L.A.M.E.: Thinking Lean is about Low Inventory

IndustryWeek : When Not To Go Lean

Here’s another concept of Lean As Misguidedly Executed. I could nitpick the title of the IW piece, from page 51 of the May 2007 issue, for being misleading. For a publication that promotes Lean and always has a few articles about Lean, the headline writer didn’t get it, I think.

A quick glance at the headline might make you think, “So Lean Isn’t Always a Good Strategy?”

Better headlines for this column, which DOES make very good points, might be:

  • “Lean isn’t about low inventory”
  • “Low inventory might cost you”
  • “Losing sales is waste too”

The author quotes Professor Marshall Fisher, of Wharton, then adds his comment (in bold):

“If your product lifecycle is short and unpredictable but you have high margins, then overproduction may not necessarily be the most expensive planning mistake you can make.” A far bigger mistake, he says, is to lose sales on a full-priced product that turns out to be more popular than you forecast. If you’re producing consumer electronics, fashion apparel, books or DVDs, for instance, lean may not be the best way to go.

The author is the one bringing the word “lean” into the discussion, not Dr. Fisher. That is the mistake in the article. Lean is not equal to “zero inventories.” Sure, inventory is a form of waste. Having excess inventory is a type of waste. I learned early in my lean career, from a Japanese sensei, that the first goal is to not shut the line down. “Then, low inventory.”

Lean is more about total business effectiveness than only one particular metric. If the value of lost sales in a fast-changing or high-fashion industry is higher than the waste from excess and obsolete inventory, then keeping inventory too low might put you out of business.

This is a different dynamic than the auto industry. In 1998, I did a six-month internship at a Kodak division that made semiconductor chips for high-end digital cameras. Before I arrived, someone had the idea that Lean meant getting rid of the buffer inventory between the semiconductor fab and camera assembly. Because the fab (like any fab) had long lead times and highly variable quality yields, they couldn’t keep from shutting down camera assembly. The chips were relatively inexpensive and the lack of inventory was keeping Kodak from selling $10,000+ digital cameras to photojournalists. Low inventory was killing them and hurt their business very severely.

My master’s thesis (non-printable version linked here or I’ll email it to you if you really want to read it) established a framework for determining the right inventory levels to avoid a pendulum swing in the other direction (such as “inventory solves everything.”) Not too little inventory, not too much — the right amount is needed. That’s “Lean” to me. In the thesis, I describe how you can’t take things like long lead time or variable quality as a given. You have to fix the “root causes” of the need to hold inventory. Inventory itself is a symptom.

Lean isn’t just about any one tool (kanban or 5S) or any one goal (low inventory). Lean is a total business system and a management system. It’s best to understand the concepts and philosophy rather than just blindly copying the goal of low inventory.

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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