/phased out products
• long manufacturing process time
• economic lot sizes—make or buy
• multiple warehouses—distribution network
• byproducts/co-products
• price/availability/hedging—purchased material
• manufacturing capacity constraints/bottlenecks
• plant/process shutdown—planned/unplanned
• sales or product forecast—optimistic or pessimistic— security blanket
• product buy back from customers
• minimize equipment downtime—productivity
• multiple manufacturing/processing plants
• long term contracts with guaranteed purchases/deliver­ies
• complex logistics system/network
• changes in the business environment
• multiple packaging requirements
• internal/external quality problems
• short cycled lead times
• product/material consignment
• Engineering changes—material leftovers
• Engineer-to-Order business with job inventory re­maining after the job/product is shipped

Root Cause Analysis—Why Does the Micro Level of Inventory Exist?

Take each of the inventory classification levels with the identified reason (from previous step) and do a root cause analysis as to "why?," "why?" the specific or identified level of inventory is required or exists.

For example, if an analysis of service/spare parts identified high levels of safety stock for specific parts, further analy­sis (why?) shows that these parts have an unpredictable lead time from a particular supplier, further analysis (why?) of the supplier performance showed quality losses at the supplier's plant—resolution of the quality issue would reduce the inventory levels required. Another (why?) may be identified if the supplier is having a problem with his raw material supply chain.

The process needs to identify the root causes to the lowest level and may require solutions along the way until the reason for the inventory is permanently solved. The analyses of specific reports or file/database information may be required. These may include bills of material, formulas, open purchase orders, open work orders, manu­facturing and/or purchasing lead times, ABC inventory valuation, part usage, raw material/technical material usage or obsolete/excess material.

To be Continued