With higher inventory, capital will be tied up. In simple words you get little cash by selling goods after investing large amounts of money in manufacturing it. Cost will be high since there are related costs like interests. So either product will be sold with higher price tag or the organization will loose money from its bottom line. Higher inventory and work in progress hides the problems. Problems are hidden in higher work in progress and will be not possible to remove from the system. For an example if we have one day of work in progress with us, a part manufactured today will be used in the next work station only tomorrow. If we start making a quality defect today, only by tomorrow we will get to know about that. So we will loose full one day of effort. Worst part is we have to redo it. This is almost three times of the effort and cost.
In lean manufacturing context it is not possible simply to reduce or remove inventory and work in progress from your system. Root cause to higher work in progress is one of the other seven wastes we are discussing. So identifying the correct root cause and treating them will reduce the WIP and higher levels of inventory. Just In Time manufacturing, purchasing and distribution techniques have a direct impact on the inventory levels. By using these techniques with other techniques like root cause analysis you will be able to reduce the inventory levels and avoid the problems identified.
In a lean office or in a lean service we can identify work in progress as unfinished service requests from users. For an example work in progress can be measured by the time taken to process an application or with the number of applications in a work station to be processed. Higher the work to be processed higher the process lead time. This can make costly delays to the service requesters and in the organization. For an example if your marketing office people couldn’t read a mail from your customer on the same day it was sent how big the impact would be if the customer says he is going to cancel the order to be processed on that day. Again mostly of the times reasons for higher work in process in an office or a service are same as explained in manufacturing. It will be a reflector of the problems you have in your system. You can remove them with the lean techniques explained throughout the blog and in this series of posts on lean and waste.
In software development point of view inventory can be referred as developments which are started but not finished. In a lean software development environment software must be developed in small parts which will be integrated to make the full product later. If we wait until the full massive software is finished to test and deliver products it will take longer and the timelines will be increased. Again work in progress is mainly mirrors the imperfections the system contain. When you change the system by applying lean techniques you will have lesser WIP and inventory of work. You will be able to deliver good quality software fast.
Work in progress is a key element in lean manufacturing. It is the single most important visual indicator reflecting the level of waste a system contain. And as we identified with this post inventory and WIP can be a waste by itself.
If you need further information you may find the below presentation useful. This presentation covers main topics relevant to inventory and WIP reduction like Pull Scheduling, Kanban and JIT. Entire presentation is 68 slides in length. You may download a sample here. To buy through secure servers please use this link.