Stocking versus Lean!!

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    Can anyone give me some hints,
    We are doing a project on a metal stamping dep.
    Our assumptions are:- Set-up times are, with respect to economics, on an absolute minimum.- Cost of stock = 15%- Hourly machining costs $20,-
    I like to hear some ideas about the following 3 concepts for one stamping machine wich run 225 different prducts/yr with a deman from 0 to 3500 (per product)per week:
    Economic batch size (Camp):1159 manpower hr/yr$12.244 stock + WIP
    Current push system:1480 manpower hr/yr$2.932 stock + WIP
    Capacity based lot-sizing:2109 manpower hr/yr$2.285 stock + WIP
    What is the best option?How do we involve risk of unsalable articles.
    With best regards,
    Bernard([email protected])



    Hi Bernard,
    Here is an approach I’ve taken in the past. You inventory will be made up of a ‘safety stock’ which is there to allow for natural variation in demand. The better you are at forecasting the less natural variation you will have (because you have forecast it) and the less safety stock you will need to carry (you can calculate safety stock from forecast accuracy). The other component to your inventory will be the ‘variabl;e’ stock that you carry because you only have a few machines to make a lot of different products on and probably can’t make them all JIT. The economics of your process (cycle time, product change time etc) will allow you to determine what minimum lot size you can manufacture in and still be economically viable.
    You may have inventory of other types that arise form other issues but these, I think, are the two main supply/demand inventory types.
    Now some of your products will be realatively easy to forecast (see Demand Segmentation in Lean Manufacturing) whilst other may be made to order. You need to work out your best strategy for manufacturing each product that still makes you a profit.
    Guidelines for optimum inventory:-
    1) It MUST be demand driven
    2) Forecast accuracy will likely be you main driver
    3) Shorter product change over times lead to a smaller economical lot size and therefore to smaller ‘variable’ inventory but more frequent manufacture of each lot. (you need to take into account cycle time and choose an appropriate machine for the production volume in many cases).
    Hope that helps.
    PS. The whole issue of what is the genuine cost of inventory is a contentious one. Artificially low and you may well decide not to undertake what is in reality a valuable project. Artificially high and you may drive your manufacturing processes into what are in reality un-economical manufacturing strategies. Sorry but I don’t have a good answer for what the true value of inventory is. I like to use the cost of borrowing the equivalent capital from the market. Generally the lowest number but are you really going to save 15% of the cost of your inventory?



    Hi Mia,
    Thanks you for your respone. It’s clear and I’m rather familiar with the concepts. The difficulty is the priority in our organisation to cut manpower while the leanprinciples assume a certain “fixed”‘ capacity whitin you produce as economic as possible and whereas the supply of parts is guaranteed. Did I understand it?
    You are right that there are maybe more costs involved  with stocking, but the 15% is a given thing at our company.
    Maybe you can help me somewhat further?
    If you want direct contact or look at my data here’s my e-mail adress:
    [email protected]
    With best regards,

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