PARIVARTAN-

WESAP

Guidance On 7 Types of
Wastes

Harshal Thakare
 7 Types of Waste
The 7 Wastes provide a central theme to the lean methodology. The goal of lean is to
maximize value and minimize waste. Ultimately, value to the customer is the top priority,
because without value, there wont be a customer. Despite this, waste reduction gets
significantly more attention than adding value. This is natural. In most organizations, few
people in the organization have the ability to change a product or service to increase the value
it offers the customer, but everyone can reduce waste.

The ideas behind the 7 Wastes were developed as an integral component of lean from its
origin at Toyota. The result was the Toyota Production System, and ultimately, the concepts
and methodology of lean. Each of the 7 Wastes relates to a specific wasteful activity
typically found in manufacturing and services.

Over the years, the 7 Wastes have been adapted and modified. Some practitioners have
developed alternatives to the 7 Wastes in order to apply them to non-manufacturing
organizations. For example, one of the original wastes is excess inventory. A software
development company will not have inventory in the traditional sense. Instead, the waste of
uncompleted projects replaces the inventory waste. Regardless of the industry, the 7 Wastes
provide a guiding set of principles to help reduce waste. At the core of the 7 Wastes is the
philosophy that excessive use of resources, unnecessarily idle resources, movement of
resources and defective resources are all wastes to be eliminated.

Below are the original 7 Wastes:

Overproduction: Producing more than is needed. Any resources expended

unnecessarily are considered waste, and producing product when it is not needed is a
common waste in manufacturing. This can occur due to poor production planning and
control, or it may result from improper incentive systems that reward overproduction.

Inventory: All idle resources are wasteful, and inventory is one of the most
common. Raw materials, WIP and Finished Goods inventories require significant
capital investments, but add no value to the product. Some may argue that having
product on hand so it can ship immediately adds value to the customer. Short lead
times add value, but holding inventory does not. The goal of lean is to achieve the
value desired, such as short lead times, without any waste, such as high inventory
levels.

Wait Time: Whenever materials, people or machines are sitting idle. Waiting
occurs when queues are built within processes, or when the time required for workers
or machines to conduct a value added process is out of sync with each other. In these
situations, one of the resources is waiting, and waste is occurring. Ideally, every
resource would be put to productive use 100% of the time it is required. Any time a
resource spends idle represents lost capacity and productivity, and increases lead time
to the customer.

Transportation: Material movement that does not move the product to the
customer. The definitions of waste and value vary within the lean community. There
are some who consider all transportation costs as waste. Others consider some
transportation as value added since a product is more valuable to a customer once it is
 delivered to the customer. Regardless of the view on transportation, minimizing
transport costs is a goal of lean.

Processing: Excessive processing includes any activity that provides no

additional value to a product or service. Often, excessive processing occurs when
an individual processing operation can be combined with other processes or can be
eliminated all together. For example, packaging processes do not add any value to a
product.

Motion: Any movement, of people, machines or materials that does not add
value to a product. The elimination of motion was one the major drivers that led to
the development of cellular manufacturing techniques. With these techniques,
production is completed in a small work cell combining multiple operations with little
to no movement between each operation, and without excess motion expended by the
worker.

Defects: Poor quality drives up costs both in wasted materials and labor. Lean
manufacturing draws heavily on total quality techniques and seeks to ensure every
activity delivers value. Defects disrupt this process, causing materials and labor to be
lost. More recently, reducing waste and eliminating defects have taken a major step
forward with the development of six sigma techniques. Six sigma tools compliment
the lean framework, and many practitioners describe the combination as Lean Six
Sigma.

Over the years, the 7 Wastes have been adapted by some practitioners of lean to include an
8th waste. This new waste is really not new, but has been an integral component of lean from
the beginning. The 8th Waste is the untapped potential of a companys workforce. It includes
all the ideas, creativity, skills, experience and abilities the workers in a company possess, but
that are not used by the company.

This omission in the original 7 Wastes of the Toyota Production System is

understandable. This system focused on waste reduction from the bottom up. Toyota worked
to drive initiative and creativity from its workforce. When you have a company that
structures itself around an employee empowerment philosophy, emphasizing employee
involvement would be easy to overlook as it is a core component of the culture.

