Inventory management is a critical aspect of any Lean system. The objective is to keep all inventory as low as possible and meet customer demand. Inventory is typically classified in three categories:
- Raw materials – these are the basic components procured to produce a product
- Work In Process – This is anything that has had some processing or work completed on it as it moves through the value stream
- Finished Goods – These are the products that are waiting for shipment
Inventory Management Focus Areas
Inventory management requires process discipline, planning and communication along the entire value stream. For example:
- Procurement and purchasing must get the right materials and in the right quantities. If not, obsolescence and excess storage result. Vendor managed inventory – where the vendor manages all their raw materials even when they are inside the customer facility – is one popular option for keeping raw materials in check.
- Work In Process requires tight control of the flow of components as they move through the value stream. Single piece flow, just-in-time, Kanbans and leveling are all techniques for managing this type of inventory.
- Finished goods inventory is often viewed as a safety net for managers who are rated for on time delivery. A build-up of finished goods can be a dangerous thing since finished goods have the greatest amount of material and labor built in. Therefore, finished goods inventory and on-time delivery are metrics that must be monitored and balanced for the best results.
One major area of opportunity for all inventory management is Sales and Operations Planning (S&OP). This deals with forecasting and demand (Sales and Marketing) and the relationship between customer demand and operational capability to supply that demand.
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