I was traveling last week and had a restaurant/pub meal with colleagues one evening. As I was picking up my meal, a set of pre-packed sauces in little containers caught my attention. “Well done!” I thought. They had planned to be a step ahead to meet those last-minute customer requests, for their favourite sauce, with minimal disruption to the service.
This got me thinking. We use similar methods in manufacturing, carrying intermediate buffer stocks, to meet unexpected issues in processes. I recall seeing pre-made shipping boxes next to the cartoning machine during my corporate days. Operators preferred to carry a few pre-made boxes to deal with the occasional jam-up of the box making machine. In such situations, they manually fed the pre-made boxes onto the line, while attending to resolve the jam-up or the machine stoppage.
On one hand, this seems like a good practice – it reduces any overall line downtime and keeps the process ticking. On the other hand, it masks problems and prevent you from identifying real improvement opportunities.
Here are some issues with carrying inventory (finished goods) or intermediate buffer stocks:
- working capital tied up.
- write-offs if not used within the expiration period.
- Increased handling – adding cost each time you move it.
- Potential write-offs due to damages.
- Increased diligence required for monitoring specific batch requirements.
Businesses carry excess inventory as insurance to deal with unexpected issues both internally (machine / process issues) and externally (customer demands). The commonly used analogy is a ship (your business) sailing through inflated water level (inventory) to avoid running into submerged boulders (problems). Try systematically reducing the water (inventory) level to expose submerged boulders (problems) and try to resolve those issues, one at a time. This is how you can improve your business agility, increasing bottom line performance and reducing lead times.
Where are you carrying buffer stocks in your business?
What are the hidden opportunities?