As lean has been adopted by a wide range of companies, the importance of this 8th Waste has
become extremely important. Many companies have policies, procedures and a culture that
discourages employee creativity, initiative and empowerment. For lean to reach its potential,
overcoming these obstacles is essential, and the 8th Waste became a significant point of
emphasis for lean practitioners. The distinction between considering lost human potential as
an 8th Waste, or considering it a more fundamental element of lean is not
important. Maximizing the utilization of a workforce is essential for lean to help a company
achieve its potential. Without complete employee involvement and participation, lean cannot
be successfully driven top-down. It needs to have a bottom-up component. So, recognizing
the importance of human potential as an 8th Waste may be a great way to capture this element
of lean.

Lost employee potential is commonly accepted as the 8th Waste, but this does not mean it is
universally accepted as such. Numerous practitioners of lean have tried to put their own
stamp on the lean methodology and the 7 Wastes by adding other wastes. There is a wide
range of additional wastes that are occasionally discussed in lean. Many of these ideas for
adding new wastes provide a good emphasis on a particular issue in an organization. Often,
though, they relate to ideas already embedded within lean and the original 7 Wastes. Taiichi
Ohno, the originator of the 7 Wastes at Toyota, got it right 50 years ago, and the 7 Wastes
provide an excellent framework for lean.

7 Wastes: Overproduction
Overproduction occurs when a company manufacturers a product before there is a customer
demand. Overproduction can occur with individual processes or across the entire value
stream. The result of overproduction is excessive inventory, higher capital requirements, high
obsolete and excess inventory expense, and additional product damage.

Cause of Overproduction
Incentives can create an environment that unintentionally encourages and rewards
overproduction. At the corporate level, the accounting policies will often incentivize
overproduction. This is a result of the way companies account for expenses. Materials, labor
and overhead are allocated to finished goods as product is manufactured. This is designed to
properly tie expenses to the products that generated the expenses. Because overhead expenses
are fixed, when the costs are absorbed does not change the costs. The result of tying
absorption to production independent of demand is a system that encourages overproduction.
 Make-to-stock systems create
overproduction by design. In a make-to-stock system, goods are produced in advance of
demand. This is the definition of overproduction.
Forecasting errors will cause overproduction. Organizations that manufacture to a sales
forecast instead of actual demand will have errors. The errors will cause too much of some
products and too little of other products to be made.

Poor communication from customers can lead to overproduction as information about

demand changes is not rapidly communicated to the production planners.

Poor quality can also lead to overproduction. When the quality of a process is unpredictable
and uncontrolled, planners will schedule more production than is needed to ensure an
adequate number of good parts make it through the process. When process yields are better
than average, the number of good parts produced will exceed the plan.

Results of Overproduction
The most obvious result of overproduction is an increase in inventory levels. This occurs as
the extra production must be stored until it is needed (or disposed of). There are a number of
other problems and costs associated with overproduction.

In processes with bottlenecks, any overproduction of an item could result in a capacity or

material shortage of another, more urgently needed item.

Overproduction will often increase motion and transportation waste as bigger lot sizes result
in less efficient work cell designs and more movement to and from storage locations.
Overproduction will also increase the amount of obsolete and excess inventory that needs to
be discarded. In a make- to-order environment, there should never be obsolete or excess
inventory. Every item produced is earmarked for a customer.

Solutions for Overproduction

In the short run, companies can implement tighter controls on scheduling and forecasting to
reduce variances and overproduction. As lean techniques are implemented, more significant
changes can be undertaken. One major shift is from make-to-stock to make-to-order. As a
company shifts to a pull system, overproduction is naturally eliminated since production is
originated by customer demand.

Increasing communication between the company, suppliers and customers can also reduce
overproduction as changes and demand are reacted to much faster.
Any activity that shortens lead times will allow for the reduction of inventory and a
corresponding reduction in overproduction. Quality improvements will also allow for lower
overproduction.

