Hiding the Waste of Inventory

Yesterday an article appeared on Industry Week titled Manufacturers Are Finding Hefty Benefits From Lean Warehousing.  Modern Materials Handling and other rags often have articles along those lines, and I don't know about you but they always cause me to raise an eyebrow.

lean warehousing

Keeping in mind that inventory is one of the classic forms of waste, isn't that really a contradiction in terms?  Perhaps, but there are definitely ways lean can be applied to warehouses.  5S can clean up aisles, visual controls can improve signage, and value stream mapping can improve flow and reduce non value added processing just for starters.

But there's still a fundamental problem with the inventory that the warehouse holds in the first place.  Some inventory, from incoming through WIP to finished goods, is probably necessary.  But a core aspect of any lean program should be to reduce it via one piece flow, pull, and kanban process methods.  I recall visiting a highly regarded orthopedic products manufacturer in southern California, one that is often on lean tours as an example of how lean works.  They have done some great things... the shop floor is spectacular, cells are organized, people are trained. 

Then you might get a peek through a couple double doors into a rather large finished goods warehouse.  A key competitive advantage, and hence a value to their customer, is that they can deliver any product within a few hours.  A finished goods warehouse is one way to do that... at the expense of the cash tied up in the inventory, potential unsurfaced quality problems, and the like.  I've always wondered if they could put more effort into rapid one piece flow techniques to reduce the requirement for that warehouse.

The Industry Week article has a bigger problem however.  It profiles supposed examples of lean warehousing at four companies.  For example, at Industrial Scientific Corporation,

The company considered several solutions to its storage woes, including high-bay storage and expanding its existing system of mobile carts, and automated storage. The latter option proved the right fit and the company worked with a systems provider to conduct a pilot study using one vertical carousel. Pleased with these results, ISC decided to add another vertical carousel to manufacturing and three additional carousels in other areas.

And then there's Unisys,

Unisys' search led it to a vertical lift module (VLM) that met the company's criteria. (A VLM, as defined by the MHIA, is a storage system that consists of two parallel columns, each of which is divided into fixed shelf locations that can hold a single storage module such as a tray or tote.) The system was such a good fit, in fact, that Unisys moved forward with 13 VLMs. In the same square footage that housed inventory in fixed shelving, the company now has triple the storage capacity.

Similar situations were described at Hayes Lemmerz and Siemens Electrical.  The process of storing and retrieving was sped up, accuracy was increased via automated systems, floor space was freed up and, holy of holies, labor was reduced.  Direct costs were reduced, but indirect cost in terms of the new capital equipment and support systems and labor were added.  Perhaps some fixed cost was reduced IF the freed up floor space was used for manufacturing to customer orders.

But what about the inventory itself?  No where in the article was there a mention of any fundamental inventory reduction program.  How about working to remove the need for automated material handling in the first place?  Spend some time with kanban, pull, and one piece flow methods to get inventory as low as it can realistically go.  Then, and only then, think about automating inventory processing.  You may find it's not worth the bother.

Just as expensive software can hide waste by automating inefficient processes and methods, expensive material handling equipment can hide the fundamental waste of inventory itself.  We may have found a new false god.

Comments

[Mike L]

If the items being stored are produced by your company's own internal processes, then inventory levels should be reduced through one-piece flow (ideal) or pull systems (next best thing). As Kevin states, this might just make moot the decision of whether to purchase new state-of-the-art gadgets to handle the muda.

However, if the inventory comes from outside suppliers who have not yet made the jump to lean, I can see the need for a warehouse to protect your internal processes from external overproduction. Essentially, the warehouse and everything in it is waste, but it's also the lesser of two evils. The other is the process instability that results from having excess inventory hanging around in a J.I.T. environment...a cardinal sin in our world.

Ultimately, the goal would be to select suppliers with Lean ambitions, and help them reach their goals. Of course, this takes a while. In the meantime, we may be stuck with this oxymoron--"lean warehouse."

[Mark Graban]

I agree with Mike L., another related point would be to have your "non lean" supplier hold the inventory on their end if that's what THEY need to deliver JIT. Keep enough on your end to protect against shipment time variability. You have to make the supplier bear the cost of their lack of lean-ness, rather than holding the inventory on your end. Work with the supplier to help them get more lean so they can reduce their FG inventory. You're paying for the inventory, one way or another, because it's in your value stream, but you shouldn't have to dedicate more space to raw material inventory as necessary.

Thoughts?