Everything Lean For Leaders And Their Teams

Building Continuous Improvement Management Systems

Lean Consulting

Lean Training

Lean Products

Lean Support Services

Forms and Tools

Lean Dictionary
Consulting Training Products Services Forms Dictionary

Call us at 1.800.670.5805

Email UseView Cart

Gotta Go Lean BlogView Cart

View hundreds of terms in our Lean Dictionary

Lean Definition: Inventory

Inventory is the collective term for finished goods that you intend to sell, and the components that go into those goods.

Inventory is a necessary evil of production. Without inventory, nothing could be built, and nothing could be sold. But too much inventory drives up costs. Inventory must be stored, managed, moved, and insured. Obsolete inventory must be disposed of. Large quantities of inventory require large warehouses, forklifts, and staff. Plus there is, of course, the capital (invested money) that goes into purchasing the inventory in the first place.

In Lean, inventory is viewed as a symptom of poor processes. Long setup times, for example, drive batch production. Lack of standardization allows batching in production areas. Poor inventory management systems requires extra inventory to keep from running out of items.

When Lean principles are applied to the underlying processes, the need for inventory drops. In the best case, flow is developed, in which a finished part from one process is handed directly to the next process. In the absence of perfect flow, kanban is often used to stabilize inventory levels and provide a foundation for inventory reduction.

In the Lean office, things like office supplies are obvious inventory, and are often the target of inventory reduction efforts. But the actual work—orders, files, etc.—behaves much the same as physical inventory does on the shop floor. Large piles of work are also symptoms of underlying problems.

Inventory reduction, though, has two things working against it. The first is volume pricing. There is a perception that buying in bulk is cheaper, because it is the part of the cost that is directly linked to the product. Other costs don’t have that obvious relationship. The other issue is that inventory is carried as an asset on the balance sheet. Lowering that asset quickly in the initial stages of inventory reduction can hurt the perception of fiscal strength if it comes down faster than liabilities do.

Add a Comment

Share Your Thoughts    |No comments|

© 2009-2012 by Velaction Continuous Improvement, LLC. All rights reserved.

Related Books

Continuous Improvement Books
Lean Definitions | Tags: ,

Other Information You May Be Interested In...

  1. Point-of-Use Inventory ‘Point of use’ is simply the practice of storing any inventory you have at the point where it will be used. This is in contrast to inventory that is stored...
  2. Setup Reduction Setup reduction is the act of lowering the time it takes to switch from one product to another. In a traditional manufacturer, the switching time (changeover) is long. As a...
  3. Lean Accounting Accounting is a necessary part of any business. It is critical to know if the actions a company is taking are making it profitable, or if they are causing the...
  4. Changeover Changeover is the time it takes to go from the last good part of one product run to the first good part of the next product run. Quick changeover is...
  5. Batch and Queue In traditional manufacturing, there is a tendency to run large lots, or batches. This occurs for a variety of reasons—large distances between processes, long setup times, or simply poor processes....
  6. Last-In, First-Out In accounting, last-in, first-out (LIFO) is a method of recording inventory. It is used to manage earnings in inflationary times. A last-in, first-out inventory system records the most recent price...

Comments and Feedback:

Please leave feedback about this entry.

You can leave a response, or trackback from your own site.

Leave a Reply