When your inventory adds no value and has significant costs associated with it; it is a “waste”. The cost of steel is significant, and that cost generates no return if it sits on the floor, a rack or shelf. The longer it sits there the more it hurts your cash flow. And we have proven this…
By reducing the raw steel or semi-finished product required to operate; our customers have reduced the capital required to support their operations. With our Steel Efficiency Review™ visits, we have uncovered that many of our customers will use inventory to help minimise the impact of inefficiencies in their processes. Their stock appears critical, valuable and essential, but once you scratch the surface, this inventory becomes unnecessary. When used as a buffer, a security blanket or insurance system to cover up internal errors and supplier performance; it can hurt the largest of businesses and at times even bankrupt them.
The 7 Wastes the SER® is built on refers to this form of waste as “excess inventory”. The rationale for this is that any business manufacturing, fabricating or transforming steel products in any way cannot operate with “zero inventories”. To achieve zero inventory our customers would need to:
1. Process incoming raw materials as soon as they arrive.
2. Process them in one operation (or a linked series of operations), and
3. Deliver their finished goods immediately to allow step #1.
Also known as the true form of “Just In Time” (JIT). Although it may be impossible to achieve this, it is important to work towards this goal. With our SER® we aim to introduce an acceptance of inventory waste that will work for our customer and us as their partner.
Another key finding that we have uncovered is that higher steel inventory levels also drive up slow and obsolete stock. Damage to steel products also increases as more inventory is stored for longer times in our customer’s warehouses. And the larger the inventory levels, the more labour is required to maintain accuracy and best fit.
Our key recommendations comprise:
1. Streamline Processes and Reduce Lead Times. We have found that when we work with our customers to reduce lead times we allow a reduction in the inventory held by our customers. By eliminating the work in process this then helps to achieve a seamless flow through our customer’s production process.
2. Better forecasting and a shift to a pull based scheduling system. This will help eliminate the large forecast variances that lead to increases in inventory levels. The more accurate our customer is at forecasting the better we are at minimising their inventory waste.
What we have found is that by correcting the underlying problems associated with excess inventory we will enable our customers to free up their warehouse, allow for streamlined production, quality output and increased sales volumes.
The STEEL EFFICIENCY REVIEW™ team.