I regularly get accused of not having much of a life outside my work. While I personally disagree with this, I do understand why people would think it since I have a habit of equating most day to day occurrences to supply chain equivalents. For instance last fall I was driving through the country when I noticed that all the dams had their sluice gates wide open dumping water from the reservoirs. This prompted me to look closer at the rivers and notice that they were all had very high water levels (probably due to the amount of rain that had fallen locally over the last couple of weeks). I assumed they were lowering the water levels before the winter snows in order to have room in the reservoir for melting snow next spring so they could avoid a repeat of the flooding in the area. As I was thinking about this I started comparing the water, rivers, dams and sluice gates to inventory movement processes. If we think of water as the inventory moving through our supply chains from supplier to plant to customer we see a very similar movement pattern. In an ideal world, water would move smoothly from its source (rain, glaciers, artesian wells…) through creeks, rivers and lakes to their final destination in the oceans. The water level in the total network would remain exactly the same with no droughts (drops in water levels) or floods (increases in water level). For those of us that live in the Inventory world, isn’t that exactly what we try to do with our inventory flows? And just like with the water, we are not always successful, leading to the equivalent of droughts (stock outs) and floods (Excess, Dead & Slow Moving stock). So how do we try to assert better control of our inventory flow? Just like the dams on the river we create reservoirs of inventory at strategic points in our inventory flow. We fill warehouses close to our customers or in front of production processes and when demand gets ahead of the normal flow or if we are expecting large inputs of inventory, we open the doors and out floods some of the stored up inventory until we get the desired level. To push the analogy even further the inventory usually trickles in to our main supply flow from a number of smaller sources just like streams into rivers leading to larger and larger amounts of inventory in the system. Once the flow has moved through our system it breaks into a number of smaller flows that inter-twine until eventual they all empty out into that large ocean called the consumer. Take a look at an aerial view of a river delta to understand how this looks like the different channels we used to distribute our products.
So how is this useful to our understanding of inventory? The key concept here is FLOW, or more specifically, smooth flow of the inventory through the system. If any part of the system speeds up or receives an input larger than the output we automatically build up inventory levels behind the faster process. If part of the system slows down we automatically build inventory in front of that process. Build too much inventory anywhere is the process and eventually it spills out of the containment area, making a mess of all the surrounding area (warehouse) and generating additional costs for everyone. This is where something such as Lean Methodology can come into play. By eliminating waste, using pull technology and tools such as KanBan, Value Mapping and Takt Time we can control and smooth the flow of inventory by controlling the flow of material through the processes. Regarding Value Mapping and Takt Time, I realize they are usually used as internal operational tools but there is no reason the same thinking could not be applied across several companies as the inventory moves along the supply chain. If you can synchronize movement of material from one organization to another with the required Takt Time for the receiving process it will tend to smooth the flow and decrease inventory levels within the supply chain.
Having issues with your inventory?
Always remember that inventory is a symptom not a cause. You have inventory because of issues with your processes. In the end the only reason to have inventory is when it is cheaper to have it than to not have it. Do you understand why your inventory levels are moving up or down? Do you need help understanding and getting control of your inventory? Contact Ed White at Jade Trillium Consulting to discuss whether we can help your organization and how best to proceed.
Hope you enjoyed this posting. Talk to your friends and co-workers about their experience and thoughts on this topic, especially what it means for your organization. As always, I would love to hear back on your (and their) thoughts. Just fill in the comment box below along with your contact information to let me know what you think.