Page 62 - How To Implement Lean Manufacturing

Inventory and Variation 43

We only hold the inventory we need to protect
sales. There is a relationship between the amount of
Point of Clarity The only
inventory and the volume of sales. So in a nutshell, if
we know the sales volume and can understand the eco nomic purpose of inven-
relationship, we could calculate the inventory we tory is to protect sales.
need to protect those sales. The relationship is a sim-
ple mathematical calculation, but just how is that calculation made?
First, let’s address finished goods inventory. This inventory calculation has three
parameters—and not surprisingly, there are three types of inventory. The three param-
eters are:
• Stock replenishment volume (that is, the picked-up volume by the customer)
• External variations, usually demand fluctuations
• Internal variations, usually production issues
The total inventory is the sum of the three types of inventory, which are:

Cycle stocks
This is the volume you need on hand to take care of the normal demand pickups by
your customer, often this is called stores.
• For example, if your customer picks up each Wednesday, you will need their
ordered volume ready for pickup then—and not before. Unfortunately, the infor-
mation handling system, production, and the delivery system are not instan-
taneous, so we need some volume in cycle stock that is above the bare minimum
the customer will pick up. So, to make sure you can achieve the customer’s needs,
we will calculate the cycle stock’s volume to be the production rate multiplied by
the replenishment time plus some arbitrary safety factor we will call Alpha (see
the section “Finished Goods Inventory Calculations” later in this chapter). The
stock replenishment time (see Fig. 3-1) is the sum of four variables:

Replenishment time RT = t plan + t q +t prod + t del

Planning time, t plan

Kanban post

Delivery time t del
Production
Heijunka cell Customer
Production time t Prod
Queue time, t q
FIGURE 3-1 Replenishment time.