Lean Inventory: Trimming the Fat from Your Manufacturing
Lean inventory is the perfect solution for any manufacturer experiencing difficulties due to a change in the market, or for start-ups who have limited capital. In this article, we investigate exactly what it is the lean method, the lean inventory principles and how you can make it work for your business.
There’s nothing better than a spring clean.
Just getting your home spick-and-span, organized to a tee, from rearranging your cutlery draw to alphabetizing your bookshelf, and then putting your feet up knowing that you can relax.
It might not seem like a big deal. But you’ll notice that when you take the time to carefully and logically store items, you’ll save time and energy completing a task: even if that task is making some food or reading a book.
And a factory-floor is no different.
Lean inventory is a concept practiced by manufacturers looking to reduce as much waste as they possibly can from their manufacturing processes.
Waste doesn't just mean leftover materials. This can include waiting times from bottlenecks or transportation of an item (be that across your shop floor or to a customer).
Lean inventory management is achievable by manufacturers redesigning their routing manufacturing, rethinking how they keep inventory, or even removing a process from their manufacturing that isn’t necessary.
This is important as holding inventory can cost as much as 25-30% more than the unit's actual value.
And not only will practicing lean inventory improve your business's performance, but it’ll provide more value to your customers too.
That’s why in this article, we’re going to explore lean inventory, the benefits of using the method, and finding the right software to help you bring it all together.
PRO TIP: If you feel that you’re quite often overwhelmed by your inventory, then maybe you just need a quick refresher on manufacturing inventory management. Our free ultimate guide to inventory management is the perfect resource to help you get started with your spring clean.
So, without further ado, let's begin.
What is the Lean Inventory Management?
Lean inventory management is the calculated approach to increasing the value of a company’s inventory by identifying and eliminating waste left behind from manufacturing.
You do this by analyzing and streamlining the effort it takes to produce a product through the continuous improvement of your production line.
Before manufacturers started using lean inventory management, they would usually manufacture their goods based on demand planning (or even build and stock what they believe the customer might want).
However, with lean inventory, the manufacturer figures out and eliminates their excess inventory and only stores what they need in a specific time frame.
The practice of storing lean inventory originated from Japan, with the simple aim of eliminating ‘Muda’ (futility, uselessness, and wastefulness) from the manufacturing process to increase the value of the products produced.
It was famously adopted by Toyota Motor Corporation, who switched to a make to order approach and performed a continuous analysis of its production lines to help the company survive a post-war Japanese economy.
By using the lean inventory tactic, Toyota was able to adapt to the trends in demand and the changing climate of the economy by not burdening themselves with the increased carrying costs of storing finished goods or wasting precious resources on unnecessary production.
And that’s the basics to what is the lean method. However, the tactic stems from five principles, but what are these lean inventory principles?
PRO TIP: Why is inventory seen as a form of waste in lean systems? It’s because keeping inventory raises costs and utilizes resources that provide no value to the customer. So, to truly practice lean inventory management, you’re going to need to get your material inventory under control with material requirements planning software.
The Five Lean Inventory Principles
To achieve lean inventory management as a manufacturer, you’re going to need to consider the five lean inventory principles when improving your manufacturing business.
And these lean inventory principles are:
You’ll need to define the value that your business will be gaining from practicing lean management.
Will you be aiming to utilize resources more appropriately? Or are you looking to reduce the amount of inventory you keep on your shelves?
You’ll need to understand how your inventory flows in your warehouse and apply the lean inventory principles of the five S’s to remove any obstructions to your flow.
Japanese – Seiri, Seiton, Seiso, Seiketsu, and Shitsuke.
English – Sort, Set in order, Shine, Standardize, and Sustain.
Now we get to the part of the list that means possibly changing your workflow model.
The only time you should pull your inventory is when a customer places an order. The methodology behind this is to cut down on excess inventory by only beginning production once the demand is there, as opposed to anticipating demand and stocking finished goods.
Be ready to adapt to change. This will also require some monitoring of your business's performance. But the idea is to implement change, monitor the results, trim the fat, monitor the results, and keep cycling through these steps.
You need to be responsive to external changes, such as the economy or governmental policies, which may affect you. And you need to be ready for internal changes too, such as reducing stock and figuring out the repercussions to doing so.
This is the most difficult one of the lean inventory principles to achieve, but the most crucial one too.
The biggest driver behind achieving lean inventory management is to be constantly striving for perfection. You’ll need to be continuously refining your inventory management, the quality of your products, its cycle time, your efficiency, and the cost of manufacturing.
It sounds like a lot of work, right?
If you manage to stick it out (and with determination, you will) you, and your customers can expect to reap the lucrative rewards of practicing lean inventory management.
The Benefits of Using Lean Inventory
What can manufacturers expect to see if they embark on the journey of lean inventory?
The main goal of practicing lean inventory is to reduce the amount of waste that your manufacturing processes produce. That means you’ll experience a huge cost reduction since, theoretically, there’ll be no/minimal waste materials, lower costs for storing items and no losses from dead stock generation.
You’ll shorten your manufacturing lead time, getting your products out of the door faster, and improving the customer’s experience.
