Generally speaking, there are three types of inventory that require management: raw materials, finished goods, and work in process (WIP). Raw materials inventory can be cut down in a number of different ways, most notably by ordering smaller batches with more frequency from suppliers (JIT). Finished goods inventory can be cut down in multiple ways as well, most notably by either producing only when you actually have an order (JIT) or by achieving more accurate demand projections (which in a sense is producing only when you have an order). This post will cover two very practical applications of lowering WIP.
The first way to cut down on WIP is to pool processes. If a single worker is responsible for the entire production of a good from start to finish, then there will be no WIP. By pooling workstations you can reduce queuing (wait time before a process) because there are less stations for the work to flow through. If there are less stations, then there is less oppurtunity for work to pile up between stations. Pooling however is not always a option.
Another highly effective way of cutting down on WIP is through the use of kanban, Japanese for sign. Kanban is a tagging system that is essentially a communication system designed to inform production across the entire plant about what to do and when to do it. Hopefully the following example will help to illustrate kanban.
Imagine you work at a plant that produces two different types of footballs, NCAA size and NFL size. Now, because the NFL likes spectacular touchdown passes, the footballs are a little bit smaller. Unfortunately for you this requires you to create two different products.
You have to manufacture thousands of both types of footballs. Luckily, manufacturing the footballs is, in this simplified example, a simple five step process that is completed at three work stations. At the first work station, the leather is cut, and then painted with the NFL or NCAA logo. At the second work station, the leather is stuffed with its rubber insides then stitched together. The final stage of production is packaging.
The following table shows the cycle time (average time it takes to process a part) at each station:
Cutting and painting: 30 seconds/football
Stuffing and stiching: 1 minute/football
Packaging: 45 seconds per football
Remember from my post on cycle times (essential to understand before reading on), the longest cycle time, or the bottleneck, determines the overall speed at which a group of processes can turn out a new product.
Back to the problem at hand, the stuffing and stitching takes twice as long as the cutting and painting. What would happen if both of these processes worked at 100% capacity utilization? WIP would pile up sky-high in front of the stuffing and stitching station. Until capacity increased at the stuffing and stitching station or capacity utilization decreased as the cutting and painting station, WIP would continue to pile up. Clearly, production at the cutting station needs to be limited.
Although the cutting production needs to be limited, there always needs to be some work for the stuffing and stitching to do. When there is no work at the stuffing and stitching station, the bottleneck is constrained. Remember, the speed of the entire system is the speed of the bottleneck, so as the bottleneck slows, so does the entire system. It is essential to keep the capacity utilization up at the bottleneck.
If the cutting and painting station pooled with the stuffing and stitching station, the cycle time should become the average of the two which would make it a 45 second cycle time putting it in sync with the packaging station. This would require both stations to work at an average rate equal to each which would drastically improve performance. Eliyahu Goldratt's The Goal is a good read that points out some problems with matching capacity across a production plant, but this would nevertheless be an improvement on the old system.
The stuffing and stitching station is working on an order. Another order comes in for 1000 NCAA footballs. A stack of raw materials leather gets placed in front of the cutting and painting station, behind a few other orders waiting to be processed, with a kanban tag saying "1000 NCAA footballs." This ensures that the cutting and painting stations knows what to produce and will begin to produce it as soon as it is that order's turn. As the WIP moves through the plant it is worked on when it is its turn and is processed to become NCAA footballs.
Essentially this is a system that tells people when to produce what. This example was overly simplistic, but imagine that there are many different types of products and that the WIP has an oppurtunity to become a number of different types of FG at any point in the production process. This helps to notifiy workers what exactly it is that the product needs to become.
More importantly, it limits the amount of WIP in the system. If there is an excessive amount of WIP in front of the stuffing and stitching station, then it doesn't really matter how fast the cutting and painting can work. For example, if the WIP is already at a high level in front of the stuffing and stitching station, then managers can simply not tag anymore leather for processing at the cutting and painting station. Cutting and painting can sit idle until stuffing and stitching gets closer to being able to process new orders. Ultimately, the same orders are processed at the same speed, but with less WIP.
By limiting the number of kanban tags that are released, and therefore limiting the capacity utilization of the cutting and painting station, the number of WIP is limited. By limiting the work that can be produced by the first station, raw materials can be limited. You can learn to reorder raw materials based on the demand the kanban tags will be placed on raw materials inventory. Conclusively, kanban tags allow managers to determine the WIP they want at their plant.