Page 65 - How To Implement Lean Manufacturing

46 Cha pte r T h ree

So this inventory—whether it is buffer and safety stocks in finished goods or WIP
between work stations on the line—is nothing more than a response to variation so rate
can be maintained. Once you understand this, it is easy to see that the answer to inven-
tory reduction is to first reduce the variation, and then the reduction in inventory can
be made with no loss in production.
Although inventory is a waste, it is one of those
necessary wastes. We wish to reduce it, but few
Point of Clarity Inventory
businesses can survive without some inventory at
is a necessary response to
some point in their process on the way to the cus-
system variation so rate can be
tomer. Remember that inventory is needed because
maintained.
of the variation that is present. Later in this chapter,
you will learn that variation “is the inevitable dif-
ferences…,” hence it is unavoidable. So it is not possible to eliminate it totally, but we
strive to do just that.
Just What Is This Key Advantage of Inventory Reduction
That Was Alluded to Earlier?
To answer this question, you will need a lesson in physics, such as those in Factory
Physics (McGraw-Hill, 2008), Hopp and Spearman’s book. The particular law of factory
physics to which I refer is known as Little’s Law. In Leanspeak, it states that the WIP in
any system is equal to the throughput rate multiplied by the lead time.

Little’s Law WIP = TH ë CT
Where:
WIP = the work in process … units of inventory between any two stations
TH = throughput rate … units produced/unit of time
CT = cycle time … which they define as the average time from when a job is
released into a station to when it exits…in Leanspeak, this is called lead time.
If we replace the term CT with Lead Time (LT) and then rearrange them,
we get:
LT = WIP/TH ... which is Little’s Law in Leanspeak

As you can see, as WIP is reduced, lead time is reduced in direct proportion.
Consequently, we can double the throughput rate or cut the inventory in half. Both
will reduce the lead time by 50 percent.
And as lead times shorten, flexibility in production will improve, as will the
plant’s responsiveness to changes—all this and cash flow will improve as well. Lead
time, more than any other metric, is the most descriptive measure of the health of a Lean
manufacturing system. And improved lead times come about largely by reducing
inventories.
We have already discussed the importance of lead time in Chap. 2. It will be further
amplified in Chap. 5 since it deserves a chapter of its own. In addition, it will be high-
lighted in several case studies throughout the text.