Agile Factory

Inventory reduction - WIP reduction

WIP reduction rule No. 1: Set up WIP value max. limit

Without limit nobody takes care

The first step to reduce WIP inventory is to understand what is the actual level of WIP (WIP = work in process).
You might think it is an easy job for you. You will just look into the information system and it will tell you instant WIP value for any manufacturing line with the accurancy up to 2 decimal points as you use very expensive system.
But if you check the same figure a few hours later or if you do the next day, the situation might be totally different like in the chart below. In fact the WIP value is usually unstable. Look at the chart bellow. It is a part of one of our charts showing us WIP value at the end of each day.
p2v.png (3590 bytes)

Why the WIP value is like on the chart? There are many reasons.
If you check who affect WIP value you will find there are many people with many different goals.

  • Linefeed - he is responsible for supplying the line by material from the warehouse. And his goal is to avoid any line stop due to he is slow or he forget to bring something from the warehouse. Otherwise he would hear bad workd from operators and even worse he would face strong complain from his boss (lineleader, supervisor or foreman)
    It means better for linefed to keep more material to avoid line stop and to make his life easy. Why to take one box only when he can carry 5 boxes, and tommorow we will use the same component as well, hey warehouse give me five boxes.

  • Quality assurance - quality is often independent department in the company to check the product from the customer point of view. They do not care about WIP. Their goal is to guarantee the quality and to stop any NG (not good) product. Unfortunately without QA approval, finish goods cannot be moved ot finish goods warehouse.

  • System operators - they tell in fact to the information system what was moved IN and OUT. Their goal is to not make mistakes.

  • etc.

In order to reduce WIP inventory we have to set up the target value first. Then we can compare results comapre to target. We can show to related what is good and what is bad. We can measure improvements, we can start to think why we face WIP calue fluctuation and how to avoid.

The first step to reduce WIP inventory: Set up WIP value maximum limit

On the picture bellow you can see what happened in our factory when I set up WIP value limit on one of our mfg. lines. Before we have faced dramatic changes of WIP value day by day. After I set the first limit, the fluctuation became smaller immediatelly. The first target should be very very easy to achieve as its main purpose is just to set up the reference level to measure WIP value to.

WIP reduction

Setting of the limit stabilized the material flow alomost immediatelly. What is received from warehouse is compensated by output of finish goods. And it is the true reason why to set up the WIP limit - to stabilize to material flow. If we imagine material flow as a river by setting Max WIP limit value we change stormy river to calm one. We will just avoid floods and dry seasons anyway the water level will be still high, like our WIP. We will discuss in the next steps how to reduce water level.

Some may ask: Which value to set as the first max. limit?
The actual one or the actual one plus x%. Or say actual one x 2, even actual one times 10 might be OK. It depends just on you and your experience.
I usually check a few days several times per day WIP value and then set up the limit to be something like average WIP level + some allowance to cover any fluctuation in the WIP inventory value. There is no complicated formula, no need. Common sense is enough.

If you are not sure which value to set, simply set up higher value. It is just the starting point, do not worry. Based on the results you can anytime change the limit :)



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