Several years ago, I visited a manufacturing company that was just putting the finishing touches on an impressive, highly automated warehouse. Meanwhile, another area of the company was involved in a lean manufacturing initiative that promised to greatly reduce the amount of inventory that the company would have on hand at any given time. Of course, after successful completion of the lean project, it was quite likely that this expensive, new warehouse would not really be needed.
Is this a classic case of poor communication across departmental boundaries? Yes, of course. Is it also a case of executive management not keeping their eyes on the entire business? Again, yes. Admittedly, this was a large company with many plants and divisions — but that’s no excuse. The executive team has a duty to consider any conflicts or lack of synchronization that could harm overall business performance.
Timing was a factor here as well. A construction project takes a long while to complete, and it is not that unusual for markets and needs to change between the time that a multiyear project is authorized and when it reaches completion. However, building this no-longer-needed warehouse cannot be excused due to a market or business change because the organization was still healthy and growing.
The real problem was that leaders asked the wrong questions. When inventory levels rose to the point where existing warehousing and material-handling capabilities were becoming inadequate, executives asked, “What should we do to be able to handle this increased inventory?” What they should have asked was, “What can we do to prevent inventory growth or perhaps even reduce inventory so we don’t need another warehouse?”
Years later, I worked with another business that had to maintain 6 to 12 months of inventory for low-volume products because workers were only able to make them once or twice a year. To help resolve these production constraints, the company had placed an order for an expensive machine and even planned to purchase a new warehouse. However, my team and I recognized the nature of their products and processes, and we were able to develop different production-scheduling guidelines for high- and low-volume products that eliminated constraints by shortening lead times and adding flexibility. With the more flexible scheduling system, the organization now could economically produce low-volume products five or six times per year, eliminated concerns about product shelf life and shipped consistently fresher products to customers. As a result, the business postponed the machine purchase and shelved plans for the warehouse.
Breaking from the normal approach
Many professionals get stuck in a rut of solving surface problems instead of digging down to their root causes. Too much inventory? Find a place to put it. Not enough production capacity? Add more. Problem-solving techniques such as cause-and-effect analysis and the five whys lead us to the heart of an issue. Asking the right questions makes it possible to identify key factors and avoid wasting precious resources on futile solutions.
If inventory is growing, ask why. Rising inventory levels with no increase in business volume is an obvious red flag that is easily detected by watching inventory turns. If business is expected to double in the next five years that does not necessarily mean that inventory must double as well.
It’s always smart to look beyond the obvious. Performance improvement does not come from just doing more of the same thing. Instead, take a step back and ask why five times — and don’t settle for the simple answers. Breaking through basic assumptions enables you to identify and resolve the real problems at hand.
Reprinted from APICS Magazine / Enterprise Insights | September/October 2017