View inventory as a waste

- Inventory is a waste. According to lean principles, inventory is one of seven wastes you should be working hard to eliminate. But wait a minute, don't you need inventory to make the things you sell to your customers? Isn't inventory an asset? Well, actually, it's both a waste and an asset. Let me explain why by viewing inventory in the context of the seven wastes of Lean. I've provided a handout of these seven wastes and how they're defined. Let's take a look at a couple of these. In some cases, you should be working hard to eliminate the waste. For example, eliminating defects throughout the company is at the heart of every continuous-improvement culture. Likewise, overproduction and overprocessing should be removed from every factory. But in some cases, you can't totally eliminate the waste. For example, you need transportation to move materials to your factory and to move products to your customers. The goal of Lean is to eliminate unnecessary transportation so that you are as efficient as possible. The same is true of inventory. You need inventory, but you must reduce unneeded inventory so that you can manage the remaining inventory as an asset. Taiichi Ohno, the father of lean manufacturing, expressed this best when he said, "The more inventory a company has, "the less likely they will have what they need." He means that the only inventory of value is the inventory needed to meet demand, inventory that fills specific customer orders on time. If you can lean down your inventory by eliminating all the waste, you can now manage the inventory that is adding value for your customer. Notice that these seven wastes are closely connected to each other, and several of them have a direct impact on your inventory. First and foremost, by eliminating overproduction in the factory, you will successfully reduce inventory throughout the entire company. Overproduction means you are producing more than is needed by the customer, or in the factory, more than is needed by the next work station. Producing only what is needed not only will reduce your inventory of final products, it will also reduce inventories of material and components coming into your factory. Reducing defects also impacts inventory by eliminating and reworking scrap in the factory and reducing the number of customer returns. Likewise, unnecessary transportation, motion, and waiting can create delays in the process that will lead to increased inventory levels. So, it's a good idea to work on all seven of these wastes with a goal of reducing inventory throughout your company. Toyota, for example, puts a lot of effort into eliminating overproduction because they believe overproduction contributes directly to the other six categories of waste. Where should you start to eliminate wasteful inventory? Wherever you work. The factory, the distribution center, the purchasing department. Take a look at one major product you handle. Do you have more inventory that is needed to satisfy your customer? Are there places you can eliminate wasteful inventory?