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Why reduce inventory further?

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Dear Gemba Coach,

We have a lot of machining operations in our process, and we carry inventory. What is the best way to show employees the value of reducing inventory—and how this relates to the need for continuous improvement? Our employees believe that some level of inventory is necessary to keep parts flowing, and that they’re already good at what they do, so there is no need to aim for better.

You’re asking a deep question that goes way beyond those guys in machining who won’t accept that holding inventory is wrong. This is a question that goes to the very core of lean thinking.

Twenty years ago, when my father, then industrial VP for a large automotive supplier, invited a lean sensei from Toyota to talk to his crowd, an elderly gentleman arrived from Japan with his interpreter and asked to see the shop floor.

With all the divisional VPs around him, he went to an assembly cell and watched the operator perform several cycles. After a good long while, he walked to the workstation and moved a component box closer to the operator. After more watching, he moved it slightly to the left, before saying “yosh!” (good).

Then he returned to the meeting room and drew the lake and the rocks while the translator explained that the level of the water represented inventory, and that reducing inventory would make the “rocks” (i.e. problems) appear. Then they returned to Japan, leaving my dad to explain why the demonstration mattered to a bunch of very irate Important People. Indeed, these two basic messages were probably the most profound lean lessons. And it would take many years until we finally understood their impact.

One Second Waste

The first lesson is that all lean thinking starts at the operator’s station looking for the “one second waste.” Lean tradition is very clear: first do motion kaizen, then machine kaizen and finally process kaizen.

Twenty years later, many people continue to blur the distinction between lean and re-engineering (and I should know, having made the same mistake and written a book about re-engineering), using VSM to reconfigure entire processes before having done the gemba work of motion kaizen with operators. The critical question that we initially failed to prioritize was “What is the mission of the operator in whatever you’re doing?” Eventually we realized that understanding the operators work cycle and how they felt about their job was the key to making the correct higher level decisions. By focusing on “one second waste” you can talk to the operator and improve motion, and then you’ll realize that a good part of variability and unnecessary motion is created by machine instability and poor equipment design, so you can learn to fix that. In doing so you learn a lot about what the ideal process should really be. If, on the contrary, you re-engineer the process right away (okay, call it kaikaku if it sounds better), then you’ll find that you’ll have enshrined the same inefficiencies in the new process – and never go beyond cleaning the window into real understanding of the technical challenges of the plant. Lean starts with the operator.

The second lesson is equally important: reduce inventory. If it’s already low, reduce it again. Back in the day, we were very proud of finally having understood that (1) inventory is bad because of the cash drain on the company but (2) that inventory is the result of process performance and can’t be affected directly (as any who work in a year-end driven company will know, reducing inventory drastically is possible, but then every process stops delivering: you can’t increase the car’s speed by pushing the needle on the speedometer) and (3) that you had to resolve many problems to reduce inventory.

It took us years to fully understand the lake and the rocks. Reducing inventory is good for business, certainly, but it is the main learning driver of lean. Forcing yourself to reduce inventory regardless of its level (whether good or bad) will make problems appear – the problems you need to solve now to improve. Reducing the inventory is a learning strategy. The reason for reducing inventory constantly is not problem solving but problem finding.

In fact, as Taiichi Ohno saw early on, lean is a system of related activities, so reducing inventory has to go hand in hand with other key problem finding activities:

  1. Reducing accidents and professional illnesses: what is the main cause of accidents? What is the main cause of professional illnesses? Are we doing enough kaizen on these topics?
  2. Reducing non right-first-time: start by distinguishing complaints spotted at the customers, at final control at the end of the line, at the workstation within the line. The closer the defective is spotted to where it is created, the more specific the problem, and the more lasting the fix.
  3. Reducing lead-time: inventory is one part of the equation, but it should always be considered in the light of on-time-delivery. In general, reducing lead-time in the process will make waste appear.
  4. Reducing overcosts caused by waste: muda is typically generated by muri (overburden), mura (unlevelness) or both. Visualizing the mura created by operating conditions is key to defining the cost problems in the process and how to reduce them.

Correctly Formulating Challenges

It’s a system: tackling inventory alone will lead you to make incorrect decisions unless you look at the impact on safety, delivery, quality and cost as well. For instance, many of the most productive automotive factories were shut in 2008 (http://www.nytimes.com/2008/06/06/business/06auto.html?_r=0 ) – defining the problem as productivity doesn’t save you from certain death, if you haven’t looked at build-in quality as well.

The point is that the intent to reduce inventory (as well as accidents, late deliveries, defectives and costs) is essential to lean thinking, not as problem solving techniques, but as problem finding strategies. Challenging yourself on these core dimensions will lead you to formulate the problems limiting your company’s growth. Correctly formulating challenges is the key to leading kaizen in the right direction (true north) and solving problems today in a way that opens up tomorrow as well.

How can you convince the shop floor guys to reduce their inventory? Well, the truth is you can’t – not if you phrase it like this. Inventory is the safety net that enables them to deliver to customers in their current situation, and they won’t understand why you’re trying to take their breathing space away.

This is not an issue that you can solve at factory level. Inventory reduction needs to be defined as a company endeavor (inventory reduction in a sensible way, not just cut the stock and never mind what happens). Inventory has to be expressed clearly as a corporate target, with each factory regularly coming up with its own specific inventory-reduction plan. Furthermore, it’s corporate’s role to constantly explain the deeper reasons for inventory reduction: better service, greater reactivity, greater flexibility. If the CEO demonstrates this is important for him or her, workers might shake their heads, but they will accept it.

How do you ever persuade someone of doing something they don’t feel like doing? Hard, right? Nonetheless, a few strategies can help. In cases where there is no clear and immediate self-interest, adult motivation is very sensitive to both autonomy and task significance. Many people are likely to make an effort if they can see that (1) it matters and (2) if they have the (relative) freedom to carry out a plan according to their own initiative.

To answer your question, to convince your guys to reduce their inventory, you need to first reinforce constantly how important it is for customers (better service) and for the business (cash on hand) as well as help them to come up with their own local plans for inventory reduction through greater flexibility. By reinforcing both their autonomy and their perception of the work’s significance, you’ll let them make up their own minds about it, rather than trying to force them to apply SMED.

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