How to Calculate Inventory Benefits

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I don’t think the method for calculating inventory benefits has changed significantly since the 1990’s, but there is still a need to review this issue periodically for the new generation of business professionals. It is still not uncommon to see inventory reductions proclaimed as “savings” without really understanding where these savings are coming from. The implication is that inventory savings flow directly to the bottom line, and this is not the case. This topic is a quick review of how to go about understanding and reporting inventory reduction benefits.

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The New Kid in Town: JIT Kitting.

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I have discussed in some of the previous topics the attitude in the 1990’s that kitting was to be avoided at all costs, and replaced with a no-fuss Kanban system that was easier on the material organization and less “wasteful”. Part of the reason for this attitude was no doubt related to the definition of the term Kitting. In those days kitting was done in a separate area, often the warehouse, and delivered to the line based on an MRP schedule. The kit would sit for a while until used, and sometime get cannibalized while waiting.

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Is Simulation Modeling Helpful?

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We are big promoters for the use of simulation modeling to test Mixed Model line designs from a work-flow perspective. Simulation is really a requirement because most mixed model lines experience a high level of variability, from a number of different sources. Since you don’t want to be making major changes after the fact, the best time to improve a design is before you implement it, and simulation modeling will help you to do that.

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The Golden Key of Frequent Delivery Cycles

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In the previous topic I discussed the goal of have a small amount of material at the workstations or Points of Use. How small is small? Toyota Material Handling has a goal of a few hours of usage, and Toyota Georgetown has virtually eliminated line-side material by kitting just about everything (as far as I saw on a recent tour). The primary motivation for this is not inventory reduction, but on space reduction and improvements in operator productivity.

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