Waste elimination is one of the most effective ways to increase the profitability of any business. Processes either add value or they add waste to the production of a good or service.
To eliminate waste it is important to understand exactly what waste is and where it exists. While products significantly differ between factories, the typical wastes found in environments are quite similar. Anything that is unproductive, or doesn’t add value that a customer will pay for is considered muda or waste. For each waste there is a strategy to reduce or eliminate its affect on a company, thereby improving the overall performance of the company.
Inventory is a waste that you see in many companies. Inventory is the amount of materials or work-in-process (WIP) within the system. Materials or work-in-process that hasn’t been sold to a customer represents unrecognized value. Accelerating the process of converting raw materials into a product or service helps increase cash flow. Reducing inventory or work-in-process reduces lead times and the amount of labor and capital. There are many reasons why companies have excessive amounts of inventory, but in a lean system the reasons need to add value.
Examples of inventory waste could include some or all of the following:
- Parts not needed (over-orders or not figured out yet)
- Material ordered too soon
- Material and tools on hand but not being used (spares)
- Material and tools not needed (extra)
- Material and tools over-purchased
- Material and tools purchased for “just in case”
- Material and tools lost, or not returned
- Not returning excess for return credit back to a vendor
- Not completing paperwork associated with returns to vendor (RMA)
- Over-purchasing of supplies, forms, envelopes, marketing material, etc.
- Storage and movement of over-supply