It is essential for a companys incentives to be re-designed to minimize overproduction and

excess inventory. As long as overproduction is rewarded, it will continue.

7 Wastes: Wait Time

Waiting is one of the 7 Wastes that most people recognize easily. Eliminating time spent
waiting has been a focus of manufacturing improvement activities since the industrial age
started. The motivation to eliminate wait time has been the driving force behind many of the
other wastes. For example, to eliminate any chance of an employee waiting, large queues of
WIP would be accumulated throughout the production process. Reducing wait time is an
essential objective and important component of lean, but it is just one of the seven wastes.
 When people think of wait time,
most picture a worker in front of a machine waiting for material to arrive or for the machine
to cycle. This is one of the common types of wait time, but there are more subtle instances
that are every bit as costly. Wait times are a major challenge in supply chain operations, as
companies must wait days or weeks to replenish raw materials. Wait times also occur in
many administrative functions, including the delays in the flow of information or approvals
from one department to another, or the delay of waiting for an open position to be filled.

Causes of Wait Time

The most basic cause of wait time is an unbalanced process. When one part of a process runs
faster than a previous step, there will be waiting in the process. Another common cause of
waiting is when materials are not available. This can be due to material handling processes
not operating effectively or due to stock outs, as when replenishment inventory is out of
synch with production.

The most common causes of wait time are poor communication and poor decision making
processes. When employees do not have sufficient information and are not empowered to
make decisions, wait time enters the process. This cause of wait time is extremely common
in administration functions. The more bureaucratic an organization is, the more wait time
due to slow communications and decision making.

Effects of Wait Time

Wait time is pure waste as a resource goes unused. This lost opportunity is easy to see, but is
only one type of loss due to waiting. Most companies will not allow workers to sit idly for
long periods of time. Even if the cause of waiting is not resolved, the company will usually
seek to resume work. The effect of waiting is therefore a change in the plan, and resources
are deployed to less than ideal uses to avoid wait time.

Forced plan changes resulting from a desire to avoid wait time cause a wide range of the
other problems. One common example is when a raw material is out of stock. The company
cannot produce the product required by the customer. Instead, the company overproduces the
products for which raw materials are available.

Another common effect of wait time is to paralyze decision making. When information is not
available quickly, decisions cannot be made. Often, this leads to missed opportunities. By
the time the information is available, the opportunity to use the information is no longer
open. Even worse, when information isnt available and a decision cannot be postponed,
people with make less accurate decisions.

Finally, wait time is a primary cause of inefficiency. Every time an employee has to stop
because they lack resources or information, they waste time shifting to other activities. In
todays office environment, where an employee may work on dozens or hundreds of tasks
every day, wait times can bog a person down and destroy productivity. This type of wait
time appears innocuous a few seconds here, a minute there. Over the course of a day, it
adds up to hours. Some researchers have estimated that the average office worker is
unproductive more than 35%. Others have estimated that unproductive time is the much
more pervasive, with value added time constituting only a small fraction of a workers day.

Solutions for Wait Time

Eliminating wait time is usually a straightforward process once the wait time is
identified. Eliminating bottlenecks is a typical strategy, as this allows for more balanced
processes. When wait time is caused by slow communications and decision making, the
company requires structural change. Systems need to be upgraded to ensure information
reaches the people that need it. The workforce needs to be empowered to make decisions so
that individuals do not have to wait for a decision to arrive.

The most subtle causes of wait time are distractions that slow a workers
productivity. Eliminating potential distractions is an important step. Often, the distractions
appear to be essential. For example, many employees set their computers to notify them
when a new email arrives. This notification immediately removes the employee from
productive work and places the employee in a wait mode as the employee assesses whether
they should act on the email now or later. Some companies have instituted email-free times,
when employees shut down their email programs and focus on a single task. Tactics like this
are common when implementing lean in an office
7 Wastes: Processing
Processing activities are typically viewed as value added. It is the manufacturing processes
that add value to the product and to the customer. Despite this, the process isnt valuable to
the customer. The resultant change to the product is what may be valuable to the
customer. This is an important distinction, because it is critical to assess every activity when
eliminating waste. It is easy to assume a process in the middle of a production line is
essential, but under examination, many processes are found to unnecessary or overly
complicated.

