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Using Lean Six Sigma Training To Reduce Excess And Obsolete Inventory

Sep 16, 2008
Causes of Excess and Obsolete Inventory

One of the root causes of excess and obsolete inventory is the poor and inaccurate forecasting of the required levels. Long lead times and poor quality are high-level causes of such problems.

When lot sizes are large, the lead time also increases; it may also increase if the schedules go off track, there is late delivery and processes are complicated or need a lot of rework. If there is poor demand management (i.e. when the demand and supply do not match due to inaccurate demand data, poor forecasting and unrealistic sales projections), there is excess inventory.

Lean Six Sigma can be used to reduce waste and rework, process workflow to reduce the inventory excesses and obsolete inventory pile-up. It can also be used to improve the quality levels so that the diverse factors causing waste within the workflow can be eliminated.

Using Lean Six Sigma to Tackle Root Causes

Lean Six Sigma teams can make use of the DMAIC methodology to find the root causes of the problem of excess and obsolete inventory. Using some of the excel-based inventory models and other software, they can easily determine the key process input variables of the problem, by 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 the functions are responsible for the high lead-time, and consequently improve on demand management practices.

In improvement projects, teams start by analyzing the inventory and defining the project goals. These goals are the guidelines for the team for system operations. 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 made. An on-site physical count of inventory and a management report analysis is also done to determine the accuracy of supply chain metrics such as lead time, lot size, etc. In the Analyze phase, using the inventory models, the key process input variables that have an impact on inventory management are identified.

A simple inventory balance may also be used to calculate service levels, lead time and demand variation. This helps to identify which items and which locations have too much or too little inventory. All this helps determine the root causes of the problem.

In the Improve phase, the measures to overcome such problems are identified and utilized to bring about improvements in the system.

There are other problems that are identified in the analysis and execution of such projects. Lean tools such as 5S can be used in the Control phase to sustain the improvements over a period of time.

Inventory models can also be utilized to reflect the supply chain functions and show the effect of demand management practices on the excess and obsolete inventory. Companies can use Lean Six Sigma to reduce and eliminate waste in inventory and streamline the entire company's operations.
About the Author
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for six sigma professionals including, lean six sigma, black belts, green belts, and yellow belts.
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