| This comes from the fact that whenever an order is | | | | obsolete if the product has expired or is not very far |
| received the goods can be dispatched without delay. | | | | off from doing so. |
| But this often gives rise to a scenario of piling up of | | | | In such a situation, the customer may reject the |
| inventory, unless good sales are achieved - or the | | | | product. |
| stock becomes outdated. | | | | Dealing with Poor Demand, Supply, and Forecasting |
| There are projects undertaken to improve this | | | | Another root cause may be due to poor |
| situation, but often end up giving short-term results. | | | | management of the demand and supply process. If |
| The better solution is implementing Lean tools to | | | | there is poor forecasting, or inaccuracy of data on |
| reduce excess and obsolete inventory. | | | | the demand side and over-projecting sales on the |
| Lean Six Sigma can be highly effective in bringing | | | | part of the sales team, then inventory levels can be |
| down huge losses suffered due to excess and | | | | overwhelming. |
| obsolete inventory. | | | | Rework caused due to defects is another major |
| Analyzing Root Causes | | | | factor that leads to obsolete inventory as well as the |
| The first step is to undertake the analysis of excess | | | | increase in the lead times. Lean Six Sigma tools can |
| and obsolete inventory that an organization has. The | | | | be used very carefully in dealing with this situation. |
| DMAIC methodology can be very useful in bringing | | | | The phases of DMAIC allow for defining the project |
| the overall improvement in the inventory scenario. | | | | goals, plan the data collection in the measure phase, |
| Often, the root causes of this results from long lead | | | | and carrying out a physical count in the Measure |
| times, poor forecasting and quality issues. Further | | | | phase. This helps in understanding the value of the |
| analysis will show that there are smaller reasons | | | | stock better than the book value. Value stream |
| linked with each other that lead to the problems. | | | | mapping in the Analyze phase helps in understanding |
| For example, large lead times may be caused due to | | | | how the input variables are affecting the inventory |
| larger lot sizes. Even if the order cycle time is of 30 | | | | levels. |
| days, if the lot size for purchase is 90 days, then this | | | | It can form the basis for an inventory model. Other |
| gives rise to a huge amount of inventory. Though | | | | areas are also identified where the inventory is built |
| this may not be the only reason, it can be a major | | | | up unnecessarily. Lean tools like 5S can be very |
| reason along with the cause being one of | | | | useful in sorting out such a situation. Other |
| complicated processes. | | | | improvement areas are also identified. |
| There could be other reasons that lead to obsolete | | | | The Control phase can be an ongoing one, which can |
| stock. If lead time is great and there happens to be | | | | ensure sustained improvements. |
| some rework needed, then the by time the stock is | | | | Lean can prove to be highly useful in addressing the |
| ready the utility of the stock may be reduced. | | | | issues of excess and obsolete inventory using tools |
| For example, in a pharmaceutical company, if such | | | | and techniques to identify root causes and designing |
| large lead times exist, then the stock could be | | | | Lean solutions to streamline the process. |