Tuesday, November 12, 2002

Feelin' Good in the Inventory-hood

George Koenigsaecker of Simpler Consulting proposes 9 ways Lean is different from our "natural" way to think. Here's his point 3.

I like having "some" inventory vs. believing inventory causes waste and also "hides waste" and prevents improvement in productivity, quality and flow.

Many people believe Lean is about getting rid of inventory, for the sake of just getting rid of inventory. Lean, however, is about seeing and eliminating waste. Inventory clutters the view and hides waste we would see otherwise.

We typically think of inventory as the physical stuff of production, which it is. But even in processes outside of production, "inventory" gets in the way. I had a marvelous illustration of that today.

One of my colleagues has ultimate accountability for collecting our Accounts Receivable. He took over that role early this year amid a very ovewhelming backlog of unpaid bills. Taking a deep breath and rolling up his sleeves, he went to work on this backlog with his team. As of November 1, our A/R is 58% below it's level on January 1. A tribute to diligence and paying attention to details.

What does this have to do with inventory? It hit me today when Greg commented "Now, when we have a genuine problem with a recievable, it stinks! It jumps out at us! We immediately know where the problem is and can attack it!" Do you see what he did? Greg and his team eliminated an "inventory" of receivables. Receiveables are just like inventory...they are a use of cash that adds no value. On a Balance Sheet they show up as an asset (just like inventory) yet we can't spend it or use it to create more revenue. This type of "asset" is an illusion. Furthermore, the older the receivable gets, the harder it is to recover (just like old, unrotated inventory). And, when we collect A/R, it translates, immediately, into cash. And our CFO is smiling these days when the subject of cash comes up.

By aggresively eliminating this "inventory" Greg and his team can now very easily "see" problems that arise with current A/R. And take action sooner.

Inventory is all around us, both in physical goods (stock material, work-in-process, unclaimed purchases), as well as in non-physical goods (plans not finished, phone calls not returned, bills not collected, ideas not acted upon). As George says, we "like" having these things around, they make us feel good, they make us feel useful, the provide job security. But they do not create value! And if we are not creating value, why are we here?

PS. Sorry for the gap from last week...a monster head cold has laid me out for a few days. Be glad you are not getting my germs....
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