Inventory Optimization Allows Firms to Rethink Lean
Lean principles have many virtues. However, as a system primarily created by Toyota and then widely adapted to other businesses and industries, some firms are having second thoughts about some key Lean principles.
Specifically, if lean principles are applied just to the manufacturing sites, it may decrease the flexibility in the system and push inventory to other parts of the supply chain. For example, in the diagram below, if the manufacturing plant decreases their production variability by locking in firm schedules and minimizing their inventory, it may push inventory to the warehouses.
Executives realize that their supply chains need flexibility and that it is best to minimize system-wide inventory, not just inventory at the plants. Inventory optimization analyzes the entire supply chain to determine where inventory should be buffered. In some cases, it may provide more flexibility and less system-wide inventory by creating an inventory buffer at the plant. Inventory optimization provides a way to analyze these trade-offs and better adapt the lean principles to your unique organization.