Page 75 - How To Implement Lean Manufacturing

56 Cha pte r T h ree

What is missed in the normal plant is the understanding of why the specific levels
of inventory are held. In a phrase, there is no management philosophy on inventory
management.
With this methodology of calculating cycle, buffer, and safety stocks, not only is the
amount of inventory understood but the reasons why these volumes are needed are
understood. Furthermore, it is much easier to assign responsibility of inventory reduc-
tion to the group that can actually make an impact on that specific inventory creating
process.
In this particular case, if we wished to reduce inventories—and we do—it is easy to
see that the largest contributor to overall inventory is the cycle stock inventory. Further-
more, the largest contributor to the cycle stock (review the replenishment time calcula-
tion) is the planning time. Why does it take 24 hours for the kanban to be massaged in
planning? Very likely these cards are sitting in an in-box waiting to be processed. In
most good systems, planning is completely bypassed and kanban go from the store-
house directly to the heijunka board. If we could do that here, we could eliminate
24 hours of replenishment time, cycle stock inventory would shrink to 2601 units (that’s
a reduction of 30 kanban) and total stock would now be 3200 units (or 2.22 days) and we
would improve from a very good 78 turns to an outstanding 118 turns—all this at no
cost and no risk.
Think of all the work that would be needed to reduce ALL the variation associated
with the supply and ALL the variation associated with the demand, so we could elim-
inate ALL the buffer and safety stock—and still you would only reduce 13 kanban
total. Yet by allowing the kanban system to do what it is designed to do, and bypass
planning, we eliminated 30 kanban. Sometimes our own processes and procedures are
the source of huge wastes and need to be addressed (see the discussion on Policy
Constraints in Chap. 12).
However, do not lose sight of the goal: the total elimination of waste. Make no mis-
take about it, all of this inventory is waste. It is total non-value added work. But it is
necessary for the time being. We would do away with even this minimum inventory if
we could, but it is only the “least-worst” available option—for the time being.

Kanban Calculations
The basic kanban calculation for cycle stocks is:

No. of Kanban = (Replenishment Time × Production Rate) (1 + Alpha) / (Container Size)

Make-to-Stock versus Make-to-Order Production Systems

Background
Many Lean systems use a make-to-stock production system, at all steps in the process.
The beauty of a make-to-stock system for finished goods is that it virtually assures
100% on time delivery as long as you have a good inventory management policy.
• In a make-to-order system, no finished goods inventory exists at all. The finished
goods are made only after the receipt of an order. In a make-to-stock system, by
definition there is inventory.