Inventory – any materials or other resources stored or staged until demanded. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Inventory to understand what causes it, how to see it, and how to eliminate it. Lean.org defines inventory as “materials (and information) present along a value stream between processing steps.”
The 8 Wastes and Their Potentially Disastrous Effects:
In 2007, Toyota issued a massive recall that affected 9 Billion vehicles worldwide. The recall was triggered by several reports of gas pedals “sticking” and causing unintended acceleration. At the time of the incident, dealerships across the US were holding substantial amounts of inventory, which could not be sold until they were all serviced to minimize the risk of further unintended acceleration issues. A study was conducted to estimate the losses associated with all of this inventory that was placed on “hold”, which revealed that dealerships were losing the staggering amount of $2.5 Billion per month in combined income.
In response to this issue, Toyota conducted an investigation to identify the root cause of the unintended acceleration and concluded that the configuration between the floor mat and the gas pedal was defective. They also began to experiment with an alternative supply chain model with the Toyota Scion where a base unit would be built to about 70% at the factory, then buyers would be allowed to customize how the vehicle would be finished. Finally, the base unit would be shipped to the buyer’s local dealer to complete the final manufacturing steps; a process known as Late-Stage Customization. This kept inventory low for the Scion at the dealerships and allowed consumers more control over the features and functionality that would be included with their vehicle. Unfortunately, the Scion did not perform well in the market; however, I don’t think the supply chain model was the problem. It simply isn’t a very good looking car.
Even though Toyota distributes vehicles all over the world, the only reports of unintended acceleration came from the United States. Also, there was never a definitive conclusion for a mechanical failure that was causing the problem. However, once the floor mat / gas pedal configuration was changed, no further issues were reported.
For more details on this case study, check out the 24/7 Wall Street article at the following link:
This case study exposes one of the many major problems with building and carrying inventory. Building inventory has the same issue issue as batching, which is a form of inventory in itself. When there is a quality defect that needs to be contained, many times the entire batch needs to be recalled and investigated due to limited granularity in traceability. This requires the manufacturer to cast a wide net instead of being able to pinpoint the specific units that are affected by the defect.
Another major issue with carrying inventory is that it enables poor manufacturing execution and erodes operational discipline. Part of the equation for determining how much inventory you need is how unreliably your factory performs. In other words, being unreliable means you need to maintain higher inventories to meet service expectations. The path of least resistance is to build inventory as opposed to addressing your factory’s reliability issues. A little trick to kicking off a lean implementation is to cut your finished inventory gradually and challenge your teams to maintain service levels with lower inventory stocks. This will require improving factory reliability and becoming more lean in the process. Finally, inventory hurts your factory’s lead time on special order and rush items. This is because orders often need to wait in inventory buffers in between process steps before the next value-added step can be completed.
Impruver also helps you see waste from inventory, which often manifests itself in the form of unreliability. In Impruver, unreliability shows up as downtime, rate, and yield losses. By addressing these issues, you can increase plant reliability and subsequently reduce safety stocks. When inventory is reduced, working capital is freed up to be invested in other more important matters. Impruver also allows you to quickly estimate the savings to be gained in just one click by driving out efficiency losses. This powerful functionality is made available to everyone from the shop-floor up to be used for justifying continuous improvement ideas.
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