Why Do We Have Inventory?

InventoryInventory is expensive. Depending on your environment, inventory will cost you between 30% and 65% of its value. Toyota is known for (among other things) small inventories. Whereas Western companies often have weeks’ or even months’ worth of inventory, Toyota’s inventory is measured in hours.

It is no surprise that inventory reduction is high on the list for many companies. In fact, the term “lean” by itself implies lower inventories. But why do we have inventory in the first place? And why is (too much) inventory considered evil in lean manufacturing? In this post I would like to tell you the reasons why we have inventory in the first place, and why too much is bad. In my next post I will explain what happens if you simply reduce inventory, and discuss in more detail better approaches on how to reduce inventory.

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The Three Fundamental Ways to Decouple Fluctuations

Waves on shoreManufacturing systems have fluctuations. Material may arrive sooner or later. Production may be fast or not. The customer may order more or less. Generally, the less fluctuations you have, the more efficiently you can produce. Toyota puts in an enormous effort to control fluctuation, but even they have fluctuation. In this post I would like to show you the three basic ways how you can decouple fluctuations: inventory, capacity, and time.

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A Eulogy for Little’s Law

Water Tank Littles LawOne of the most significant fundamental relations in lean manufacturing is the relation between the inventory, the throughput, and the lead time. The inventory and the throughput are usually easy to measure. The lead time, however, is more difficult. You would need to take the time when a part enters the system and then take the time again when a part leaves the system. Luckily, the lead time can easily and accurately be calculated using Little’s Law, one of the most fundamental laws in lean manufacturing (and also many other places).

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Theory and Practice of Supermarkets – Part 2

grocery store market supermarket retail shop
How to use supermarkets correctly …

In my last post, I described how supermarkets work in theory. But while knowing the theory helps, actually creating a working supermarket is much more difficult. Are there situations where supermarkets are not so useful? (Hint: Yes!). And what is needed to have a working supermarket? Let’s find out!

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Theory and Practice of Supermarkets – Part 1

Supermarket in Brazil
All about supermarkets…

Kanban, FiFo lanes, and supermarkets are the backbone of many pull system. Some people even define lean production through its use of kanban and supermarkets. Yet why are supermarkets so useful? First we will look at what exactly makes an inventory into an supermarket. My next post will then give tips and hints on the practical use of supermarkets on the shop floor.

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Why Pull Is So Great!

Rope pulling
Pull your production! (even though the term “Pull” is quite misleading)

One of the most significant insights of the Toyota Production System is its concept of pull production. While often misunderstood, the essence of pull production is a clearly defined limit on the work in progress. Push or pull actually has nothing to do with the direction of the information or material flow. But why does this limit on work in progress make so much difference? Why do pull systems vastly outperform push production systems?

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More On Cuba’s Planned Economy: Cuban Industry

Hershey Factory Cuba
The state of the Cuban economy

A few weeks ago I wrote an article on the Cuban economy, focusing on commerce (See How a Planned Economy Can Screw Up an Entire Country – Analogy between Cuba’s Communist Economy and Push Systems). On the same visit I not only saw supermarkets, but I also had a look at industry. Unfortunately there are no visitors allowed in their government factories. Nevertheless, I was able to catch some glimpses of different industries.

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The Seven Types of Waste (Muda) – Now with 24 More Types of Waste Absolutely Free!

Seven Trash Cans Labeled

One popular and well-known concept of the Toyota Production System is the elimination of waste, in Japanese also called muda (無駄). It is one of the three evils of manufacturing systems, the others being unevenness (mura, 斑) and overburden (muri, 無理). In this post I would like to go through the details of waste with you. This includes the traditional seven types of waste – of which I am a big fan. For completeness sake I also included a lot more types of waste I have come across in industry. However, you have to decide yourself if these additional wastes are not themselves a waste.

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