June 25, 2015 / bottlenecks, Cost Management, lean manufacturing, material costs, productivity, quality, resource allocation, root cause analysis, workflow process
As most manufacturing executives know, inventory is one of the eight deadly wastes of lean manufacturing. Unfortunately, many metal-cutting companies tend to either ignore inventory or intentionally stock up on material “just in case.”
But there is a reason lean experts consider inventory as deadly. Excess inventory is costly in more ways than one: it requires space, equipment, measurement, and management, not to mention the initial cash expenditure.
Perhaps the greatest danger of surplus inventory, however, is that it often hides other forms of waste and inefficiencies existing within your forging and metal-cutting operations. As an archived article from Modern Machine Shop explains, inventory provides the perfect mask for a host of workflow problems. “With enough inventory, we do not need to be concerned with problems; in fact, we probably will not even know they exist,” the article says. “After all, with lots of inventory, who needs to worry about long vendor delivery times, critical machine breakdowns, long equipment setup times, production schedules not being met, absenteeism or even quality problems that lead to low production yields?”
Of course, that is exactly why managers need to take a closer look at their inventory. According to an editorial from IndustryWeek, inventory optimization can “unearth huge process improvement opportunities that will impact both the balance sheet and the income statement in a positive way.” Below are just a few of the process improvement opportunities the author says may be hiding underneath your raw material and work-in-process inventory:
- Raw Material Inventory: How much of your raw material is only necessary because of quality, extended lead times and delivery performance issues by your suppliers? How often are you having excessive scrap or missed customer deliveries because of supplier problems? These are typically issues where much of the heavy lifting can be done for shop floor people by the materials/sourcing team and a quality engineer. They can significantly better plants by improving flow and eliminating cost and customer issues.
- Work-in-Process Inventory: The level of work in process reflects flow interruptions. Why the interruptions? Perhaps your team doesn’t understand or use proper value stream mapping and line balance engineering. Processes are interrupted because of rework and scrap issues, and these unfavorable numbers can be enormous. How much are you losing on scrap (labor, material, overhead)? And, how much capacity is being wasted as a result?
In most cases, digging deeper into your inventory will reveal a list of process areas in need of improvement. The question then becomes: What can managers do to keep their inventory low? While there are several ways to accomplish inventory optimization, below are three simple strategies to consider:
- Use Remnants. According to the white paper, Accounting for Operator Inefficiencies in the Metals 2.0 Environment, many forges and other metal-cutting companies are training operators to use remnant materials first before pulling new material for a job. Industry leaders are finding that picking quality-but-leftover materials from a previous job (often known as “pick for clean”) is an effective way to improve overall system efficiency.
- Rethink Your Storage. One metal fabricator, featured here in thefabricator.com, found that a new inventory rack system was well worth the investment. According to the article, the company estimates value-added output per square foot increased by 220 percent since the completed implementation of the inventory management system.
- Invest in Software. While inventory management and other business system software have historically been too expensive for small- and mid-sized manufacturing operations, the cloud is changing all of that. According to an article from Fabricating & Metalworking, cloud-based software deploys mission critical data (inventory, accounting, capacity, estimating or work order management) in a way that allows smaller metalworking shops to compete on the business side with systems that are affordable and easy to use.
Regardless of the strategies you adopt, the bottom line is that inventory management should be a priority. Even if you are consistently filling customer orders, that doesn’t mean you doing it efficiently. By taking a closer look at what lies underneath piles of inventory, forging operations can save costs, improve productivity, and finally get to the root of some operational issues that may have been there all along.