Page 64 - How To Implement Lean Manufacturing

Inventory and Variation 45

you will have enough inventory to cover about 99 percent of these deviations,
presuming your data are normally distributed. Since, in reality, there are many
possible sources of variation, assuming the normal algorithm is reasonable.
With weekly shipments, that would mean about one undersized or late shipment
every two years.

What Creates the Need for Work In Process (WIP) Inventory?
The preceding discussion of inventory was focused on finished goods inventory,
although the concepts are general and apply to all inventories. In many plants, the
problematic large inventory is not in finished goods but in WIP. What causes the need
for WIP inventory?
Take a simple cell, for example. Let’s say we have a six station cell and all work sta-
tions have 60 seconds of work, which is also takt, and that there is no inventory between
stations and we have one-piece flow. When station 1 finishes a piece, so do stations
2 thru 6—and in unison, all six pieces of in-process work are simultaneously pulled
from the previous work station every 60 seconds. This is perfect synchronization of
process flow, the ideal state.
But for the moment let’s imagine that the cycle time for station 4, although it aver-
ages 60 seconds, varies from 50 to 70 seconds. When station 4 performs at 50 seconds, it
finishes its process and then station 4 has a 10-second wait time before its product is
pulled by station 5. There are 10 seconds of wait time, which is a waste for station 4. But
this is not a production rate problem. The cell will still produce to takt. It is just that the
operator at station 4 will sit around a while. On the other hand, when station 4 takes
70 seconds to produce its work, that subassembly is held up and station 5 is starved for
work for 10 seconds. This delay passes through all the workstations of the cell in a
wave, and that piece is produced on a 70-second cycle time.
So let’s recap… If the station that varies—in this case, station 4—operates faster than
takt, station 4 must wait for the subsequent station to pull the production. However,
when station 4 just happens to operate slower than takt, station 4 will slow down the
whole cell on that cycle and there will be no recovery. So even though the station may
have a 60-second cycle time on average, any time the cycle time is above average, the pro-
duction rate drops. This concept is known as the effect of variation and dependent events.
(The dependency is that the “next step” depends on the “prior step” for supply.)
So the solution is, guess what?… You got it! Add some inventory. We will need to add
inventory both before and after station 4, the one with the variation. We need the inven-
tory in front of station 4 so when it produces faster than takt, say at 50 seconds, there is
raw material available to keep it producing. We also need the inventory after station 4,
so when it is operating slower than takt, say at 70 seconds, there is raw material to sup-
ply station 5. Then station 4 can have the variation AND maintain production at takt on
average.
So the answer to the question is “The need for WIP inventory is caused by
variation.”
This destructive relationship of variation and dependent events interacting to cause
a reduction in production rates is critically important. It is understood by a scarce few,
yet you need to understand it if you wish to implement a Lean initiative. At this point,
I suggest you go directly to Chap. 18 and perform the dice experiment to begin to
understand this relationship. It may be the best 60 minutes you can invest in your
understanding of Lean.