While inventory serves as a buffer for fluctuating material costs and varying supplies delivery time, it can also be every business’s nemesis. That is if the organization has no supply chain or investment management system in place.
Lean Six Sigma can also reduce excessive and obsolete inventory says James Martin, writing for iSixSigma. Inventory problems are addressed by looking at root causes, such as long lead times, poor forecasting accuracy, quality problems or design obsolescence. If only for these reasons, an organization really has to choose well the person assigned in procurement. He must be someone who makes calculated risks and very knowledgeable about the market and the forces that play in it.
Using DMAIC and Lean tools, improvement teams can drive to those mentioned root causes and examine them closely. According, to the article, this is how it will go:
In an actual improvement project, the team begins an inventory analysis by defining the project’s goals in the Define phase. Using these goals as guidelines, relevant questions are developed to enable the team to understand how the system operates. Data fields corresponding to these questions are identified and extracted from information technology (IT) systems. The data fields are then organized in the form of an inventory model to provide the information necessary to answer the team’s questions and understand the root causes of the inventory problem.
After the Define phase, the team begins to evaluate measurement systems and plan data collection activities. This is the Measure phase of the project. An important activity in this phase is an on-site physical count by location of inventoried items associated with the problem. This is done to measure valuation accuracy relative to stated book value. Measurement analyses also are conducted of management reports and their related workflow systems. These analyses determine the accuracy of key supply chain metrics such as lead time, lot size, expected demand and its variation, forecasting accuracy (different from demand variation), on-time delivery and other metrics that may be related to an inventory investment problem. Unfortunately, supply chain metrics often are scattered across the several software systems within an organization. These systems include the forecasting module, master production schedule module, materials requirements planning module, inventory record files, warehouse management system module and similar IT systems.
After verification of a system’s metrics, the improvement team begins data collection to capture information necessary to answer the team’s questions developed during the Define phase. Relevant information, which may help the team in its root-cause investigation, usually includes suppliers, lead times, expected demand and its variation, lot sizes, storage locations, delivery information, customers and other facts.
Source: iSixsigma, “Lean Six Sigma to Reduce Excess and Obsolete Inventory,” link provided by Promax Consulting
*Photo credit: Stockxpert.com
