Lean Six Sigma To Reduce Excess And Obsolete Inventory
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Written by Tony Jacowski   

Staying competitive is sometimes the reason for preventing a long-term solution for elimination of the root cause for excess and obsolete inventory. Another reason may be the inability to unravel complex factors involved. Lean Six Sigma methods have been shown to be very effective in finding and eliminating root causes, and thus preventing arbitrary year-end reductions in inventory investment.

Factors Responsible For Excess And Obsolete Inventory

Major culprits for excess and obsolete inventory are inaccuracy in forecasting, extended lead times, design obsolescence or poor quality. However, these higher-level causes can be broken down into low-level causes.

From the perspective of inventory investment, one of the reasons for a long lead-time may be attributed in part to very large lot sizes. This means that if lot size for purchase is ninety days of supply against an order cycle time of thirty days, it automatically spells a much higher inventory level. There can be other problems also, which may be responsible for long lead times such as scheduling problems, late deliveries, complicated processes having numerous rework loops etc. The actual cause(s) for long lead times would have to be thoroughly investigated by the Lean Six Sigma investigation team.

Another major reason leading to excess and obsolete inventory is poor or improper practices in demand management. At the lower level, some root causes can be inappropriate forecasting modeling methodology, inaccurate historical demand data or unrealistic sales projections. There have been dramatic improvements in quality levels by reduction of waste and rework within a process workflow by using Lean Six Sigma.

Identify And Tackle Root Causes

For lean Six Sigma teams, the DMAIC problem solving methodology can be used in conjunction with Lean tools and process workflow models to reach the root causes of excess and obsolete inventory. There is a generalized Six Sigma root-cause philosophy - Y=f(X) that is followed by inventory models.

Inventory models are also reliable means that reflect all supply chain functions like manufacturing, marketing, sales as also show the effect of demand management practices and lead time on obsolete and excess inventory.

Benefits Of Lean Six Sigma Improvement Projects

The benefits of defining and implementing these improvement projects are manifold. To begin with, they lead to reduction and elimination of obsolete and excess inventory and provide higher system accuracy. They create quantified inventory models that depict relationships between lead time, demand variation and inventory investment, location accuracies and higher inventory valuation, and above all, permanent reductions in excess and obsolete inventory investment and higher cycle counting accuracies.

The most difficult part of Six Sigma is convincingly presenting the innumerable benefits to the workforce of the company in general. Having seen the fate of many improvement projects, most people may be skeptical about embracing any other such moves initiated by the management.

By being aware of how Lean Six Sigma can be used to reduce and eliminate waste in the area of inventory, companies can successfully streamline their operations and make them much more efficient.

Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solutions - Six Sigma Online (http://www.sixsigmaonline.org) offers online six sigma training and certification classes for lean six sigma, black belts, green belts, and yellow belts.

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