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Hirano & Furuya, 2006
May 2006

Chapter Four: Flow, Lead Time, and Inventory
In 1889, Osborne Reynolds discovered that there were two different states of flow in water. When colored water was run in a glass tube in a thin line, the colored line retained its form and the rest of the water ran clean. However, when the volume of flow was increased, the water suddenly became cloudy and the clean color disappeared.

This can be observed with any water flow. When a small quantity of water runs, the flow is transparent and neat. However, as the volume increases, the flow starts to become cloudy and the water splashes. The former is called a laminar flow and the latter a turbulent flow.


In production, there is a phenomenon similar to this. When products are run in a functional, job shop layout, the flow is cut, stagnation occurs in many places and heaps of stock are formed. On the other hand, a flow shop layout, with equipment laid out along the linear flow of products, makes the manufacturing flow much more even.

The former is turbulent flow and the latter a smooth flow. Even with a linear flow, if the flow is in large lots, it will not be smooth. It will become a muddy flow with defectives occurring in many of the lots. A thin and smooth flow of product, moving by a pull system will help to ensure very few defectives and become a cleaner flow.

A flow of things in production has to be made an orderly one-piece, or at least very small lot size, flow without pushing things; and the most cost effective production that satisfies the customers will result.

Flow is not limited to parts through production, however. There are seven basic flows in manufacturing that must be optimized in order to assure JIT production.

  1. The flow of materials
  2. The flow of people
  3. The flow of operations
  4. The flow of layout
  5. The flow of information
  6. The flow of the organization
  7. The flow of consciousness, or thinking

Of all of these, the flow of the consciousness or thinking of the people is the most important. In a batch, mass production factory, the people tend to focus their thinking and their attention on their department. In JIT flow, with the factory and all of its elements aligned in a linear, process oriented fashion; the consciousness of the people will be on the customers.

The Production System and Flow
A production system must take many things into consideration. It must be concerned with the number of different items to produce and the volumes of each item. It considers the manner in which the factory produces – by flow or in lots. It has to deal with the timing of customer orders and whether some production must take place on the basis of planned orders, or a forecast. It serves the function of allocating actual orders received to the plans or forecasts. Finally, it must take into account the time increments in which the factory and the customers operate. For example, there may be monthly customer orders, or weekly, creating the need for monthly or weekly production plans.

There are basically three different approaches to take when the above concerns are considered. A plant can produce in batches. It can produce in a flow. Finally, it can produce in a one-piece flow. In a batch manufacturing mode, production is planned for large lots, which move together from one operation to the next. The flow approach is essentially planning as though production were in batches, but actually moving parts one-piece at a time through the production process. Finally, one-piece flow entails both planning and moving one-piece at a time.

There is no case in which batch manufacturing is the best. However, it is temporarily acceptable as we go from a batch environment to a flow environment. Batches inherently create waste and serve to make it very difficult to eliminate waste. The “flow” approach of planning in batches and executing in one-piece flow is not as good as both planning and executing in a one-piece flow manner, however, there are certain circumstances in which it is unavoidable.

When the customer delivery time is so short – same day or next day delivery, for example – that it is not possible to produce within the time constraint, the factory must produce in anticipation. In such cases, the best production planning method is to plan in batches based on the schedule or forecast, but execute production in a manner that duplicates a one-piece flow system. In this manner, the waste of manufacturing can be found and eliminated.

The Danger of Inventory with Many Product Types
Product proliferation is becoming rampant, largely due to the radical rate of discovery and invention in electronics, but also due to economic factors. Advances in information technology and microelectronics were once confined to computers, but soon began to have an impact on other products such as facsimile machines, and cellular telephones. Now it has moved into televisions, stereo equipment, and even washing machines, dryers and other basic household appliances. Children’s’ toys are often embedded with microelectronic technology that was once limited to information systems.

The impact of this is that virtually every product is now subject to rapid, radical change as quickly advancing technologies render them obsolete within months of their introduction to the market. Product life cycles are becoming extremely short. At the same time, these technologies have costs. Many products are now offered with a broad range of configurations, depending on the level of technology they contain.

The economy is also proliferating products as it steadily improves in many Asian and western countries. With telephones, for example, there once was one telephone per home and they all had about the same features. Now each individual in the household owns a telephone and each person represents a different demographic segment with a demand for different features. The mother’s cellular phone is typically different from the father’s; and each of the children has a cellular phone different from either of the parents.

This rampant product diversification puts extraordinary pressure on a batch manufacturer. Inventory that could once be counted on to eventually be sold is becoming more risky. There are too many different products in too many different configurations, all subject to obsolescence very quickly. Any inventory is a risk in such a manufacturing environment.

Inventory is the Best Measure of Management
Despite having heard many times about the overwhelming need for JIT production and a focus on takt time production, many companies continue to manufacture in batches, seemingly unable to operate in a short lead time manner.

