5 Lean Inventory Management Techniques

Inventory can be a key use of cash, and streamlining inventory can improve a business’ cash flow. This guest post by Wasp Barcode can help your business free up cash from inventory. Looking for more tips? Download the free BlueVine Cash Flow Guide.

Lean inventory management is a philosophy derived from the Toyota Production System of the 1940s.  The car manufacturer developed the system to eliminate waste and inefficiency in their manufacturing environment.  Due to both its successful implementation and positive financial impact, this methodology has gained popularity in all manner of business.  Consider applying these five lean inventory principles to your small business as a way to eliminate inventory waste.

1. Value

Before making significant changes to your business processes, determine whether applying lean inventory techniques will actually generate business value.  Changing current procedures will be a significant investment in time and effort.  Will that investment actually bring a return or will you change without seeing results?  To answer these questions, you will need to honestly evaluate what you do well and what you do poorly.  Without a full understanding of how you currently handle inventory, attempting to implement a new process will only end in failure.

More importantly, what is the economic value your customers gain from the goods or services you provide? Whether your business value increases or not, if you are using business resources for any other reason than to create value for your customer, that use is considered wasteful according to lean inventory principles.

2. Flow

To determine both your business value and the economic value you offer customers, you must understand how inventory flows in your warehouse.  Demand-based flow is the second fundamental principle of lean manufacturing.  In this type of production setting, inventory is only pulled through each production center when it is needed to meet a customer’s order.

Evaluate your inventory flow and identify the areas you need to improve.  Adopting the lean inventory model will eliminate the following seven areas of inventory waste.

  1. How are you transporting inventory?  In order to achieve smooth flow, you should not transport a product between processes.  Ending unnecessary movement may require you to adjust how you produce your product or from whom you purchase material.
  2. If you are producing goods in anticipation of possible demand, you can easily overproduce.  Overproduction causes you to waste both materials and money spent storing the excess inventory.
  3. Does how you store inventory cause unnecessary motion (walking, bending, searching, and reaching)? Time wasted looking for product can add up to delays and longer lead times.
  4. You will experience waste if inventory is not actively moving through your process – causing you or your customer to wait.
  5. Using expensive equipment in processes where cheaper, less complex tools are more efficient results in the over-processing of goods.
  6. Product defects result in re-work or scrap and both will negatively impact profit.
  7. Excessive inventory is a result of overproduction and waiting and results in longer lead times and higher storage costs.

3. Pull

Once you are fully aware of how your inventory flows and you’ve worked to eliminate the seven areas of inventory waste, the third principle of lean manufacturing — pulling inventory only when requested by your customer — will become a natural outcome.

A traditional push-based supply chain relies on the product manufacturer to determine a production level based on historical data.  This often results in overstocking, delays, and product obsolescence.  A pull-based model is demand-centric where minimal inventory is kept on hand and only replenished as it’s consumed.  Effective demand management requires more than just forecasting product need based off previous demand; instead, you will need to actively monitor your inventory flow.

4. Responsiveness

A continuous and rigorous evaluation of your inventory flow along with effective demand management allows you to respond and adapt quickly to changes in the market.  This responsiveness, the fourth lean inventory principle, will keep your inventory at appropriate levels; preventing unnecessary storage costs, write-downs, or write-offs of obsolete inventory.

5. Perfection

The last lean inventory principle, perfection, requires you to commit to a continuous refinement of your inventory management processes; doing so will result in improved quality, cycle time, efficiency and cost.

The core of lean is founded on the concept of continuous product and process improvement and the elimination of non-value added activities. The value adding activities are simply only those things the customer is willing to pay for, everything else is waste, and should be eliminated, simplified, reduced, or integrated.

Moving Forward

Moving to a lean inventory model is not a decision made lightly.  When effectively applied, the five principles give you an opportunity to not only save money but to reflect upon your overall business strategy.  If you are willing to set lean goals, take the next step forward and set goals to increase your revenue – you’ll be more efficient working lean, identify the growth opportunities resulting from this new efficiency.

About Wasp Barcode Technologies:
Wasp Barcode Technologies provides data capture and tracking systems designed specifically for small businesses. Solutions include: inventory control, asset tracking, time & attendance, and point of sale (POS); as well as the supporting mobile computers, barcode scanners, and barcode printers utilized to automate operations. Wasp products help small businesses achieve efficiency through cost-effective solutions designed to increase profitability.

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