By taking the just-in-time approach with lean inventory, you’ll be able to have a high inventory turnover rate, which implies good business health.
This comes with multiple benefits. Yes, you’ll save money and reduce your carbon footprint. However, trends and predictions indicate that customers want to shop with businesses who’re trying to help the planet.
So, if you take the lean inventory management approach, you’ll improve your company's perception among consumers, especially if you highlight your eco-friendly efforts in your branding, marketing, social media, etc.
As you can see, there’s a lot of benefits to be had if you adopt lean inventory management, and before you quickly sprint into your factory to make changes, let’s very quickly go through how you can implement the model into your business.
PRO TIP: The focus of lean inventory is deciding the most efficient way to keep your inventory. That’s why we’ve put together a free inventory spreadsheet template so you can easily organize your inventory.
How to Use Lean Inventory in Your Business
Admittedly, these following rules for implementation were developed in mind for computers. However, each following point, developed by Steve Bell with Lean IT is the same you’ll need to follow when implementing lean inventory into your business.
So, when you start using lean inventory management, you should:
1. Focus on your costs and not the outcomes;
2. Don’t hesitate to stop production to deal with any issues, just have some buffer time scheduled to compensate for stoppages;
3. Understand the people you work with are your most important resource, so invest in them! Take the time to develop their abilities through mentoring and training;
4. Know and concentrate on your value streams;
5. Keep it simple;
6. Visualize your goal and make the image in your head a real-world thing;
7. Always put yourself in the shoes of the customer to make sure that you’ll only be expending resources on something that provides value to the customer; and
8. Be ready for uncertainty and make changes as soon as you need to.
If you stick to these eight points, you’re sure to be able to achieve a lean inventory management system.
And as you can see, to properly pull off this method you’ll need to find a piece of software that can help you easily monitor, not just your business, but all your manufacturing operations too.
PRO TIP: When looking for software to help you keep organized with lean inventory, you want something that can help you get control of your inventory management, sales, and production planning.
Smart Manufacturing Software for Lean Inventory
Lean inventory manufacturing is difficult as it’s a continuous process, so that’s why it's essential to find a piece of software that can help you manage this challenging method when running your business.
That’s why Katana’s Smart Manufacturing Software has been built to help modern manufacturers achieve a lean inventory workflow.
But, how does it do this?
Katana helps you with its:
Katana’s unique auto-booking engine is perfect for any manufacturer practicing lean inventory management. When a sales order comes in, or a manufacturing order is generated, Katana’s engine automatically takes available inventory and allocates it to your orders.
It’s able to do this once you have set up your bill of materials and defined your operations.
Raw Material Management
Katana automatically tracks your raw material so you can monitor stock levels in real-time and set reorder points to highlight when your inventory levels are starting to dip.
This allows you to discover how much material waste your operations produce and figure out a game plan to reduce that amount or even find ways of utilizing the leftovers.
Priority-Based Production Planning
Finally, Katana automatically schedules production in the order in which manufacturing orders are created. However, assuming you have a VIP order come through, Katana’s nifty drag-and-drop system allows you to prioritize your orders so you can tackle the most important jobs first.
And not only that, Katana will redistribute your finished goods and raw materials to fulfill the new workflow as soon as possible.
As you can imagine, since Katana can effortlessly help you track all the nitty-gritty details with inventory management, this Smart Manufacturing Software is a match made in heaven for green manufacturing, which not only goes together with lean inventory but will bode well with consumers, as more shoppers turn to ethical and greener companies.
If you want to know more about how Katana works, be sure to check out the video below:
Lean manufacturing, as a rule of thumb, is considered a good form of business practice as it allows manufacturers to figure out how to become more efficient, improve their manufacturing processes and promote an active form of management.
You might be wondering, “When using the lean concepts all inventory is considered waste?” which is partially true. You need to think of finished goods (and the production of finished goods) as a value. If you have finished goods sat on a shelf, taking up space and rising costs, it’s not providing any value and is being wasted.
Imagine if a customer asked you what they paid for when they bought the finished product, and you said, “Part of the cost was to cover the fact it’s been sat in inventory for the past three months!” do you think they’ll see the value in that?
Lean production requires a \"push and pull\" system of inventory replenishment. You should only be starting production once a customer has requested the item. However, some safety stock just in case a large amount of demand comes in isn’t frowned upon.
Just remember, before you implement lean inventory, ask yourself these questions:
1. What is the value you and your customers will gain?
2. Is there something that unnecessarily interrupts your workflow?
3. Is it possible to pull inventory to satisfy a customer's needs without compromising those needs or your business?
4. Are you proactive to changes in the market?
5. Can you continuously strive for perfection?
The last question is the most important and most difficult. However, by adopting Smart Manufacturing Software, performing lean inventory will become a breeze.
Why not find out for yourself? Katana offers a 14-day free trial, so you can see firsthand why this software is perfect for anyone going lean and even green manufacturing.
And that’s that!
We hope that you enjoyed this article, and if you have any questions, please do not hesitate to get in touch.
And until next time, happy manufacturing.