An observation of a company and seeing where it has inventory, and how much it has, is a very accurate way of judging management. A company with quite a bit of unplanned finished goods inventory is clearly the weakest company. It means that sales cannot sell what has been planned, manufacturing cannot stop production, and purchasing cannot do anything but watch the flow of unneeded material come in from suppliers.

A company with excessive Work-In-Process inventory is slightly better. This indicates that sales can sell what has been made and manufacturing can at least slow down. When the excessive inventory is limited to too many purchased parts or too much raw material, then only the purchasing function is weak.

The ability to react to changes in the market without accumulating inventory is a direct function of lead time. Long lead times mean high inventory. Short lead times mean minimal inventory. The lead times of the company are its reflex nerve. It is a simple reality in the changing world economy that companies that cannot react to a changing market without building up inventory simply are not managed well.

In a radically changing world, having an acute reflex nerve is critical to survival for a manufacturing corporation. Without gaining control of their lead times, companies that attempt to profit with inventories will soon fail due to their inability to react to change.

Why Inventory Accumulates
A smoothly flowing river can flood for a variety of reasons. Sometimes it is the result of a local condition, such as a heavy rain. Usually flooding occurs where the river is constricted or where two or more streams converge. The flow of production through a factory behaves in much the same way, often flooding into excessive inventories. The local conditions might include machine breakdowns, defective products, communications breakdowns or scheduling errors. There are many reasons for the flow of production to be disrupted and when production batches are large, inventory can pile up quickly.

Factories also have constriction and convergence points that tend to be focal points for inventory accumulation. A machine or an operation which is working at full capacity limits flow, and the least loss of production can create a dam that piles up inventory quickly. Coordination problems between sub-assembly processes can generate a considerable amount of inventory when the two processes do not come together in a synchronized fashion.

The MRP experts say that inventory accuracy must be in the high 90% range for the system to function properly, but many batch manufacturers struggle to achieve this. That means that in many companies a great amount of inventory is there for unknown reasons, and management does not even know what it is or where it is. Finally, much inventory exists simply in case something goes wrong. It is there to provide assurance or comfort.

For whatever reason it exists, the accumulation of inventory weakens the company, stretching out lead times and limiting the company’s ability to react to change in the market.

Inventory, a Necessary Evil?
When sales are increasing inventory is usually viewed as not only necessary to assure the company can meet any customer request, but is often viewed as a good thing to have. As soon as sales level off or start to decline, however, inventory is viewed as an evil, or a problem. Inventory has a very difficult role to play.

In Europe and in the U.S., as well as in some Japanese companies, the ‘necessary’ aspect of inventory is given much more weight than the ‘evil’. It is not an overstatement to say that the fundamental difference between those companies and the Japanese companies pursuing JIT is their attitude toward inventory, which is at the heart of manufacturing management and production systems. While some companies believe that inventory really is an asset, or a valuable thing, Japanese companies refer to inventory as the graveyard of the company.

There are obvious reasons for viewing inventory as evil that just about every company can agree upon. They include:

  1. Interest expenses
  2. Costs of handling and maintaining inventory
  3. Risk of damage or obsolescence
  4. Wasted space
  5. Administrative expenses

Even if a company were to have limitless financial resources and space, however, there is a deeper reason for the Japanese view of inventory that is really at the heart of JIT production versus batch production. “Inventory covers up every manufacturing problem in the company.”

If the inventory is the water in a pond, then the problems in the company can be represented by stones sunk to the bottom of the pond. With plenty of water in the pond, the stones cannot be seen and it is easy to believe that they are not there. When the water level is decreased, however, it becomes apparent that the stones – or problems – really do exist.

For example, in a company that sells many product varieties, as long as there is plenty of inventory, the basic question of why machines changeovers from one product to another take so long is never asked. A plant’s inability to change its production plan smoothly becomes less important so long as there is plenty of inventory. Machines that break down or parts that do not arrive on time are not important problems in a factory with quite a bit of inventory.

When there is a considerable inventory of everything, people can become trapped in the illusion that these things are not problems. They often fail to see the difference between solving problems and merely evading them. Taking two hours to change a machine from one product to the next, when it is possible to do so in a few minutes is a very real problem with a very real cost. In companies with inventory, however, the problem seems small and unimportant.

A manufacturing company cannot be profitable and successful by evading problems or living under an illusion that problems are small or do not even exist. They are absorbing too much expense and they are slower and less able to react than companies pursuing JIT. Manufacturing companies in the 21st century must drain the water from the pond and clearly see all of the rocks that lie at the bottom.


no_photo.gif"JIT IS FLOW is quite simply the best lean primer available today. I plan to recommend it to every management team I work with." - Bill Kluck, NWLEAN Inc.

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