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Increase Inventory to Increase Performance

Jul 14, 2020

Short lead times are a tremendous competitive advantage.  Lower work-in-process (WIP) inventories directly correlate with short lead times.  Some approaches push for one-piece flow to drive the lowest WIP possible and to generate the shortest lead times possible – and, therefore, great competitive advantage.  So, this must be the best business solution, right?

Wrong!  The lower you take your WIP levels, the more you are impacted by normal operational variation – making output tougher to control and predict.  

There are many tools you can use to lower the variation but, the truth is, all fabrication plants have human beings working in them and human beings don’t always perform consistently hour to hour or day to day.  To make matters worse, that variation accumulates through the steps of a production process rather than averaging out.  The result is a whip effect that adversely impacts customer ship dates.  This means that variation in plant output is a given. 

Since we can’t completely stop the variation, and since we struggle to control it, how do we keep output of the plant consistent so we can meet customer expectations and still make a profit?

In previous articles, we talked about how bottlenecks constantly moving around a plant creates chaos.  We talked about the need to decide where your constraint should be and how you can use techniques to help drive the bottleneck to the constraint.  

Once you have accomplished that, you will need to protect the constraint from the variation accumulating throughout the processes that feed it.  This is critical since, by definition, the constraint controls the throughput of the entire plant.  It defines the capacity of the entire facility.  If the constraint stops running for an hour, that is an hour of capacity lost for the whole business!  

Having extra inventory in front of the constraint helps ensure it doesn’t stop because of a problem in a previous process step.  It gives you time to ‘catch up’ if a machine in the flow feeding the constraint breaks down.  It also gives you time to inspect those parts to make sure you don’t waste constraint time processing a part that is already defective.  

Since this inventory buffers the constraint from everything that happens prior to it, let’s call it a buffer.

How large should this buffer be?  In most fabrication plants, a day of buffer stock is a good place to start.  Monitor the buffer levels over time (track the data!).  Record the issues that cause the buffer to increase and the ones that cause it to decrease.  Once you have a good feel for how feeding processes impact the supply of parts to the constraint, begin to lower inventory between the feeding processes.  

Our goal for fabricator owners to have true predictability and control of their business. 

The way we define that is somewhere about the middle of a given month, performance of the plant should be such that you can predict with a high degree of certainty, the bottom line of your Profit and Loss statement for that month!  In other words, you can predict what your accountant is going to tell you weeks before they tell you.  Upon helping fabrication plant owners and/or managers achieve this predictability and control, the business becomes much easier to manage.  Frequently we have clients thank us for giving them their lives back.

If you would like to have this level of predictability and control for your plant, drop me a line at Ed@FabricatorsCoach.com.

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