Top Way to CUT Lead Time & Inventory

A 50% shorter lead time and 50% less inventory coupled with near 100% reliability must be a highly desirable performance. If one company in your industry offers this level of performance, what will your response be? How will you respond if your competitor guarantees his performance?

• You wait and watch because you are sure your competitor will fail.
• You immediately take action to copy him.

Often the combination of a 50% lead-time and inventory cuts is possible. A short analysis can indicate your potential from both changes.?

A.????Check Touch and Lead Time

Check the production time for a single unit. Check how long it takes for a single item to travel from your raw material and components stock to the finished product warehouse. Document this time. Call this time production lead time. To be statistically valid measure it several times.?

Then check the processing times at each step. Processing includes quality control, packaging, and labelling. Create the sum of all processing times to calculate the touch time of an item.

Touch time is usually less than 10% of production lead time. It means an item sits in queues for 90% of the production lead time. The need for efficiency leads to queues. Without queues, resources cannot work continuously. Sometimes they are idle and therefore inefficient. If they risk being idle, employees will slow down. To compensate and maximise factory efficiency planners release more work into the factory.?

The practices of slowing down, releasing more work and batching conspire to make production lead time more than nine times touch time. What you see on the factory floor is Little’s Law in action. More work-in-process increases lead time.

At the core is a conflict. Management wants both efficiency and short lead times. The way factories operate they can have one or the other, but not both. Because management focuses on cost and efficiency, lead time is usually the loser.

Can a business have both short lead times and high efficiency? What prevents you from having both?

B.????Check Shortages and Surplus

How often do shortages cause delayed shipments, missed sales or even lost customers. Shortages occur in distribution and raw material and component supply to your factory. Shortages cause sales and production organisations to demand more inventory.?

This demand leads to another conflict. Finance does not want more stock, they want less. Sales demand more inventory because they need perfect product availability.

Can a business operate with significantly less inventory and have ‘perfect’ product availability? What prevents you from having both?

C.????Where is Efficiency Important?

Must every resource be efficient? Do all your resources have the same capacity and capability? It is highly unlikely that all machine capacities are the same or even close.

If capacities vary, then the smallest capacity will stand out. It determines how much your factory can produce. Isn’t the resource with the smallest capacity the only one that must be efficient? Do you have to care about efficiency at the other resources? If the non-constraint resources maximise their efficiency what will the result for the constraining machine?

Is this a good rule to follow? “All non-constraint resources help make sure the constraint resource can be effective and efficient”? Would this rule maximise your factory’s efficiency and effectiveness?

How do you measure efficiency and effectiveness correctly? What does top management need? Do they need an improving bottom line or for every resource to be efficient? Does greater efficiency at non-constraints contribute anything to the bottom line (besides the cost to achieve the efficiency)?

Your factory needs to make sure the constraint is never starved of work. That other, non-constraining, resources are sometimes idle has little or no bearing on the bottom line and factory effectiveness.

It means you can cut work-in-process and, according to Little’s Law, cut lead time.

It means?efficiency is not in conflict with short lead times.

D.????Inventory Management

Is your inventory management a static process? Does management set a target for total inventory? Are targets mostly met at the aggregate level? Do you have shortages and surpluses??

If your answers are what I expect, then you do not manage inventory by item. Items do not have an inventory target. Aggregate targets (by product line) are static; they do not change as demand and supply change. Targets are set once for the next year.

Why not set inventory targets by item? Why not make these targets dynamic? Shouldn’t targets change as demand and supply change? If lead time is cut by 50% dynamic targets will adjust to the new necessary, level.

Production produces and purchasing buys to replenish to the current target. (Things like minimum order quantity might modify the process.)

It means inventory targets converge to whatever the current item optima are.

It means shortages and surplus are, to a large extent, eliminated.

Experience has shown that inventory can be reduced by about 40%.

It means there is?no need for conflict over more vs. less inventory.

E.?????Data and Information Management

A lot of data is involved to manage many items. Inventory targets become dynamic. Production planning and scheduling changes to reflect and maintain shorter lead times. To cut lead times with few SKUs is easy. With the thousands of SKUs many companies have, it is no longer a manual job. You can implement the necessary rules in your ERP.??Software (add-ons to ERPs) already exists that support both shorter lead times and dynamic inventory management.?

Alkyone Consulting offers Simple Planning for most ERPs. They cooperated with SAP to build the methodology into SAP products.?

You can Find out more at:?

Alkyone Consulting GmbH & Co. KG

Auf dem Wall 29

78628 Rottweil (Germany)

?Tel.?????????+49 741 2096 924-0

?Fax?????????+49 741 2096 924-9

?Email????????[email protected]

??????????????????[email protected]