The Hidden Costs of Inventory
August 11, 2016

Excess inventory can provide the comfort of a security blanket. If you always have more parts than you need, lead times couldn’t get any shorter. But, consider when you’re a couple parts short for an order when you go to pull inventory on the day of delivery and you don’t have any time to manufacture the missing parts. There are many advantages to managing inventory well, but there are pitfalls everyone should be aware of.




Storing inventory, no matter how big or small the facility, means you’re using floor space in a non-productive way. Every square foot used for storing inventory is a lost opportunity to place a machine to better serve your customers and generate more revenue.


Floor space is at a premium. You should utilize it to increase capacity or add in-house processes that better serve customers and their needs with maximized workspace and minimized inventory.


Every time you handle a product or move it in someway, you’re creating an opportunity to damage it. You can spend money to package and protect it, but you’d just be adding the cost of those materials onto the cost of the product itself.
In our previous article addressing our conversion to cellular manufacturing, we mentioned how the process allows us to produce the exact number of parts needed without storing excess inventory. Producing the exact number of parts is an integral reason for our conversion. We can eliminate costs of producing obsolete parts whether it’s because of a configuration change or a defect.


If customers need to configure parts we produce for them, we aren’t left questioning who these extra parts (stored as inventory) belong to. We prevent anyone from taking a hit on wasted inventory and configure the part to their standards. Without excess inventory of these obsolete parts, we have the ability to react to their needs quickly.


Decreasing inventory brought some inefficiencies in our previous process, including excess inventory, to light and forced us to fix deficiencies in our systems and processes.
If you’re focused on producing as many parts as possible, you might be masking a problem. Instead, you should focusing on efficiency.
Encountering defects within a large batch doesn’t effect your project the same way encountering defects within a small batch would – you scrap the defects, grab some more sitting in inventory, and continue on with your work day. However, if all you’ve produced is a small number, you reduce your room for error, so you must react quickly and learn how to prevent reoccurrence.


Excess inventory masks real issues if we encounter scrap parts. Smaller batches force us to provide feedback and prevent recurrence when encountering defects. Increased efficiency means less cost to both ourselves and our customers and improved lead time.


We believe there are more effective solutions to manage inventory because of the question marks inventory databases are susceptible to. By relying on numbers within a database, you may be misled to believe your facility contains a sufficient number of parts for these reasons: you can’t visually see what’s in stock or exactly how many; too much inventory creates an opportunity for human error; and you may end up wasting time looking for parts when in reality they don’t exist due to miscounts, parts being sold, or the database not being updated.


We don’t rely on numbers in a database, so we can’t be caught off guard by an error. This prevents us from scrambling if we ever coming up short on inventory. We produce the exact number of parts needed, allowing us to produce parts with a more reliable and dependable lead time.

Decreasing inventory levels and eliminating excess parts reduces cost and time. It encourages efficiency and maximizes value to our customers with every square foot. Ultimately, when we combine removing a reliance on excess inventory with our conversion to cellular manufacturing we can provide shorter lead times and more reliable on-time deliveries.

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