LEAN Inventory Management

Supply chains across industries face ongoing challenges that require agile adjustment and inventive approaches to remain profitable and competitive. For better or worse, how you manage your inventory is changing—but LEAN inventory management practices provide a good starting strategy.

Applied to your supply chain, the changes you make to your inventory management process can increase your sales margins by reducing the cost it requires to manufacture and distribute your goods across your company.

Consider everything involved to create, distribute, and manage your inventory. Whether working with vendors, manufacturers, 3PL, or keeping all aspects in-house, a large amount of small, individual processes work together to produce and deliver products to your customer in a way that you can remain profitable. But efficiently organizing all of these processes can seem overwhelming.

That’s where LEAN inventory management comes in.

LEAN is a business methodology that improves processes by applying principles of efficiency to every aspect of your business. From identifying excess waste in manufacturing to how your distribution model meets changes in demand, this strategy to your inventory management system has the potential to maximize profits and improve company morale even.

What are the 5 Principles of LEAN?

LEAN inventory management takes the traditional approaches of LEAN—reducing time, effort, and waste—and applies them to every aspect of inventory within the supply chain. Here, we’ll look at 5 LEAN principles with examples to understand how to better apply traditional LEAN philosophies to aspects of inventory management.

Value
What value is created for the company when you implement the change? This comes down to honest evaluation if a change improves the process. You can understand value in two ways: adding value or reducing costs. For example, would a process change in manufacturing add to the quality of the product? Or, instead, would a process change lessen the labor required for distribution without diminishing quality? Identifying value helps businesses evaluate processes.

Flow
How does inventory currently move through your process? Using process mapping and other tools, businesses identify flow to break down manufacturing and supply chain processes. This helps them better identify where a defect, waste, inefficiency, or problem occurs before reaching the customer.

Pull
How are inventory requests processed, and does inventory only move when requested by customers? If not, why? A principal balance in LEAN surrounds inventory on hand and the demand for finished goods. In manufacturing, stagnant products add cost to your business, but a lack of inventory on hand reduces production problems. The “make-to-order” is the ideal that LEAN companies aim for by analyzing trends, attention to detail, and matching manufacturing with forecasting.

Responsiveness
Is this process responsive to change? A crucial part of LEAN is continuous improvement. Even when a process works well, can it later be modified to adjust to change demand or a required technological improvement? Being agile as a process influences its responsiveness.

Perfection
Perfection is the unattainable ideal LEAN focuses on reaching. Is this process being reevaluated consistently to improve quality and efficiency? Think of this as reducing the space between your business and a perfect process. This should inform company culture to discourage complacency and instead inspire inventive ways to improve the process.

What are the 5 LEAN Manufacturing Tools?

Initially adopted by Toyota, LEAN helped the car manufacturer adopt a new process of make-to-order. With the expense of manufacturing and the risk that they would produce cars without demand, they applied a system that would allow them to meet changing demand by how they processed inventory within their manufacturing processes.

The purpose of LEAN comes down to continuous process improvement: specifically here, how do businesses scrutinize inventory management to add value to the overall whole?

This is especially true for manufacturing, where specific processes involved with creating goods can affect quality, efficiency and add unnecessary costs to produce your goods. LEAN inventory management techniques listed below can be applied to each aspect of your manufacturing.

Kaizen
Kaizen is the philosophy of respecting and appreciating new ideas brought to the table—no matter what level they come from. Think of this from an employer/employee structure as well as a process standard. An idea should be valued if contributed by non-management in the same way as management if it brings continued improvement. And, in terms of process, don’t overlook even the smallest, seemingly-insignificant efficiency: shaving off a second of a 60-second process can lead to relevant improvement.

Kanban
The objective of Kanban is to reduce waste or overproduction. This plays out early on in the manufacturing process in how materials are stored, what labor is designated to a potential task, and how you incorporate forecasting data into everyday processes. For example, when batch-ordering steel to better determine exactly how much you need on hand for parts production, think on a daily level rather than a monthly, perhaps. How can you reduce waste and overproduction in creative ways?

