(This is the sixth in a series of deeper dives into the 8 lean wastes.)
Excess inventory is a significant problem in that is affects business operations in many ways and is generated for a multitude of reasons.
First, how does it develop?
As a definition, if you have more inventory than you need or can quickly turn over, it’s excess inventory.
Next, what does it look like? I’ve visited many plants and strolled through their warehouses. Frequently I’ve seen dust-covered pallets or shrink-wrapped boxes with a “rainbow” of inventory stickers from prior audits. Anything getting dusty or pushed into corners from not being needed is probably not being turned over very quickly. Look at the storage in your warehouse/fridge and cabinets at home/concession stand food storage areas and try to determine how long it would take to consume each piece of that inventory. Are there things bought in bulk that will not be used quickly? What about obsolete/spoiled products that will never be used?
How bad is excess inventory? Think of excess inventory in this way: how much money is tied up in material you don’t need, how much valuable floor space absorbed by the unneeded product, and how much resource time was used in creating it all? Excess inventory is very bad, perhaps the worst of the 8 lean wastes. What could make it worse is if the inventory never gets used – product becomes obsolete or, in the case of food in a concession stand, spoils?
Excess inventory is a waste that managers welcome because it insulates them from stocking out of items or not having products for customers in the event they have an emergency. Managers keep inventory around, “just in case.” They believe that not having product is worse than having too much product. (That’s not necessarily false, but wouldn’t it be better to have only what is needed where you never stock out?)
But what managers don’t see is that liquid assets (aka money) is tied up in that excess inventory, so the company loses flexibility and loses a chance to use that money somewhere else. Also, floor space is valuable – why would managers dedicate floor space to something that won’t sell right away? To produce that inventory, machine time or employee time is required – if you’re dedicating those resources to wasteful activities, you’re throwing money away.
So how can excess inventory be prevented? There are many ways.