Part 3 in our TIMWOODS Series
Our friend, TIM WOODS, has been busy in many LBM and component operations and, as we continue our series, he has been seen sweeping “Inventory” down several operations’ drains. Inventory is another waste word in our TIMWOODS acronym for the eight deadly wastes (Transportation, Inventory, Motion, Waiting, Over-Processing, Over-Production, Defects, and Skills). TIM WOODS keeps the focus on eliminating the time waste, thereby adding value in the process, eliminating process time, and reducing lead time.
While no one wants inventory going down the drain, many of us have just that – we may not see some of the hidden forms of the waste (muda) of Inventory. So what is Inventory Waste?
What kind of inventory that we carry can be considered waste?
- Stock lumber, OSB, EWP products, glue-laminated products, steel, plates, etc.
- WIP (work in progress) for millwork and component operations which is in excess of what’s needed to meet Just-in-Time production
- Unnecessary inventory that accumulates before or after a process where continuous flow has not been achieved
- Long change-over times
- Excessive stock ordered for projects
- Large batch sizes
- Excessive designs which have not been reviewed/value engineered to maximize inventory
- Lack of balance in work flow which forces inventory build-ups
- Stagnant materials where associates are neglecting first in/first out inventory rotations
- Finished goods which sit in your yard for long periods because you are not being paid.
The list could continue, but you should see the pattern – excess raw material, WIP, or finished goods causing longer lead times, these are wastes of Inventory.
How much is my inventory costing me?
When it comes to inventory, one thing each of us should clearly understand is that “cash is king.” When you tie up cash in inventory, it is not available in another part of the business and it is costing money. Every piece of product tied up in raw material, work in progress, or finished goods has a cost and, until it is actually sold, that cost is on us. In addition to the pure cost of your inventory, it adds many additional costs; inventory feeds many other wastes. Inventory has to be stored, it needs packaging, it has to be transported around the facility, it has to be administered in accounting, someone has to count it, it has the chance of being damaged during transport, and may even become obsolete. The waste of inventory also can hide many of the other wastes in your systems. Every piece of inventory you hold has a physical cost associated with it, and that cost is shouldered directly by you either from your cash or from borrowings for which you pay interest. When you look at it from this prospective, why even store inventory?
What are some of the causes of waste to watch for?
Overproduction
How many times have you heard a peer or even one of your managers say, “this stack over here is just a ‘comfort stock’?” We overproduce for a number of reasons, ranging from concerns about our suppliers to doubts about our productivity, our process, and even our own customers. This overproduction gives us a buffer for when things don’t go according to plan, because plans often go wrong. But, because this comfort stock is in place, the pain we were trying to prevent can cause pain elsewhere – money on our bottom line. The levels of inventory we sometimes keep are like the sea; if you drop the level, you begin to expose some of the rocks that are hidden below, and you have to act by removing them or reducing them so your ship (production or LBM movement of orders) can continue without being scuttled completely.
Large Batches
Our industry constantly talks about what is the proper size of a batch. When you see a cart or a pallet loaded with a tremendous amount of material from the saws, you should be thinking about just what is in that batch. Are we combining like parts, are we sending multiple trusses to the table, how is it being stacked on the cart, etc.? Many times we see sawyers and catchers stacking multiple parts and trusses on a cart, but in a way that makes it a jumble puzzle for the assemblers when it comes to the table. We also see large batches of materials being moved around due to machine set-ups requiring us to run over-sized batches to ensure we make good use of our machines. When inventory is idled in the process stream, it is also costing us money. We make a similar argument to a builder when selling components because of their advantages over stick frame – faster, less time, less material, no waste, etc. So why not strive for these advantages for ourselves?
Rejects
How many piles of rejects have you seen in your yard when you are walking around? You shake your head and say to yourself, “I’ve got to do something about that.” You ask your teams to recirculate as much of the material as they can, but these piles keep showing up everywhere. We call this waste by words such as shrink, downfall, etc., and, when it gets to the customer, we have to go out to replace or fix, it is even more costly. Our first line of defense in the yard is our team pulling raw material orders either to the truck or to the manufacturing plant/mill. But, even before that, we need to work with our suppliers to reduce the waste we receive – not only because of the loss of material, but also because of the labor time to process it.
These are just a few examples of the waste of inventory you should seek to find in your operations.
Eliminating the Waste of Inventory
Once you have found a few of these examples in your operation or others, you need to go about the process of eliminating this inventory waste. Look at the manufacturing areas (millwork/component operation) and the lumber yard; look at each of the process/cell areas in them and ensure that WIP does not build up between processes. Even staging in a lumber yard can be a delay or waste of inventory. Between our people, our processes, and our equipment at the end of the day, we want to ensure that we balance everything and prevent this unnecessary build-up of the inventory.
Let’s look at one method for eliminating waste: Just-in-Time (JIT). Just-in-Time production is one of the main principles of the lean manufacturing value flow process and it directly helps us address the causes behind inventory waste.
By using just-in-time concepts, you reduce the need for raw materials and work-in-process, while finished goods inventories should be close to non-existent. A few of the just-in-time inventory advantages include:
- Minimal amounts of stagnant inventory and a high rate of inventory turnover keeps any items from remaining in stock and becoming obsolete.
- Smaller batch runs allow for quicker cycles at the assembly tables and, in that “rare” instance of a customer change in schedule, it allows us to change the production schedule with greater flexibility to meet changes in customer demand.
- Low inventory levels mean inventory holding costs are minimized, which is especially beneficial because many of our yards have limited space.
- The company is investing far less cash in its inventory, since less inventory is needed.
- Less inventory can be damaged within the company, since it is not held long enough for storage-related accidents to arise. Also, having less inventory gives materials handlers more room to maneuver, so they are less likely to run into any inventory and cause damage.
- Production mistakes can be spotted more quickly and corrected, which results in fewer products being produced that contain defects.
Again, these are just a few examples and tips on the waste of inventory. In my work with several operations in the LBM and Component industry, I have helped devise solutions to unique problems as well as the things you typically see in every operation. I encourage you to spend more time in your operation looking at each process and, if you need help, let me know. I would enjoy the opportunity to work with you on a lean solution.
Ben Hershey is the CEO of 4Ward Consulting Group, LLC, the leading provider of Lean Management and Manufacturing Consulting to the Structural Component and Lumber Industry. A Past President of SBCA, he has owned and managed several manufacturing and distribution companies and is Six Sigma Black Belt Certified. Ben has provided consulting to hundreds of Component Manufacturers, and is highly recommended throughout the industry. You can reach Ben at ben@4WardConsult.com or 623-512-6770.
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