How Much Inventory Should be at the Point of Use?

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I remember the days when our rule of thumb for Point of Use material was to try to stock at least a day’s worth of usage for as many items as possible. In the DFT workshop that I must have taught 100 times in the 1990’s, the guidelines for inventory quantities were as follows:

Material on the Line: 1 Day
Material in the Kanban Supermarket: 3 Days
Material in the Warehouse: 10 Days or more

We used this rules of thumb to perform initial Kanban sizing calculations, and only then would we make adjustments to the quantities for the exception items.

Admittedly, at the time these guidelines would have represented a dramatic reduction in inventory for many companies. Annual inventory turns of between 2 and 6 were extremely common, and achieving the above guidelines would be much better than that.

Today, however, what are the big boys striving for (and achieving)? It still varies quite a bit, but here’s what we have witnessed at Toyota Material Handling, which we consider the gold standard for these types of metrics.

Material on the Line: A few hours of Usage.
Material in the Supermarkets: A few days of Usage.
Material in the Secondary Storage Locations/Warehouse: A few days of Usage.

How is this even possible?

The very small amount of material at the workstations or Points of Use is made possible by a very frequent delivery cycle of a little more than 30 minutes. The follows Taiichi Ohno’s slogan: move quickly and carry a light load. The Supermarket areas that feed the lines are replenished from a network of outside domestic suppliers via a daily delivery route or “milk run”. The trucks are owned by Toyota, and travel daily from their plant in Columbus, Indiana up to Minnesota and down to Georgia. Finally the imported parts are sourced mainly from their sister plant in Japan, and delivered in large mixed-part shipping containers daily from Japan. Imagine a chain of containers extending from Japan to Indiana, with a new container launched every day!

Admittedly this is an extreme example, and this strategy is not without its risks. Internally the delivery system works like a Swiss watch, with very few hiccups. Externally the milk run trucks can be impacted by weather, dock strikes have caused problems, and suppliers occasionally mess up. By generally the benefits far exceed the occasional problems, and as far as I know they are the most profitable fork truck company in North America.

It is worth pointing out that the culture at Toyota Material Handling did not happen overnight. They will be happy to share with you that these material delivery systems took years to develop, and inventories were reduced gradually over time. For many manufacturing companies in 2018, the complexity of products and the number of different models has increased dramatically, and that target amount of inventory on-hand has gone way down.

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