We Need More Space

Hello Lean Nation;

My work recently took me to organization that had many great strengths. Growth in sales and earning had been positive. Sales growth was being realized through both organic opportunities including product extensions, and just plain better operational management. Additionally, this organization was realizing growth through acquisition. It was a good time to be employed with this organization.

The sales growth came with a cost, however. Space was now at a premium at the distribution center. The debate for the week was how to optimize the space. A lot of ideas were generated: re-configure the existing space, leverage vertical space, compress aisles and re-capitalize the lift trucks, add shelving. The solutions, however, violated one of the principles of lean thinking. All of the solutions involved capital expense.

Great organizations utilize creativity before capital. The solution that was never suggested was to increase the velocity of the supply chain. Doubling the inventory turnover, halves the space requirements. Rather than scrape for an incremental 200 square feet, revolutionize the supply chain and get at the root cause and not the symptom for the space constraints.

I have had many debates with hundreds of individuals on the value of a lean supply chain based on the principle of kanban pull systems with minimum inventory. I am not mathematically inclined enough to debate the economics of MRP forecasting systems versus kanban systems versus min/max systems versus con-wip, etc. So I prefer not to try.

What I am comfortable with is the economics that 30-40% of the supply chain costs have nothing to do with the cost of the part or the transportation of the part. The hidden costs of inventory include all the labor, handling, and indirect carrying costs that a good lean supply chain attacks and attacks well. Another mathematical statistic is that doubling the inventory turns equals ½ the space and I can measure that. Actually I can even “see” what that would mean.

Sorry, I have a hard time buying into the fact that more space is needed. Start increasing the velocity of your supply chain and reap the benefits of space and much more.

Lean Blessings,

Ron

Ron Bercaw
www.breakthroughhorizons.com