Chapter 13 - Inventory Management: Reducing inventory to improve quality…

Abstract

This inventory management philosophy carries a heavy burden, and that burden is the cost of carrying the inventory. For most of America's manufacturing history, industry has followed the economic ordering quantity (or EOQ, for short) philosophy of inventory management. EOQ is a mathematical technique that considers customer ordering patterns, the costs associated with placing orders and carrying inventories, and supplier delivery times. The underlying concept is that EOQ determines ideal quantities of raw materials and other elements of work in process to satisfy customer demands without carrying too much inventory. This approach results in large work in process inventories. The JIT inventory management approach works to reduce lead times to near-zero values such that when demand exists, setting up to meet it takes almost no time. This allows a responsive production system, but only if the system produces quality hardware. To make the JIT concept work requires eliminating nonconformance root causes. As inventory levels are reduced, previously hidden nonconformances become visible and their causes can be attacked. Companies that implement JIT inventory management can expect increased profitability from lower inventory carrying costs and fewer nonconformances.