Inventory can take up to 5% of capital investment, and it’s essentially a liabil

Question

Inventory can take up to 5% of capital investment, and it’s essentially a liability until it is translated into sales. Lean management has surfaced as an important paradigm to slash the inventory and further increase the productivity of an organization and change the mindset of employees. Discuss how lean principles and programs are helping organizations and employees to transform their inventory and business. Inventory can take up to 5% of capital investment, and it’s essentially a liability until it is translated into sales. Lean management has surfaced as an important paradigm to slash the inventory and further increase the productivity of an organization and change the mindset of employees. Discuss how lean principles and programs are helping organizations and employees to transform their inventory and business.

Explanation / Answer

Lean priciples are very benficial for keeping the optimal level of inventory and thus reduce the inventory cost. Below are some of the techniques

1. Just in TIme -

It is an inventory strategy used to increase efficiency and decrease waste. It is done by receiving goods only when they are required in the production process and therby reducing inventory costs. It requires the correct demand forecasting.It aims at reducing the flow time with production system and reducing the response time from the suppliers to the customers. It aligns raw material orders from suppliers directly with production schedules

2. Tools like ERP (Enterprise resource planning) are helpful in tracking real time inventory visibility and accuracy and and barcode scanners are very beneficial for keeping the track of the all types of inventores i.e. Raw material, WIP (Work in progress) and finished goods

3. Below are some of the inventory reduction techniques

i.Reduction of supplier lead-time - It important to work with suoolier which could help in meeting a quicker replenishment model. Higher lead time may result in keeping the more amount of safety stock to meet the customer demand which will result in higher cost to business. Faster lead-times gives more flexibility when reordering inventory and allows for less inventory to be carried reducing the short term carrying costs

ii. Elimination of old/obsolete inventory - Obsolete inventory are those items in stock that dontt have any customer demand. Businesses should monitor the life cycles of products every unique item each month to track demand pattern changes over time which can help in reducint the obsolete inventory.

iii. Order sizes should be optimized, i.e. it should be on the basis of the pull system and only optimal amount of safety stocks should be kept to meet the demand

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