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Lean Inventory – The Ultimate Guide for 2023

Key take-aways

  • Lean inventory is a systematic approach to improving a company’s inventory value by eliminating waste through continuous improvement.

  • The 5S framework (Sort, Straighten, Shine, Standardize, Sustain) is essential for lean inventory management, with origins in Toyota’s post-war Japan.

  • Lean inventory management principles include value, flow, pull, responsiveness, and perfection, aiming for efficiency, cost reduction, and value generation. 

Lean inventory is basic knowledge for a procurement manager. But just because it’s basic knowledge, it doesn’t entirely mean that you can just take it for granted. Lean inventory definitely has its uses, especially during procurement!

Today, we are going to talk about lean inventory. Like most of our Procurement Tactics articles, we’re going to first define what lean inventory is, the specifics of lean inventory management, and how using this strategy is going to help your company in terms of procurement.

After reading this article, you’ll most likely become a real expert in lean inventory and lean inventory management.

What is Lean Inventory?

For the procurement expert, lean inventory is the systemic approach to improving a company’s inventory value by identifying and eliminating waste of effort, time, and materials through a continuous system of improvement. It’s a system that is looking for perfection in a company’s inventory system. 

Invented by Henry Ford in the 1920s, the concept of lean inventory is to that of a “continuous flow” in the assembly-line process. In short, Henry Ford was an expert in creating a process where a company is always checking and improving the way supplies are received and stored.

The 5S Framework of the Lean Inventory System

Also called the lean inventory management system, it is developed along with the 5s framework. It’s called the 5s framework because the lean inventory relies on actual 5 “S” to operate efficiently. It is a systematic approach to workplace organization that will help company owners in keeping operational efficiency and in boosting the company’s bottom line.

The 5S actually stands for Sort, Straighten, Shine, Standardize, and Sustain.

Those are very simple words, yes, but mind you, these 5 words comprise the most important characteristics of the lean inventory system. Most procurement managers are also aware of the 5S system. In the West, it’s also known as the JIT or the just-in-time inventory management system.

Developed in post-war Japan, the 5S system was developed by Toyota Industries. This was a time when companies are looking for ways how to reduce wasting precious resources used when manufacturing car parts and engineering machinery. 

In fact, the JIT inventory management system was borne out of a system that the Toyota research team observed while they were checking the assembly lines and the inventory processes of several US companies. One of those companies was, of course, the Ford Motor Company. 

Ford’s assembly line had a lot of time to waste with workers needing to wait for one step to be completed at a time. Thus, the Japanese researchers addressed this problem by expanding into the other areas of quality assurance, which included visual workplace and total productive maintenance. This concept helped the company greatly when it comes to the procurement process.

The Concepts of Lean Inventory Management

For Mr. Ford, the concept of lean inventory management is divided into five principles. These five principles are used by so many companies during his time and forward, but it’s been changed and adapted by modern companies as well. The same five concepts also apply to all industries where lean inventory management is needed.

1. Value

The value that your company will get from applying the lean inventory management system. A business that uses lean inventory management will regularly review its product and services in the eyes of the customer. For these companies, value is everything and their customers will eventually pay for good value.

For a company to practice lean inventory, it must consider how the business offering is helping the customers. This alone will already help a company identify what it will get by adopting a lean inventory management system.

2. Flow

Understand how inventory flows in your warehouse and use lean principles to clear any issues. This will help a company in maximizing efficiency and reduce unnecessary wastage.

By removing any problems from your supply chain, lean inventory will help clear away any obstacles in your current procurement process. The said problems can be caused by different factors; one of which is waiting on external stakeholders in order to complete a sale. 

3. Pull

Move inventory only when the customer requests it. By utilizing the lean principle of Kanban, which is a pull system that helps to create a demand-centric business, minimal inventory is kept in your warehouse and is only replenished once it’s been consumed.

In other words, it’s a JIT or just-in-time inventory management tactic!

4. Responsiveness

Responsiveness means that the company is able to adapt to changes.

A push system can result in overstocking, delays, product obsolescence, and increased inventory carrying costs

On the other hand, a pull system enables you to carry just enough inventory to meet the demands of your customers while keeping costs to a minimum.

5. Perfection

The company is able to continuously perfect inventory management processes to improve the quality, efficiency, cost, and cycle time for the supplies or materials. Focus on enhancing the company’s activities that generate the most value while removing or reducing as many wasteful activities as possible.

What are the Benefits of Lean Inventory?

A company that makes use of lean inventory is also a company that practices lean procurement. Lean procurement functions the same way as most procurement processes are, except that it is more specialized towards adapting to lean inventory.

Because of lean procurement, there are a number of benefits that a company can achieve:

  • There are reduced preparation efforts.
  • There is continued experience with improved time to market products dramatically.
  • Sticking to lean inventory systems will shorten lengthy custom proposals to one-page documents only.
  • Companies are reducing the number of procurement team members involved in the sourcing process.

How can a Company practice Lean Inventory?

For any company to practice an efficient lean inventory management system, there must be a process of checking each and every supply that comes in and is delivered from the source to a company’s warehouse. That way, the company can determine how much of the raw materials are needed for the production of the company product.

A good way to enforce lean inventory is through a procurement database system. These programs run through a company’s inventory system and check how much storage capacity does the company has. Through the program, the company owner and/or the procurement manager can start planning the accurate number of raw materials 

Frequentlyasked questions

What is lean inventory?

Lean inventory is the concept of buying or getting supplies that are only needed, thus eliminating the need for storage service.

Why is lean inventory important?

For companies that are producing goods on an order basis, lean inventory helps in keeping the company afloat with its budget.

Who is in charge of lean inventory?

The supply chain manager or procurement manager is usually in charge of lean inventory management.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics