How Waste Spreads from Unmanaged Inventories
Six Sigma hates waste. If a manufacturing plant plans on getting any leaner, its executives, managers, and supervisors should be on the prowl for areas to streamline workflow and cut out unnecessary steps.
Depending on the industry in question, inventory may play a vital role in on-site operations. Whether inventory is used for holding spare parts for the company’s most important assets, managing SKUs awaiting completion or transportation, or storing raw materials integral to the manufacturing process, inventory management can be pivotal to efficiency.
Inventory can also, however, become a breeding ground for waste, and the stresses of an unkempt inventory can permeate throughout disparate operations, creating backlog, downtime, and unmet expectations. Let’s take a look at a few examples of how an inventory without proper curation can lead to all different kinds of waste.
Before we go any further
Though it may seem rather obvious, inventory management really only impacts industries that actually maintain a comprehensive inventory. With the rise of just-in-time supply services and kitting, many inventories across a number of different industries have been thoroughly rationalized to the point where harping on them any further would be, in a word, pointless. Sure, organization throughout a company is an ideal worth promoting, but further investing time, money, and energy into an inventory after taking certain measures will not provide an ample return.
According to a study on the link between operational performance and inventory management published in the Journal of Operations Management, only two-thirds of industries investigated experienced substantial gains with a leaner inventory. As the authors of the study suggest, understanding the role inventory plays in an individual business and measuring how deeply ingrained it is in ancillary processes. Otherwise, companies attempting to adopt a leaner mindset will expend resources unnecessarily, resources better spent on making actionable changes in other areas where they’re needed. Managing inventory waste for some will merely be a surface adjustment, but for others, it can clue them into subcutaneous operational deficiencies that can return serious value if unearthed.
Waste in waiting
In an interview with IndustryWeek, Frank Hill, director of manufacturing business development for Stratus Technologies, said 3 out of 10 manufacturers run into unplanned downtime, the number of large downtime events are on the rise, and each one costs roughly $17,000 to navigate. With so much at stake, it’s no wonder why manufacturers push to keep their assets continuously operational.
That said, downtime for many in the manufacturing sector only pertains to failed assets or big-time disruptions. That isn’t always the case. Downtime can also include any time spent not performing the value-added tasks at hand. Machinery can be fully operational, employees can be at the ready, but downtime can still occur. Rooting out the culprit might lead lean teams right to inventory.
Builds or repairs might require components held in inventory, which means employees tasked with these duties will need to locate them as fast as possible to complete their respective jobs. Without a regimented, intuitive system for hunting down these things, workers waste time between tasks. While it may only be a matter of minutes, these gaps in performance add up incrementally. To prevent these undercurrents of waste from siphoning successes, ask: What systems or procedures would a manufacturer have to enact to ensure its employees find what they need exactly when they need it?
Moreover, in the event of a large-scale downtime event, what sorts of low-tech, high-value activities can employees perform until they can return to their work? Manufacturers should develop fail-safe measures against wasted opportunities. In fact, so long as it integrates well with a company’s downtime objectives, inventory management – like cleaning, organizing, and shelving – can be something employees attend to during the wait to return value to the company during a downtime deficit.
Waste in damaged materials
Shrinkage is like a monster with many heads – a single swipe of a sword might not be enough to take the beast down. However, everything has a weakness, and for shrinkage, it may reside in catalysts entrenched in peripheral operations and processes.
Root cause analysis might confirm shrinkage directly correlates with administrative shortcomings or underutilized metrics during the procurement stage. For instance, if a manufacturer’s inventory is lousy with a specific type of fastener, it could be because orders for that component don’t legitimately reflect updated supply/demand data. As such, administration has been placing orders for parts employees don’t need and already have too many of. Additionally, supplier-manufacturer relations could also play a role in waste. If a particular component is rare or difficult to produce, suppliers may pigeonhole manufacturers into procuring more than they need. Without an effective system in place auditing and monitoring said inventory, manufacturers could be overspending upfront.
So how can manufacturers determine if their shrinkage is bad enough to devote serious resources toward? According to a study conducted by Supply Chain Visions and the Warehouse Education and Research Council, it’s all a matter of finding what percentage of an inventory is lost to shrinkage. The average inventory sheds between 0.046 percent and 0.07 percent of its contents to shrinkage, while a score of less than 0.005 percent would be optimal and industry-leading. If, however, a manufacturer’s shrinkage hovers above 1.46 percent, they stand to reap the most out of reining in its inventory.
Waste in avoiding the real problem
Similarly to the aforementioned section, inventories overburdened with spare parts could signal manufacturers aren’t addressing major issues with their on-site assets. If inventories must maintain an above-average stock of replacement components for subassemblies constantly wearing out, supervisors have essentially made a habit out of treating the symptoms and not the disease.
Instead of worrying about additional spare parts, manufacturers should instead focus on the reasons why their valuable assets aren’t performing as they should. Tracking down the primary cause of even the most minor malfunctions will not only save on costs related to managing spare parts, but also completely eliminate the downtime required to replace the worn out component, returning considerable efficiency back to the manufacturer who takes the time to truly investigate.