Lean inventory makes erp for the manufacturing industry more efficient. And that reduces costs.
The core idea of lean inventory management is a simple one that is broadly and well known by businesses today: continually focus on eliminating waste and inefficiency for better operations and profits. The concept of lean processes was first popularized by Taichii Onho and Shigeo Shingo at Toyota, who developed the Toyota Production System that itself drew inspiration from interchangeable parts pioneers Henry Ford and Eli Whitney.
Businesses have since then been enthralled by lean methodologies, and with good reason: they work.
As applied to inventory management, the lean methodology entails a continuous look at manufacturing production, the lag time between production and shipment, material resource movements, inventory levels, and the speed with which inventory leaves a warehouse. The goal is less inventory taking up space and depreciating in a warehouse, and less costs around carrying inventory.
The Benefits of Lean Inventory Management for Manufacturers
As with lean applied to other business areas, lean inventory management brings a number of worthwhile benefits.
1. Profit Maximization
Lean inventory management leads to reduced holding costs and a reduction in losses that stem from obsolescence, spoilage and dead stock. Lean processes also minimize stock outages, which has the knock-on effects of increasing sales and building repeat customers.
2. Waste Reduction
Not only does lean inventory management cut down on dead stock, it reduces the movement of stock that eats employee time and machinery usage. Because processes are more efficient, inventory is only moved when a customer orders it.
3. Product Quality Improvement
Quality, along with profit maximization, are the twin goals of lean methodologies. Lean inventory management focuses on identifying product defects via inventory management, which also helps cut down on return costs and creates greater customer experience at the same time.
4. Reduced Lead Times
Efficient inventory management cuts the time between manufacturing a product and when it is shipped to a customer. This shorter lead time creates customer satisfaction and enables manufacturers to adapt more quickly to changes in demand.
5. Rapid Stock Turnover
More efficient inventory management through lean methodologies ensures increased stock turnover, which frees up warehouse space and reduces both carrying costs and spoilage.
6. Sustainable Business Practices
With sustainability and environmental concerns an increasingly important business concern, lean inventory management helps manufacturers reduce their ecological footprint through efficiencies such as reduced energy use and the elimination of paper resources such as pick tickets, packing slips and paper forms in the warehouse.
Why Inventories are Not Lean
There are several areas that contribute to making manufacturing inventory less than lean. The areas that lean inventory management focuses on improving include:
Overproduction. When products or parts are produced before they are needed, excess inventory is created. Overages can come from too much raw materials being stocked, unfinished products that are still being worked on, finished goods not yet needed, or MRO resources (maintenance, repair and operations).
Waiting. The time between manufacturing and shipment creates idle inventory. Idle inventory ties up capital and incurs additional costs.
Transporting. Waste from transport happens when inventory is touched or moved needlessly, which adds costs and increases the risk of stock damage. The goal is having stock sit untouched until it ships or is processed to create additional value.
Processing. Excess processing occurs when a manufacturer adds unnecessary packaging, and when a department needs to enter data in more than one place (such as data entry into two different backend systems that don’t communicate with each other).
Inventory. Too much inventory ties up capital and creates other kinds of waste such as purchasing too much or the wrong materials. It also leads to a higher rate of defects from sometimes not using the correct inputs.
Motion. Wasted motion occurs when employees must search for inventory that is not where it is supposed to be located, or when machinery must be adjusted frequently to accommodate inefficient processes.
Defects. Unnoticed flaws in finished goods or raw materials that sit in a warehouse lead to wasted effort and storage costs, returns, scheduling issues, and reworks.
How to Achieve Lean Inventory Management
For manufacturers that want to reduce inventory waste through a lean inventory management methodology, there are six key attributes that must be put into place.
1. Demand Planning Software for Tight Material Resource Management
The goal is manufacturing products and keeping manufacturing inputs on hand only for what is currently needed based on demand. This takes advanced demand planning that requires ongoing analysis based on historical trends, real-time sales data and current resources in inventory. Manufactures need modern material requirements planning (MRP) software that ties into the company’s enterprise resource planning solution for full, ongoing visibility and coordination. Learn more about mrp erp systems examples.
2. A Centralized ERP Solution for Company-wide Systems Collaboration
Reducing inventory waste and inefficiency requires backend systems and departments that talk together. This takes a modern enterprise resource planning solution (ERP), which connects all departments within an organization and serves as a central data repository for viewing, analyzing and acting upon that data.
3. Analytics for Reducing Inefficiencies
Spotting inventory waste and inventory management inefficiencies takes artificial intelligence, machine learning and an advanced analytics engine for collecting and analyzing both operational and inventory data in real time. The reports generated from this insight also must be easy to create and act upon.
4. Process Standardization for Uniformity
Lean methodology relies on standard processes that are carried out uniformly. Without process standardization, lean methodologies fall apart. So manufactures must have strict process control and robust automation both within the warehouse and throughout their backend systems.
5. Industry Best Practices for Adopting Known Insights
Analytics and visibility help with finding inventory inefficiencies, but so does learning from best practices already developed for efficient inventory management. Bespoke, proprietary inventory management processes will only carry manufacturers so far. So manufacturers adopting lean inventory management should start with industry-standard inventory processes and procedures that avoid inefficiencies from the start.
6. Change Management for the Right Mindset
Lean inventory management is a mindset, a way of thinking that starts in the C-suite but encompasses employees at all levels of the company. Manufacturers looking to adopt a lean mindset need to create a company culture where employees understand the point of each inventory process and are invested in looking for additional ways to improve inventory operations.
Lean Inventory Starts with ERP
Each of the above attributes needed for lean inventory management either directly or indirectly requires a modern enterprise resource planning solution such as SAP S/4HANA Cloud Public Edition. So if your business is considering the move to a lean inventory management methodology, make sure you have the right backend system in place.
For more on how ERP can help your manufacturing business, or for specific questions related to improving your company’s inventory management processes, contact one of our experienced consultants at (801) 642-0123 or by writing us at firstname.lastname@example.org.