by R.T. "Chris" Christensen

Now I did it. I know that at least some of you read my column because of your e-mails. You are taking me to task over statements I made in the last few articles that stress the need to have some inventory in your operations. But, you say, isn’t the idea of lean manufacturing not to have any inventory?

What was I thinking when I said you need to have some inventory to best run your business? Saying “inventory is the cheapest way to run your business” runs counter to supposed lean thinking. My point is there is some operational level where having some inventory gets you to a level where you minimize the cost of doing business.

That thinking got the e-mails going. Some questioned my sanity. Some grilled me on why I would recommend having some inventory when lean teachings focus on inventory elimination as the best way to run your operation.

I can talk all day about the reasons for having inventory and draw some neat graphs and confuse the obvious. But instead, let’s take a look at a simple example to see how inventory fits into lean. Let’s move into the kitchen.

Running a kitchen isn’t that different from running a manufacturing operation. What you really have in the kitchen is a mini-production operation of a small batch of a custom product on short notice on a daily basis. Manufacturers call this mass customization.

Let’s apply the lean process here. Holding to all that is holy in lean, what we need to do is eliminate all inventories in the kitchen just like we eliminated all inventory in the manufacturing operation, and then practice mass customization. Therefore, we just get it and make it when we need it. This means no inventory, just empty cupboards.

Moving on in our example, you say to your significant other that you want carrot cake for dessert tonight. From my significant other’s recipe box, the carrot cake recipe calls for:  2 cups sugar, 2 teaspoons cinnamon,  1 teaspoon salt, 1 teaspoon baking soda, 3 cups raw grated carrots, 4 eggs, 2 cups flour, 0.25 cup salad oil, 2 teaspoons baking powder and 1 cup chopped hickory nuts. Mix, pour into a greased 9-inch x 13-inch pan and bake at 350 degrees for 45 to 60 minutes.

But following lean practices, you don’t have any of these items in inventory. And since there are only two of you, you don’t need the 20 pieces of cake this recipe makes. You need two. (You are on a diet and need just one piece each, right?)

Therefore, it’s ridiculous to make the 18 pieces of carrot cake you don’t need. So, that is what you do. You only make two pieces. And because you practice lean theory and don’t have any raw materials inventory, you must to go out and buy stuff. Because you will make only two pieces of a 20-piece batch, you need to buy one-tenth of each recipe item in order to have the right amount to make two pieces.

You need things like 0.2 cups of sugar, 0.3 cups of carrot, 0.4 eggs and 0.2 cups of flour. And because you are just-in-time, you’ll run to the store at the last minute and buy them in those quantities.

If you tell your significant other that this is the way we’ll run the kitchen from now on, be prepared for the consequences. But, this is the way that we want to run our manufacturing operations, right?

Yes, we could make carrot cake in two-piece batches, with no raw material or finished goods inventory, but look at the obvious costs. And, look at the oddball quantities. Where do you get less than half an egg?

So, we keep some inventory of both finished and raw material inventories. It costs a little to carry the inventory, but by the time you calculate the cost of operating with zero inventory, you begin to see that inventory is the cheapest way to go.

What lean thinking should do is make us aware of all our costs and force us to reduce the total cost. When you concentrate on one aspect of the operation, you overfocus at the expense of others. Lean doesn’t say, “Get rid of inventory.”  It’s determining the most cost-effective way of doing business. It makes us look at ourselves and question why we do the things we do and, with new technology, find the best way.

My significant other buys flour in five-pound bags and eggs by the dozen. My mother bought 10-pound flour bags and two dozen eggs at a time. My grandmother bought flour by the 50-pound barrel and had her own chickens. In each generation, this was the cheapest and best way to manage household operations, and they did it with the most cost-effective inventories for their time.

R.T. "Chris" Christensen is the director of the University of Wisconsin School of Business' operations management program. If you have an inventory management question, contact Coach Christensen by phone at 608-441-7326 or e-mail cchristensen@execed.bus.wisc.edu. 

This article appeared in the Aug./Sept. 2002 issue of MRO Today magazine. Copyright 2002

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