Simplifying processes is critical to

the lean methodology, and it is at the core of eliminating processing waste. Each activity in
the production process should be assessed in detail. The activity must add value to the
customer, and must be an activity that cannot be accomplished automatically. Otherwise, the
activity should be eliminated or consolidated with other processes. As with the other wastes,
it is important to examine every activity or process through the lens of lean. For this reason,
it is preferable to look at all processes as potential waste. This differs from the view of some
lean practitioners who describe this waste as over processing, and encourage the acceptance
of processing as value added.

Causes of Processing
The primary cause of some processing steps is a failure to recognize processing as a
waste. Every process in the manufacturing operation is often assumed to be value
added. This leads individuals to overlook processing as a source of waste. The assumption is
that the process wouldnt be there if it wasnt necessary. In reality, many processes are
unnecessary.

Another common cause of processing is complexity. The more complicated a process is, the
more likely there will be unnecessary steps.

In an office environment, processing is a very common waste. This often comes in the form
of reviews and approvals needed to make decisions. Many steps in the approval process are
likely to be steps that do not add value. There may be necessary controls to ensure quality,
fiscal responsibility and legal compliance, but each of these activities is inherently
wasteful. Streamlining or eliminating processing steps that add no vale can dramatically
speed up an operation and reduce cost.

Results of Processing
As with the other wastes, processing adds costs. It does this through the expenditures of
materials and labor to complete the additional processing steps. Each processing step
introduces an opportunity for error. If you only have one activity to make a part, theres
limited chance to introduce a defect. If you have hundreds of steps, each step will introduce
opportunities for errors. Processing also slows an operation and extends lead times. Each
step takes time, and more importantly, the wait time between steps greatly increases lead
times.

In an office environment, the increase in lead times due to processing steps is

incredible. Many tasks that require only a minute or two of actual work can take weeks or
months to complete. The more consolidated a process is, the faster it can be executed and
completed.

Solutions for Processing

The first step in eliminating processing is to recognize that processing activities can be
wasteful. Most professionals overlook processing as a waste. Challenging these assumptions
is critical to making your lean implementation successful.

The next step is to look for ways to consolidate processes. If an activity is essential, look for
ways it can be combined with other processes. This strategy often leads to the construction
of work cells that combine operations.

One of the most useful tools in eliminating processing is Value Stream Mapping. Value
Stream Mapping is a technique where a complete process is diagramed in great detail, with
processing times, queue times and batch quantities listed at each step. Completing a Value
Stream Map will often identify processing steps that are extremely costly, both in terms of
resource costs and lead time increases.

In an office environment, Value Stream Mapping is an extremely valuable tool. Many people
will fail to recognize the complexity in routine processes because they only interact with a
few steps in the process. By mapping the processes, it can become clear that some activities
are very process intensive with very little value added.
7 Wastes: Transportation
Transportation is the backbone of our economy, but it is also a fundament waste to be
eliminated. As important as it is to get a product to the customer, transportation does not add
value to the product. This can be easily seen. Imagine you are in a store looking for product
and find two identical products on the shelf. One was transported from a factory 500 miles
away, and the other was produced 5000 miles away. Would you be willing to pay more for
the product that had been transported farther? Of course not. For many products, particularly
perishable products like food, long transportation times can actually reduce the value of the
product.

Transportation can also occur within

a facility. When materials are moved around a factory, they are not gaining value, but
resources are expended to move the materials. This is an easy waste to identify.

Although it may be impossible to eliminate all transportation costs, this should be the
goal. Otherwise, companies will grow complacent and accepting of transportation costs.

Causes of Transportation
The majority of transportation costs are generated by moving raw materials to a factory and
moving finished goods to a customer. The cause of this transportation is the centralized
production of a product, and the design of the supply chain supporting production. In most
industries, large scale centralized production is the norm. The result is a product that may be
produced hundreds or thousands of miles away from where it is needed. The supply chain has
a big effect on transportation. Sourcing raw materials locally can reduce transportation
costs. When making sourcing decisions, the transportation costs are typically included in the
total cost of the material being acquired.