Value Stream Mapping
One of the most widely incorporated LEAN inventory management techniques includes value stream mapping: an overview mapping of every process included in the manufacturing process that turns raw materials into finished goods. Value stream mapping helps all parties understand how they contribute to the overall process, and it helps identify potential problems (as well as efficiencies) within the flow.

Jidoka
A mistake or defect in manufacturing can have a higher cost in the long run than to continue production when a mistake is detected. This LEAN manufacturing principle was adapted to use automation as a tool to prevent consistent defects. But the idea can go beyond automation. Instead, this is an overall LEAN principle that helps employees understand constant vigilance in quality control processes—even to the extent they’re willing to stop a manufacturing process due to suspected defect instead of simply meeting expected production demands.

Total Quality Management (TQM)
Also known by its acronym PDCA (Plan. Do. Check. Act.), total quality management is a business-wide commitment to refine processes to improve product quality. This is implemented at every stage of the process for a business dedicated to LEAN supply chain management. When all parties understand the priority is quality, there’s a unified understanding of approaching problems in the supply chain.

What are the Main Types of Inventory in LEAN?

The purpose of LEAN comes down to continuous process improvement: specifically here, how do businesses scrutinize inventory management to add value to the overall whole? This is especially true for manufacturing, where processes in creating goods can affect quality, efficiency and add unnecessary costs to produce your goods.

Let’s take a look at the main types of inventory in LEAN to better define what processes goods and products are exposed to. As we go through the types of inventory in LEAN, let’s also look at some inventory management system examples associated with that type of inventory.

Raw Materials

These are materials to become work-in-process or finished goods, and it’s the most fundamental building blocks your products start as. Think plastic, steel, coal, gasoline, oil—everything that will be transformed into a different state. A LEAN inventory management example of raw materials might include how a manufacturer receives raw materials: are they being ordered as a batch in a way that optimizes your system?

Work-in-Process (WIP)
WIP items in-between processing steps at a manufacturing or processing facility. Many LEAN principles can be applied to WIPs because this is when they are exposed, likely, to the most transition: car engines making their way through the plant, any assembly points. What’s required here is to accurately forecast the needed demand of raw materials to run production.

Finished Goods
These goods have finished the manufacturing process and are awaiting shipment. Principles of LEAN inventory management for finished goods include efficient storing, geographic placement, and accurate inventory data: how much product is where?

Safety Stock
These are goods held at any point (raw materials, WIP, or finished goods) to prevent customers from being serviced further upstream. Consider here the placement of product within a distribution center: how effective is the product being stored to fulfill replenishment when required?

Shipping Stock
These are goods staged for the next outbound batch shipment, but they’re not considered any less important in LEAN even though the manufacturing process is complete. Instead, there is room for efficiencies and quality in packaging and loading to reduce any chance of damage during travel or export. Or, is shipping stock being stored in a manner that’s efficient and optimal to minimize the time in transit?

Every type of inventory in LEAN inventory management should be evaluated, but it doesn’t help to define types of inventory if the business doesn’t see value from improving processes (another LEAN tenant). How do these efficiencies reduce cost or add value?

Benefits of LEAN Inventory Management

Toyota largely became successful due to adopting LEAN inventory management, and it revolutionized many manufacturing companies following their success. They were able to meet growing demand without ever compromising quality, simply put.

Much of LEAN comes down to that transparency: identifying the processes involved and detecting waste, inefficiencies, and deficiencies. And that’s one way that DuraMark Technologies helps businesses provide more accountability to their customers.

DuraMark partners with companies to improve traceability in their inventory flow and reduce overall waste caused by disorganization. By using variable printing, we create SKU labels, QR codes, barcodes, VINs, and other tracking methods to monitor inventory throughout the supply chain. Not only does this provide traceability, but it establishes a commitment to your employees when they know their work is adding value to the final product.

Curious about the other ways we work with businesses to improve inventory management? Contact us today and ask how our technology can help you create LEAN inventory management practices and add value to your supply chain.