Top 5 things You Need to Know about Inventory

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Inventory is one of the primary wastes in lean thinking and is also the hardest for people to change their mindset about.  I’ve compiled my list of the top 5 items you need to know in order to understand the downfall of having Inventory laying around.

1- Inventory is a liability

     While the accounting department lists your inventory as an asset it is really just a liability. 

• In the States, we have an 8 month supply of homes on the market today which is causing major disruptions in the housing market and driving prices down.
• 2 years ago we had a huge inventory of cars which caused some of the automobile companies to require government bailouts and resulted in the “cash for clunkers” program.
• If your lab purchases 6 months worth of reagents and then changes research focus you might not be able to use any of them.

2-An Inventory makes you work harder

When you have more than a 1 day’s worth of work to do, you have an Inventory.  It’s also called a backlog or WIP (Work in Progress).

This backlog is because you’ve been asked to prioritize some samples, projects, or tasks ahead of the tasks that were yesterday’s priorities.

This expedited process or inventory now needs to be managed in addition to the original inventory. You have the  “important samples” and the “not as important as the important samples” which both need to be addressed.

Inventory has made your work twice as hard and you start creating a “caste system” by deciding what customer is the most important, most valuable and who has the most patience.

3- An Inventory is just cash sitting on the floor waiting to be utilized or burned

“Cash is King” so you should never convert it to inventory any sooner than absolutely necessary. 

Cash can be used for anything; however inventory is just for a fixed purpose and is vulnerable to external forces, such as expiration dates, contamination or breakage.   This means the inventory can quickly become worthless.

What would you rather have?

1. Cash in the bank for acquisitions, new hires, promotions and pay raises

OR

1. An 8 month supply of consumables in your warehouse and having to let staff go because of budget constraints.

4- Inventory is everywhere and complicates everything

Every “In Box” at your company is an Inventory that is managed by someone.  This kind of inventory requires the attention of multiple parties and as a result is often accompanied by unnecessary wait times.

• Contracts waiting to be executed by legal
• Projects waiting on authorization signatures
• Every persons e-mail account with many unread emails
• Accounts receivables that haven’t been invoiced
• Monies that needs to be deposited in the bank

5- Inventory has ancillary costs that you don’t think about

• Inventory storage = rental space = cost per sq foot
• People to manage the inventory  (Cost to order, receive, stock, track it and prioritize it)
• Organizing your inventory (shelving, databases and time)
• Searching through piles of WIP to find the right item (parts,  emails,  documents)
• Confusion about what to prioritize (FIFO, whoever yells the loudest)

Inventory is more than a product on a shelf waiting to ship to a customer.  It is a waste that controls the how, when and why’s of your daily workflow.  It needs to be controlled, minimized and managed so the less there is…the better you’ll be.

The next time someone tells you that an Inventory is good thing send them a link to this list and see if they change their mind.  

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Contributor:   Jon Wetzel

Jon Wetzel, is the Vice President of Operations for AdeptBio and the founder and lead contributor of the blog “Lean for Everyone”  where he posts about servant leadership and the uses of lean concepts in business and everyday life.  Jon has 16 years worth of experience in startup biotech and health care fields and is a Six Sigma Black Belt, a certified Lean practitioner and a member of the Michigan Lean Consortium  . 

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Report Abuse   gebolinpozos 12/01/2011 11:51:06 AM EST Defenetly, all of this are important things,. An optimum inventory level will also take into account the product lead time, meaning the time between the placement of a new PO and the product arrival to wharehouse. Looking forward to here from you. Replies (0) Post a reply Sign in or Sign up to post a comment