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TXM Lean Glossary – Part 4

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.