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5 Lean Inventory Principles

Lean inventory management sprung from Toyota’s endless search for perfection and found its way far beyond the automotive industry. Could lean management work for you? What comes to mind when you think of the word “lean?” Trim, slimmed down, streamlined? Reduced, meager, insubstantial? In a way, all these definitions can help explain the principles behind lean inventory management. It approaches the idea of inventory control from an unusual angle: Instead of a stockroom that housed whatever the consumer might need, the business would remove any excess and would only retain what would be used within a specific time frame. [Tweet "The means to increase the productivity of the auto manufacturers now spans industries."] Seems simple enough, doesn’t it? Don’t let yourself be fooled: The end result – a neatly compacted supplies store – comes thanks to decades of refinement. What started off as a means to increase the productivity of the auto manufacturers now spans industries.

Past and Principles

Lean management’s roots can be traced to the early 20^th century and the American automobile. Henry Ford’s “just-in-time” flow production combined the notion of a moving assembly process with interchangeable product-specific parts. The drastic reduction in wasted time and inventory (what came in went out) made it possible for Ford to keep his costs low. Those savings were then passed on to the consumer market in a steady price for the product. Unfortunately, Ford never capitalized on the public’s desire for variety and his flow production model soon fell by the wayside for more than 20 years.

Related Article: Lean Inventory Management

Toyota revitalized this concept toward the end of the 1940s and soon expanded upon it into the Toyota Production System (TPS). Though a combination of Ford’s just-in-time production and stock minimization, Toyota helped the postwar Japanese economy recover. The company also made itself adaptable to the changing desires of its consumer market, a move Ford never made. Further efforts over the last 80 years transformed the TPS into a five-point method to reduce, if not eliminate, waste and inefficiency in industries well beyond manufacturing.

Principles of TPS/Lean Management

The foundation of TPS rests on five principles that build off each other to meet the ultimate goal: Efficiency.

1. Value: What does your organization gain from lean management? What good would it do for you to change over to a lean system? Will you save time? Effort? Money? Space? What about your customers? How will these changes benefit them?

To improve this area, you need to be brutally honest with yourself: What does your business do well? What does it not do so well?

2. Flow: Look at how your inventory goes from your storerooms to your customers. Do you keep the shelves stocked in the event that someone needs a certain product or do you only pull freight when a customer needs it? If you chose the second options, you’re one step closer to lean.

Lean inventory management focuses on a demand-based pull flow. Need is only the first step in the process, and the easiest to modify.

Look at the steps taken from start to finish: Any movement that makes the customer’s wait longer or inventory retrieval more difficult needs to go. This includes hunts through unorganized stockpiles, impractical inventory placement, push-flow movement, and too much inventory. If you make your own inventory, remember that defects lead to re-works, which lead to delays, which lengthen wait times. Also: If an expensive tool does a job no better than a cheaper one, take the more cost-effective route.

3. Pull: The only time you should pull your inventory is when a customer requests something. This on-demand methodology helps to further cut down on excess inventory, unlike previous-demand model of push supply. You can’t successfully meet your customers’ needs without actively monitoring inventory flow and market trends.
4.  Responsiveness: This monitoring only works if you act on the information you glean. Once you learn from your findings, adapt your inventory behaviors accordingly to further eliminate any wasted efforts. Trim your back stock and you can lower your storage costs (or on-site clutter) and avoid some risked obsolescence.
5. Perfection: The most difficult, if not impossible, principle to master – and the most crucial. Perfection isn’t likely to come within your first week, first month, perhaps even first decade of practice. Remember: This process is almost 100 years in the making.

But you always want to be a little better than yesterday, don’t you? A little bit wiser, a little bit more than before, right? The same goes with inventory management. You must continuously revisit each step in the process and see how you can do it better.

Present and Beyond Manufacturing

Just because lean managements started and grew in the manufacturing field doesn’t mean it can’t apply elsewhere. Take healthcare: The Virginia Mason Production System (VMPS), based on Toyota’s model, looks to improve the quality of patient care without undue cost increases or the use of resources. Its six principles seek to streamline medical care through the elimination of waste. VMPS also keeps the employees’ needs in mind with a “No-Layoff” policy. No matter how much they improve, providers will never improve themselves into unemployment, a heavy concern in the days of automation. The Patient Safety Alert System, healthcare’s take on “stopping the line” for defect detection and repair, allows that mistakes will happen but can be reversed if caught early enough. Whereas this could involve incorrect dimensions on a part of a cracked piece in manufacturing, it can include mislabeled warning bracelets in healthcare. How does lean work when a physical object doesn’t exist? Where there is no thing or no one you can touch and feel as real? Part of the goal of lean IT is to take the abstract, the thought work, and make it more tangible. Steve Bell with Lean IT came up with an eight-point take on TPS for the information tech realm:

1. Don’t focus on costs: Focus on outcomes.
2. Stop the line when you need to and build a little time into your daily schedule to compensate for these stops.
3. Your people are your most important asset. Develop them and their abilities through continuous coaching and training.
4. Know and understand your value streams.
5. Keep things simple.
6. Visualize: Make the picture in your head your real world image.
7. Put yourself in the customers’ shoes. Be a customer. Work from that angle.
8. Embrace uncertainty: All the planning in the world won’t eliminate every chance for waste or failure. Still, run with it!

Is lean right for you?

Lean management may work across a wide range of fields but that doesn’t guarantee it will make a good fit with your business. Retail clothing sales may fall victim to ever-changing trends in the fashion world that make it almost impossible to guess what’s next. Stores like J.C. Penney may be left with no alternatives to write-downs or write-offs to clear out unsold stock. Bakeries, on the other hand, could thrive with lean management. 365.café in Barcelona operates on a day-to-day basis, orders only what is needed each day, and keeps only a half-day’s stock of other products on hand. Proficiency does not come quickly. If you find lean management fits, plan to work hard for benefits that you will see. Before you go lean, ask yourself:

1. What value will this bring to you and your customers?
2. Are there any unnecessary interruptions in your inventory flow from you to your customers?
3. Can you pull inventory to meet your customers’ needs without compromising your business or their needs?
4. Are you responsive to changes in your market?
5. Will you always strive for perfection?

How could you implement lean inventory management in your warehouse?  Leave your suggestions in the comments.