Posted by: malstott | February 16, 2010

Push the Inventory to the Edges

Inventory should held either in a raw form or in a fast transformation form. Ideally, it should not be held in the middle. When designing a material flow, an operations team should focus on customer service level agreements to determine how quickly an order needs to be fulfilled. If customer satisfaction and/or competition is driving you to have a leadtime less than a full build cycle then the team should design a final transformation process that uses a building block approach to transform material to a finished form. Lean technology can be used to pull that material through the final assembly and test process based on customer demand.

On the other “edge”, inventory should be held in its rawest form with the intention of  launching the material into the supply chain only when it is needed or pulled to a building block kanban. There are exceptions to this if the material transformation process is so long that the cost of holding enough building blocks at the other “edge” is prohibitive. If there is an interim state that can be negotiated with the end supplier to shorten leadtimes, that should be considered but the risk and the cost of that transformed material should be weighed and then monitored.

All of the material on a bill of material should be examined for leadtime, risk and cost. Where that material is held should be purposefully determined. If an external contract manufacturer is used, the inventory design or supply chain design should be part of the contract negotiation. It is not acceptable for a CM to simply drive across a bill of material without regard to leadtime, cost  and risk.

Inventory should be the proxy measure for the health of a supply chain. The inventory levels throughout the supply chain should be considered, not just what is within the four walls. Clever design of material flow can give you both flexibility and cost control.

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