"Throughput time is directly proportional to inventory in the system"


What is Inventory Management?

Inventory management is a systematic approach to sourcing, storing, and selling inventory—both raw materials and finished goods. In Lean Manufacturing terms, it means managing the right stock, at the right levels, in the right place, at the right time, and at the right cost as well as price. Inventory management includes aspects such as controlling and overseeing purchases in view of maintaining the storage of stock, controlling the amount of product for sale, and order fulfilment. Lean Consultants can contribute significantly in controlling the wastes of higher inventory through strategic deployment of inventory management tools.

Types of Inventory

There are various types of Inventories an organization possesses or has to manage, classified on basis of its status as:
  • Cycle Stock – inventory maintained for immediate use, typically produced in batch production cycles
  • Safety Stock – extra inventory carried for uncertainties in supply and demand. It is also called buffer stock
  • Anticipation Inventory – inventory carried in anticipation of events such as smooth out the flow of products in supply chain. It is also called seasonal or hedge inventory
  • Pipeline Inventory – it is the inventory in transit and it exists because points of supply and demand are not the same
  • Maintenance, Repair and Operating Items (MRO) – inventories not directly related to product creation, but are required for smooth functioning of the operations and machines

Inventory classification techniques:

To manage inventory, one must have clarity of nature of it. Based on various factor, inventory can be classified in various ways. Popularly known classifications are:

  • ABC Classification(consumption) (25/80+15/15+70/05)
  • XYZ Classification(value stored) (Hi, Med, Low)
  • HML Classification(unit-value stored) (High, Med, Low)
  • VED Classification(spare parts mainly) (Vital, Essential ,Desirable)
  • FSN Classification(consumption) (Fast, Slow, Non)
  • SOS Classification(agriculture) (Seasonal, Non)
  • SDF Classification(availability) (Scarce, Difficult, Easy)
  • GOLF Classification (source of supply) (Govt. supply, Ordinarily available, Local and Foreign)

Types of Inventory Ordering Techniques:

  • VTFQ – Variable Time Fixed Quantity - an order of fixed quantity is placed when inventory drops to a reorder point or quantity
  • FTVQ – Fixed Time Variable Quantity – inventory is checked in fixed time periods and the quantity ordered varies

Benefits of Lean Inventory Management:

  • Increased Sales
  • Increased Information Transparency
  • Shorter Lead Times
  • Lower Operational Costs
  • Improved Delivery Performance
  • Increased Employee Efficiency
  • Accurate Planning
  • Decreased Stock-Outs
  • Increased Customer Loyalty
  • Increased Inventory Turnover


What is Kanban?

KANBAN is nothing but a sign, signboard or signal that is specified for controlling information and regulating material conveyance. Kanban is thus a signalling device that gives authorization and instruction for the production or withdrawal of items/goods. Kanban coupled with takt time, flow processing, pull production and level scheduling is what enables JUST IN TIME production to be achieved in a value stream. Kanban can be triangular metal plates, coloured balls, electronic signals (When communicating over long distances or inter facility) or any other devices that can convey the needed information while preventing introduction of erroneous instructions.

Types of Kanban:

  • Production Kanban – used as instruction signals to make something/products to an upstream process for a downstream process. It is also called “Make Kanban”
  • Parts Withdrawal – used as signals that something/products need to be removed from inventory (which then triggers replenishment). This is conveyed to a downstream process hence it is also called “Move Kanban”
  • In-Process Kanban – used to convey make instructions for small amounts to an upstream process. Typical uses include scheduling final production areas based upon withdrawal of inventory from a market or a direct replenishment signal from a customer
  • Signal Kanban – used to convey make instruction for large quantities to upstream batch process. Signal kanban utilizes lot size in conjunction with markets to feed downstream process while still allowing time for changeover to occur at upstream process. There are three variations on the signal kanban: Triangle Kanban, Pattern Kanban and Lot making
  • Inter process Kanban – used to signal the need to withdraw parts from a storage area and convey them to a downstream process within a facility. It is normally used in conjunction with continuous flow cells that use a large number of parts from internal or external sources
  • Supplier Kanban – used to signal the need to withdraw parts from an external supplier for conveyance to a purchased-market or central market at the downstream process

Benefits of Kanban

  • The simplicity of visual presentation through Kanban enables one to easily spot bottlenecks while they are forming
  • Prevent overproduction or material between production process
  • Provide specific production instructions between process based upon replenishment principles
  • Serve as a visual control tool for production supervisor to determine schedule adherence status
  • Establish a tool for continuous improvement
  • Improved flow efficiency
  • Improved throughput
  • Prevents overburden on the system infrastructure
  • Increased agility and flexibility

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