Causes of Excessive and Obsolete Inventory
One of the root causes of excessive and obsolete inventory is poor and inaccurate forecasting of required levels. Long lead times and poor quality are high-level causes of these problems.
When batch sizes are large, delivery time also increases; It can also increase if schedules deviate, there are delivery delays, and processes are complicated or need a lot of modification. If there is poor demand management (that is, when demand and supply do not match due to inaccurate demand data, poor forecasts, and unrealistic sales projections), there is excess inventory.
Lean Six Sigma can be used to reduce waste and rework, process workflow to reduce excess inventory and accumulation of obsolete inventory. It can also be used to improve quality levels, so that the various factors that cause waste can be eliminated within the workflow.
Using Lean Six Sigma to Address Root Causes
Lean Six Sigma teams can use the DMAIC methodology to find the root causes of the excess and obsolete inventory problem. Using some of the Excel-based inventory models and other software, they can easily determine the key input variables of the problem process, following the general Six Sigma root cause philosophy of Y = f (x) to analyze and identify the problem areas.
They can also be used to show sales, marketing, manufacturing, and other functions in the supply chain where functions are responsible for high lead time and consequently improve demand management practices.
In improvement projects, teams begin by analyzing inventory and defining project objectives. These goals are the team’s guidelines for system operations. The data fields are based on the questions and IT systems are used to design an inventory model to find the root causes of the inventory problem.
In the next Measure phase, a measurement system and data collection plans are developed. A physical inventory count is also performed on site and a management report analysis is performed to determine the accuracy of supply chain metrics such as lead time, lot size, etc. In the analysis phase, using the inventory models, the key process inputs that have an impact on inventory management are identified.
A simple inventory balance can also be used to calculate service levels, lead time, and variance in demand. This helps to identify which items and which locations have too much or too little inventory. All of this helps determine the root causes of the problem.
In the Improvement phase, measures to overcome these problems are identified and used to achieve improvements in the system.
There are other problems that are identified in the analysis and execution of this type of project. Lean tools like 5S can be used in the Control phase to maintain improvements over a period of time.
Inventory models can also be used to reflect supply chain functions and show the effect of demand management practices on excess and obsolete inventory. Businesses can use Lean Six Sigma to reduce and eliminate waste in inventory and optimize business operations as a whole.