This week we look at the subject of inventory and how we can define it from a Lean perspective. Inventory can be defined as Materials or Information packages spread across a value stream between processing steps. Inventories are usually categorised by position in the value stream and by purpose. From this position and purpose we end up with a few generally used terms to describe the different types of inventory found within the manufacturing process. For example:
- Raw materials
- Work In Process (WIP])
- Finished goods
- Goods for resale
- Stocks in Transit
- Consignment Stocks
- Buffer stocks and safety stocks
To avoid confusion, it is important to have a clear understanding of the types of inventory needed across your value stream.
Raw Materials – Goods in a facility that have not yet been processed.
Work-in-Process (WIP) – Items between processing steps within a facility.
Finished Goods- Items a facility has completed that await shipment.
Goods for resale – Returned goods that are saleable (don’t want too many of these?).
Stocks in Transit – Goods in shipping or transport.
Consignment Stock – Ownership of stock is transferred when the stock is used, issued or sold by your customer.
Buffer Stock – Goods held, usually at the downstream end of a process, to protect the upstream process from starvation in the event of an increase in short-term demand that exceeds short-term production capacity of the downstream process.
Safety Stock – Goods held at set points such as raw materials, WIP, or finished goods, to prevent downstream processes from being emptied by upstream process issues or lack of goods from a supplier.
Important to note that the terms buffer stock and safety stock are often creates confusion as they are frequently interchangeable. There is an important difference between the two:
- Buffer stock protects your customers from you in the event of an abrupt change in demand;
- Safety stock protects you from changes/events in your processes and suppliers.