Maintaining inventory at the right levels has always been an important but most often elusive goal. The aftermath of the financial crisis has only made it more important and yet more difficult. Customer forecasts are within more conservative ranges. Many Suppliers are less inclined to hold inventory. Reducing inventory without making fundamental operational changes will lead to lower customer service levels, customer dissatisfaction and eventually, reduced revenue. Carrying more buffer inventory to cover customer ‘spikes’ is a less savory option.
Most operations have some level of excess inventory due to forecast and mix, engineering changes or quality issues. The low hanging inventory reduction ‘fruit’ is to identify and segregate these buckets until the relieving actions can be completed. Once this is in control, the key is to keep it from happening again. Unless processes were way out of control to begin with, the inventory reductions from these areas will not usually pay for increases in buffer stocks for active customer programs – and until the causes for the excess are eradicated through sound management control, they are likely to return anyway.
The biggest opportunity for reducing inventory is having supply and demand match. Demand forecasts are never perfect. Forecasts are either ‘lucky’ or ‘lousy’ or somewhere in between. We can always work scrub harder, ask more questions to try to get a better forecast, but we can always count on falling something short of perfect. The only perfect solution to reducing inventory while maintaining (and almost surely improving) customer satisfaction is to reduce lead-time and batch sizes throughout the chain, with zero and one being the respective goals.
Buying in quantity to get the price discount usually costs more in other areas. In many cases, its of benefit only to the salesperson’s quota and incentives and often has little to do with the economics of manufacture. In a lean environment, the opposite is most surely the case. Suppliers manufacturing in lower batch sizes with shorter cycle times often have higher quality and lower costs. Yield in many cases swamps allocated cost loadings and let’s not even start talking about those on a lean blog.
Making adjustments to the flow and operation of your floor is on the critical path for full improvement but starting that complex and long journey is the subject of another blog entry or two. In paralell with those efforts, a lot of good can be had by working closely with key suppliers. Start separating ‘cycle’ time and ‘lead’ time in your discussions. We often only talk about lead time. They are very different things and often will help you understand how different suppliers operate, or what lengths they are willing to go for you. Both of these things are good to know.
Lead times apply to the normal promise for a new order that was not anticipated. Cycle time is the amount of time between release of an order to the floor until it is ready to ship. If you provide a regular and decent forecast, and you have earned trust as a valued customer, you should expect responses closer to cycle time than full lead time – but not always – be careful.
By decent forecast I mean you can explain dramatic changes from one period to the next. That way you show you put thought into it and you will be distinguishing yourself amongst the few. You’d be surprised at the number of companies with fancy computer systems that don’t understand what they put into them. If the forecast is the music, its no wonder no one recognizes the songs that the plants are trying to play.
Even for parts with spotty or seasonal usage, suppliers will usually make arrangements to buy materials and have them ready to produce if you agree to take the product within a reasonable time – that is if you have built the trust with them that you will deal fairly with them and not leave them holding the ‘bag’ of parts when the plan changes. Be careful there. If you string them along, don’t blame them if that extra material isnt’ there when you need it.
’5 Why”s is a lean tool that is taught by lean practicioners as a key tool in problem solving. The crux of this skill is too keep asking ’why’ about something until you get to a potential root cause. Most of us learn this long before we are introduced to lean enterpise. Its the game we played with our parents (and dove them nuts) as we explored the world as young children. Little did we know, we were practicing a skill that would be very useful to us in the business world. At the risk of being obvious, the delivery should be a bit more mature as we get older.
How this works, is that each time you ask ‘why’ you peel back a layer and eventually you get to a fact that will lead you to a solution. One of my favorite applications of this is in vetting suppliers or to prepare for negotiations. In both of these situations, the truth may be hiding behind veils of spin and smoke. The success of any negotiation is driven mainly by how well you prepare for it. Knowledge is power and what you don’t know will hurt you.
The higher the stakes the less you can take at face value and the harder you need to work to get to the truth. Ask the same question over and over again, phrased differently and to different people over time and you’ll get to the truth. If there is any deception or ‘spin’, the more people you ask, the more likely you’ll catch one or more that is off their guard. Talking to those not direclty involved in planning the negotiations can be particularly revealing. Take this to another level by assigning someone on your team to do the same thing.
No, this is not a post on ‘Texas Hold ‘em’ as I have yet to be bitten by the Poker bug. The intellectual exercise is intriguing to me. Sitting in one place for extended periods is not. This post is about an important lesson to never take anything for granted and speak what is on your mind – especially where people are involved.
I was a supervisor in an engineering department at a Fortune 100 company. My boss told me that two engineering sections would soon be folded into one group and it would be reporting to me. It made sense. I already had one of the two groups and both groups did very similar work. The other supervisors and managers in the department were very good about sharing their experiences with the people in my new section and helped me prepare for what I was about to take on.
One very interesting case was ‘Bill’. I was told by more than one of my peers that ‘Bill’ was a constant problem. He didn’t perform as well as the others in his group and managing him would be a challenge for me. Prior to the switch taking effect, I reviewed each person’s file and what I found in Bill’s was astounding. He was definitely lagging behind the rest of the group, but he also had a list of patents as long as my arm. The issue was not his technical skills. There was an almost two year period where he had a lot of absenses and an extended leave for medical reasons. This leave was coincident with the end of the patent list. I asked HR about it an was told he had some health issues, but without discussing the exact nature of his illness, he was now ‘well’ and had a very clean bill of health.
Our one on one finally came. He reviewed what he’d been doing. I went over my expectations, but intially avoided any mention of his relative performance gap. I tried practicing how I would bring it up, but I didn’t like any of my approaches. I wound up putting my quandry to him directly in the form of a question. What was preventing someone of his strong technical background from keeping up, if not passing, his peers in terms of the amount and quality of work being done.
I was sure he was going to get defensive. He looked at me puzzled for a minute and said. “Wow…..No one’s said that to me before”. He was actually very appreciative that I had been honest with him, He said he do what ever needed to keep up with the group. You know what? He did just that starting the very next day and it continued up to and beyond my leaving the group. From that day on, he was a star employee.
How could this happen? There were years of performance reviews without any mention of an issue, but you could see between the lines by comparing what he was getting done to the others in his group. I can’t be sure, but what I think happened, is that no one pushed him after his medical leave. I was too embarrassed for my peers who were his previous supervisors to make an issue of it. He was also much older than his peers (and I) and another issue was fear of what he’d do or say if someone challenged him kept them from facing the brutal facts.
I took away a couple of things from this that I have not forgotten. I had at least one or two peer supervisors who needed to up their game in handling performance appraisals. Always be up front and honest with people in performance appraisals good or bad. Challenge your assumptions about what was or was not done in the past – or how well it was done.