Inside a facility, transportation is caused by wait time and inventory. Every break in a
process that causes wait time has the potential to allow WIP to accumulate. As WIP
accumulates, it needs to be stored, and in turn, transported to and from storage
locations. With high finished goods and raw material inventories, transportation costs also
raise. The bigger the warehouse, the higher the transportation costs expended in the
warehouse.

In office environments, there are still significant transportation costs. In this situation, the
transportation is typically of workers and not products. Many companies recognize the
transportation costs of employees traveling. Whether driving or flying, it is expensive to send
a person on a trip. Transportation costs also occur inside a facility. If sales and production
planning need to meet regularly, but are on opposite sides of a production facility, employees
will end up walking back and forth a lot.

Effects of Transportation
Transportation costs money, in equipment, fuel and labor. Transportation also drives up lead
times. This is most commonly felt with imported raw materials. A component from China
can take weeks to arrive, and the company must either increase inventories or increase
customer lead times to accommodate the transportation time.

Transportation also drives up other costs. Every time a material is moved, there is a potential
for damage. Securing a product for transportation also requires labor, as the product must be
stacked and packed to minimize damage. For products shipped outside a facility, theft and
security costs are also a factor.

In office environments, transportation can slow communication and cooperation. Employees

working in separate locations typically do not build strong relationships. Even inside a
facility, employees who are far away will be consulted less. The barrier created by distance
then slows communication of critical information and the ability for organizations to develop
consensus.

Solutions for Transportation

In a perfect world, there would be no transportation and everything would happen where it is
needed. Manufacturing operations would be located near customers. This may seem
unrealistic, but some industries are set up with local manufacturing by necessity. Every
restaurant is a make-to-order manufacturing facility located as close to customers as
possible. In this case, a hot hamburger fresh of the grill loses substantial value if it is packed
in a box and shipped across the country. Companies strive to develop supply chains that
minimize transportation (and other costs).

When implementing lean in a facility, any effort that streamlines a process should reduce
transportation. Combining operations and eliminating a wait step will reduce WIP and the
handling of that WIP. Reducing lead times will reduce the amount of inventory held, and
reduce the transportation of that inventory to and from storage locations. The biggest steps a
company can make are likely to be the development of process lines that transform raw
materials into finished goods without any intermediate stops, along with a make-to-order
scheduling system. In this case, raw materials are the only items that need to be stored. Once
production starts, the only transportation inside the facility is the movement of material from
the production line to the shipping trailer.

In an office environment, there are opportunities to reduce transportation costs. These start
with technologies such as video conferencing and document collaboration tools. Designing
an office around the processes within the company is also important. Most companies
organize employees by function, with all the purchasing people in one area, engineering in
another, production planning somewhere else, and sales in another location. Reorganizing
this into cross-functional groups can speed information flow, improve collaboration and
reduce transportation costs.

7 Wastes: Motion
Motion is a waste common in both manufacturing and service industries. This waste is very
similar to transportation waste, but relates to movement within a process. Transportation
deals with movement between processes.

In manufacturing, motion is easy to

see. It occurs when a material, tool or person moves. The shorter the movement, the faster
the process will be and the more efficient the process. Some activities naturally have large
amounts of motion built into them. For example, a warehouse pick operation requires an
employee to visit different locations to fill orders. If the worker visits locations randomly,
the motion between pick locations can be huge. If the pick routing is optimized, the worker
will always move to the next closest pick location. (Note: Some may consider this movement
transportation instead of motion since the worker is traveling between operations. For this
example, the warehouse is defined as the work center and the movement is defined as motion
within the process. Either view could be considered correct.)

In an office environment, motion is more subtle. Work is often completed with a

computer. The motion isnt a physical motion. Instead, the worker must navigate complex
file structures and computer programs that make it difficult to complete basic activities.

Causes of Motion
Motion is typically a result of the physical design of a system. Some architectures place
essential elements far apart, requiring a machine or person to move between the locations. In
some cases, this is a result of efforts to make a process safe. For example, an operator may
be required to leave an area before cycling a machine so that the machine doesnt impact the
operator. In other cases, the designer didnt adequately consider motion when setting up the
process.

