September 2, 2016

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Do Not Focus on Reducing Inventory

Prior to deep Lean transformations, one can often hear an Operations Director, Plant Manager or CFO offer the guidance, "We must reduce inventory."  Anyone can reduce inventory- simply throw it out.  Done.  But it's not that easy: we couldn't ship orders if we threw out our inventory.  

 

What is meant by the statement is to balance inventory perfectly with demand.  Or, to "optimize inventory".  When achieved perfectly, this is what is also meant by the Just In Time concept.

 

Changing the statement re-frames the problem definition, and then we can being to understand how to achieve the request for lower inventory. To optimize inventory we must know our demand rate, supply replenishment rates and the tools and principles to continually balance the two. 

 

Inventory will be reduced, but not until it's known what must be true to optimize it.

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