December 8, 2014
“Cycle time as a single metric may be the best measurement of an organization’s health.” – Mark Puich – Tefen, Werum
When tackling inventory, start with cycle time. It’s not the only driver, but it’s the most significant. Cycle time needs to be attacked methodically and continually, not as a one-time effort as is often the case. Not only will you see a positive impact on inventory but also in other areas of the organization as implied by the above quote. In a future installment, I will share a real life experience that demonstrates this and still gives me nightmares.
Lean six sigma and value stream approaches to reducing cycle time are the most common and are very effective. Please keep the following in mind as you apply these methodologies:
1) Spend as much time on cycle time variability as you do on the average; the standard deviation has a probability multiplier when you do inventory modeling, e.g. 1.64 for 95% confidence.
2) The inventory reduction team needs strong cross functional buy-in and participation including manufacturing sites (internal and external), quality, supply chain, finance, and in some cases even regulatory affairs.
3) Focus on each cycle time component, but also understand the total cycle time, which may be much different than the sum of the components. Follow the “life” of a batch of raw material from early stage manufacturing all the way to the customer, and then you will truly understand your cycle times.
4) Implement a structure that will ensure sustainability and continual improvement. Keep the core team in place to monitor performance, establish new initiatives, and set annual improvement targets
Another valuable technique is “X Theoretical” which is the ratio of the actual cycle time versus the theoretical minimum with a long term objective of getting as close to 1.0 as possible. Setting year on year improvement goals for critical path cycle time components using this technique can be a more effective approach at operational levels of the organization.
The good news is that we have more data and more access to transaction level detail than ever before at our disposal. Using a sophisticated analytics framework, such as the one from FusionOps, manufacturers can quickly access the infrastructure needed for value stream mapping, and then leverage this data for cycle time and inventory reduction efforts.
In my next blog, I will discuss the first of my four “non-cashflow” reasons for reducing inventory and cycle time.
You may also want to check out my upcoming webcast on this topic, “Tackling Inventory Reduction through Analytics and Organizational Alignment.”
Feel free to contact me with any questions or feedback via email@example.com.