In an office, motion can occur in a number of ways. It can result for the organization of files
and materials on a desk. It can result for the computer file structure. It can be due to a
program with an unnecessarily complex navigation and interface. The design of technology
often creates added navigation as important information is stored in different places.

Results of Motion
Added motion slows processes, increases worker fatigue and increases wear and tear on
equipment. Motion also creates safety hazards as greater movement of equipment risks
impacting workers, and greater worker movement can lead to increases in strains and other
injuries.

In an office environment, motion slows work and increases frustration levels. The amount of
time spent jumping back and forth between programs can be substantial. This motion adds
no value, but slows the employee and causes the employee to have to stop and start their
work repeatedly.

Solutions for Motion

Reducing waste requires designing machines and work cells to minimize movement. This
often requires layout changes and is typically an early step in the adoption of lean. One
important element in reducing motion is ensuring that tools are available where they are
needed. This makes 5S a great program for reducing motion waste. Tools and other essential
materials are positioned for optimal placement and minimal motion. All non-essential items
are removed from an area. The result is a work cell that is more productive with much less
motion.
In an office environment, eliminating motion can be accomplished a number of different
ways. One of the easiest is through training. Every computer program comes with shortcut
key combinations that will speed productivity. Most people know at hitting Alt-Tab on a
Windows computer will change windows, or that Ctrl-C will copy text and Ctrl-V will paste
it. There are hundreds of shortcuts that can speed productivity and reduce motion.

Another step that improves productivity and reduces motion is changing the monitors
employees use. A study by NEC found large monitors or dual monitors greatly improves
worker productivity. With text editing tasks, workers completed 8-hours of work in 5.5 hours
when switched they from a conventional 20 monitor to a 24 wide screen monitor. Workers
with spreadsheet tasks had similar gains when switching from a single 20 monitor to dual
20 monitors. This means buying four employees a new monitor would yield as much
additional productivity as would be gained by hiring another employee.

Redesigning computer programs and directory structures can also yield substantial
results. Many companies have adopted strategies to improve the usability of their systems
with tools such as information dashboards. These tools present information from a variety of
sources on a single screen so an employee can quickly review and assess an entire process or
project. Tools like this greatly reduce the motion wasted by employees switching screens and
looking up information.

7 Wastes: Defects
Poor quality and the resulting defects are a major source of cost for many companies. This is
also a cost that is often under reported as there are direct and indirect effects of defects. A
defect is any error in a process that makes a product or service less valuable to a customer, or
that requires additional processing to correct the defect.
 The adoption of lean at many
companies started with a focus on quality. Total Quality Management was a major
manufacturing initiative before lean was adopted on a widespread basis. It was easy for a
company to recognize that defects were wasteful. As a result, quality initiatives designed to
reduce and eliminate defects are often some of the most mature lean initiatives in a company.

Causes of Defects
Defects arise out of processes that are poorly controlled. A well designed process should
produce acceptable results every time. Few processes can achieve perfect quality every
time. Variations in raw materials, changes to machine setups, wear and tear on equipment,
improper maintenance, poor training, and worker error can all lead to variations and quality
defects.

In an office environment, defects also occur. Poor planning, slow communications and
inadequate training can all lead to errors in work.

Results of Defects
Defects cause both direct and indirect costs. The direct costs are the lost materials and labor
that went into the part that was defective, and the rework costs associated with correcting the
defect.

Indirect costs from defects can be crippling to a company. Every defective part that is
produced uses capacity. When demand is high and a bottleneck exits, defects will lead to
lower revenues. If defects are not identified and corrected, they can reach the customer. A
dissatisfied customer could be a best case scenario when you consider that substantial
lawsuits are often a result of product defects. There are numerous examples of defective
quality leading to crippling liability awards in food, medical device, pharmaceutical,
automotive, toy making, and other industries.

