Lean Inventory Management – Inventory Buffer – buffering | operations | demand
Lean Inventory Management – Inventory Buffer
Lean inventory management starts with you and it must extend to everyone in your supply chain. The supply chain is made up of all the key companies that help you move your products and services to your customers like suppliers, distributors, and retailers. All of you should be working together to move inventory from one partner to the next just in time, just as it’s needed to meet customer demand. You accomplish this by establishing strategic inventory buffers, by keeping a certain amount of inventory on hand at each stage of the supply chain.
You set targets at each stage, allowing just enough inventory to serve the next partner in the supply chain. Here are some examples of strategic buffers.
A factory typically sets an inventory buffer for manufacturing lead time which is the amount of time it takes to make the product. The buffer allows you to fill orders immediately when customers need products right away. If you have a long lead time, you must keep more buffer inventory because it will take a long time to replace those items. your suppliers will keep a strategic buffer to account for their own manufacturing lead time.
The second type of inventory buffer is for material delivery time. If suppliers are located far from your factory, it takes longer to receive material so your factory must keep a buffer inventory of supplies and material. This extra cost is usually offset by attaining a lower price from your global supplier.
The third type of buffer is safety stock which you might call just in case inventory. You want to maintain an extra buffer of finished goods in case customer orders increase unexpectedly. You also want to maintain a little extra inventory of materials and supplies in case there is a problem with your supplier or the delivery service.
Each of these strategic buffers must be managed carefully using lean inventory tools to maintain them at the lowest level possible. You want to have enough buffer inventory to meet your goals, but you also want to control your costs. To help you maintain the right amounts of buffer inventory, nothing is more important than information flow. Sharing information within your company and with your supply chain partners will help ensure you are maintaining the right amount of inventory at all times. It’s important to note that information has three distinct characteristics.
First, there is velocity. Sometimes information moves quickly. Other times it is rather slow. The second characteristic is volatility. Sometimes you get a lot of information. Sometimes no information at all. Third is accuracy. As we have all experienced, the information you receive can be right or wrong. Your objective is to maintain a smooth continuous flow of updated information about inventory throughout your supply chain. Inventory levels, including strategic buffers, should be visible to everyone. If managed correctly, this strategy can significantly improve your capability to continuously meet customer requirements.
Does your company use the strategic buffer approach? Make a visit to your factory’s receiving and shipping departments. See how much inventory is there and talk to the supervisors about how it’s being managed.