Unintended Consequences of Lean

While lean systems will make the flow of an organization better and improve cash flow there can be some unintended consequences if left ignored.

The Challenge

One of our clients made tremendous advances using lean and six sigma concepts in their operational systems. The production flow was controlled by visual systems and self directed work teams. The inventory had been reduced using a two bin kanban system that helped promote the production flow.

The challenge arose because of the effective inventory management system. A two bin kanban system was built for every part in the warehouse. This kanban system made it very easy to manage inventory and created automatic signals for vendors to resupply inventory. Even though it was effective it created a challenge when products needed to be updated through the engineering change order process (ECO).

When an ECO is initiated it most often changes the parts used in the final product because of obsolescence or quality issues. The challenge is the two bin kanban system did not account for the obsolete parts. New bins were added to the system to account for new parts but did not have a mechanism to remove old parts from the inventory management system. This resulted in a substantial amount of inventory on the books in excess of what was needed.

The analytical approach to find inventory in combination with a simple lean approach saved our company well over $250k.

- Plant Manager

Conference Room

The Solution

The solution was a multi-stage approach to the problem. The first part of the solution was an analytical solution and the second part of the solution was a lean solution.

Part of the challenge of this particular problem was simply identifying the parts that were no longer needed in the current bill of materials for the existing product line. This required an analytical solution to identify the parts in the system. To accomplish this three unique databases had to be consolidated to identify the parts. The three databases included the engineering bill of materials database, master inventory file, and the purchasing database. An algorithm was created that identified the following:

  • Changes to the BOMs in last 12 months
  • Items not purchased in last 12 months
  • Item not used last 12 months

Once those items were generated we cross referenced the files to find all of the inventory that was considered to be obsolete by the organization.

Two men on computers

The second half of the solution involved actually finding the inventory on the shop floor. Since the items had not been used in quite awhile the inventory was not easily identifiable in the plant. A small lean kaizen team was formed to find, isolate and quarantine the inventory. This inventory was then written off by accounting team.