In an office environment, defects can be even more substantial than in manufacturing. Office
workers are often responsible for product design, service delivery, planning and scheduling,
and compliance and corporate governance. The failure to correctly assess risks at Lehman
Brothers, or the failure to recognize improper trading by investors who trusted Bernie Madoff
were high profile errors in risk management processes.

Solutions for Defects

Improving quality and reducing defects have been studied and refined over a number of
decades. Total Quality Management is a great framework for improving quality. Poke-a-
Yoke is the lean activity where a process is error proofed. More recently, Six Sigma has
grown out of the TQM movement into a set of tools for refining processes and improving
quality.

Overall, the lean methodology can be viewed as a set of tools and techniques for removing
defects. Streamlining processes and removing waste are activities geared toward delivering
consistent value with minimal waste. This can only be accomplished when processes are
well designed and developed to ensure high quality products and services with minimal
expenditure of resources.

7 Wastes: Inventory
Inventory is recognized in as a waste in the lean system. This is because inventory does not
add any value to the customer, but has significant costs associated. Many companies use
inventory as a crutch to minimize the impact of inefficiencies in their processes. The
inventory appears essential and valuable, but once lean is embraced, the inventory becomes
unnecessary.
 Some versions of the 7 Wastes refer
to this waste as excess Inventory instead of Inventory. The rationale for this is that
manufacturing cannot operate with zero inventories. This form of the 7 Wastes tries to
introduce pragmatism into lean. It is true that zero inventory may be impossible to
achieve. To achieve zero inventory, you would need to process incoming raw materials as
soon as they arrive, process them in one operation (or a linked series of operations), and ship
the finished goods immediately.

Although it may be impossible to achieve zero inventory, it is important to strive towards this
goal. Introducing an acceptance of a waste into the lean methodology compromises the lean
philosophy. Practitioners should continually strive to reduce inventory no matter how low
the level. There will be times when further inventory reduction is not possible or cost
effective with existing processes, but that should not lead to a permanent acceptance of
inventory as necessary.

Causes of Inventory
Overproduction, another of the 7 Wastes, is a primary cause of inventory. Processes and
incentives that encourage producing too much product will lead to higher inventory levels.

Inventory is viewed by many as insurance. It protects against unexpected events such as a

material shortage, machine breakdown or natural disaster.

Poorly controlled processes lead to large lot sizes, inaccurate forecasts, poor communication
with suppliers and customers, and errant management decisions. All of these limitations will
result in higher inventory levels.
Effects of Inventory
The most obvious effect of inventory is the capital required to carry the inventory. The cost
of inventory is significant, and that cost generates no return. It just sits on a shelf. By
reducing the inventory required to operate, the business can reduce the capital it requires in
order to support those operations.

Inventory affects a wide range of other expenses. As inventory levels go up, the capital
investment in warehouse space also increases. Large warehouses mean more time is required
to move product into storage and out of storage locations.

Higher inventory levels also drive up obsolete and excess inventory expenses.

Damage to inventory also increases as more inventory is stored for longer times.

The larger the inventory, the more labor is required to maintain inventory accuracy. A plant
that has one days inventory on hand will have an fast and easy physical inventory compared
to a plant with a year of product in storage. The number of cycle counters and inventory
adjusters also increases with inventory levels.

Solutions for Inventory

It is essential to streamline processes and reduce lead times. Every reduction in lead times
allows a reduction in the inventory held.

Eliminating WIP (work in process) can be achieved by creating a seamless flow through the
production process. Every break in a process requires WIP to be stored and moved between
processes. Eliminating these breaks allows the elimination of WIP.

Better forecasting and a shift to a pull based scheduling system will eliminate the large
forecast variances that lead to overproduction and increases in inventory levels.

Any effort seeking to reduce inventory must have incentives to motivate employees to
minimize inventory. Managers need to treat the capital tied up in inventory as a negative to
be minimized. This can involve charging a plant for the cost of capital or by making
inventory levels part of the bonus calculation.

The most important thing to remember when looking at inventory is that all inventory is
waste. Too often, inventorys ability to cover up for other problems makes people think
inventory is essential. In reality, correcting the underlying problems will make the inventory
unnecessary.

Source: http://leangenie.com/7-wastes-inventory/