Who wants to
take the ‘just-in-time’ gamble?
Controlling inventory to ride through the recession By Danie Vermeulen
During these challenging times, excessive, slow-moving or obsolete inventory will put a stranglehold on businesses that can easily push them past the tipping point to bankruptcy.
Many businesses realise that they have to reduce inventory if they want to survive the current recession. There is also the case that in economic good times, inefficiencies and waste are hidden, whereas in a downturn these are readily exposed. Some businesses delay or slow down replenishing inventory, whilst others drastically discount products (even below cost) to liquidate their stock to help prop up their cashflow.
It’s no wonder that ‘lean’ techniques, like just-in-time (JIT), are becoming fashionable again. However, businesses must understand the huge risks associated with attempting to implement solutions like JIT as a stand-alone ‘silver bullet’.
Flawed and broken processes
Too often supply chain and warehouse managers are simply instructed to cut inventory levels or to implement JIT without fully understanding the impact and without the strategic mandate required to succeed. Remember the warning that you can’t fix one mistake with another mistake?
There is no question that most businesses carry excess inventory. However, we must understand that these excessive inventory levels are usually symptomatic of flawed strategy and broken or inefficient processes. Without addressing the root causes of excess inventory, supply chain and warehouse managers will certainly fail if they try to blindly implement JIT or any minimum inventory management solution.
That is a foolish gamble, and the odds are stacked high against customer satisfaction and longer-term profitability. Even if such an organisation gets very lucky and pulls it off for a while, it cannot be sustained, and the supply chain and warehouse manager will surely not live happily ever after … you can bet your house on that!
During and immediately after a recession, businesses have to mitigate and ‘juggle’ multiple critical risks like cost blow-outs, stock-outs, incorrect or damaged deliveries, and anything else that will impact customer service and customer satisfaction. In these tough times, customer loyalty is critical, and no business can afford to disappoint and lose their customers.
A fine balance
There is overwhelming evidence that the lean or Kaizen strategy and philosophy will certainly enable businesses to achieve and sustain that elusive fine balance between efficiency, quality, cost and customer satisfaction. This applies to all businesses and industries – manufacturing, distribution, retail, services or government.
However, there is only one way that lean or Kaizen can be successful – it has to be implemented as a holistic and integrated solution or system. It requires unwavering long-term commitment from senior executives, and it has to actively involve the entire organisation from management to the factory level.
Key points …
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To be successful it has to include all the lean/Kaizen foundational building blocks such as demand pull, flow, waste elimination and standardisation to understand the processes and the required lead times from your suppliers.
Unfortunately, the bad news is that JIT, lean or Kaizen is no quick fix for an organisation’s inventory woes. It is likely to ultimately make it worse if it’s not implemented properly. Fortunately, there is good news for those organisations who make an effort to really understand the meaning of becoming truly lean (without becoming mean), and then commit to it. It will radically improve all facets of that business – including inventory.
Danie Vermeulen is the CEO for the KAIZEN Institute New Zealand which focuses on continuous management practices in the areas of staff motivation, quality, costs, logistics, safety, technology and the environment; for further information, visit www.nz.kaizen.com or email dvermeulen@kaizen.com
