Page 56 - Lean six sigma demystified

Chapter 2 Lean Demy S tifie D 35

How Stale is Your Inventory? Apple’s days of total inventory has been as low
as 0.4 day and now stands at 10. Dell computer has been as low as 3, now at 7.
HP, however, is at 33 days.
What Kind of Inventory? There are three main kinds of tangible inventory:
1. Raw materials
2. Work in process
3. Finished goods

If you warehouse or store any of these types of inventory, then there are costs
associated with managing, moving, rearranging, and tracking them. It takes space,
time, and people. None of it adds value to the product or service. It just eats
profit.
I’ve worked with companies that have hundreds of millions of dollars of raw
and finished goods inventory, far more than they need to meet the needs of
their customers.
Intangible Inventory? The same kind of thinking can be applied to back
office functions. Have you invoiced what you’ve produced? What is your
inventory of unbilled goods or services? What is your inventory of accounts
receivable? How stale are they? What about purchasing and payments?

I’ve worked with health care companies that have hundreds of millions of
dollars in insurance claims being negotiated with insurance companies. These
claims can be over 300 days old.
The carrying cost of tangible and intangible inventory can devour the profits
of a company. Inventory is fundamentally evil! Set a big hairy audacious goal for
days of total inventory and aggressively improve the process to achieve your
goals.
“You kind of want to manage [inventory] like you are in the dairy business,”
Cook says. “If it gets past its fresh date, you have a problem.”
Dell and Apple use the power of Lean to cut costs and boost profits. You
can too.

Mind the Gap

If you’ve ever been to London and ridden on the famous Underground, you’ve
probably seen signs that say Mind the Gap (Fig. 2-1). While the signs are
designed to keep travelers from wrenching an ankle, I believe the idea also
applies to Lean Thinking.