Business Builder Bob - Just-in-Time #2

Where does the CASH come from?

Reducing Process Time - the goal is to instantly process raw materials into finished goods! Although it is not literally possible, the quest to move as close to the objective as possible causes all kinds of good things to happen. But first, to get your attention, how does cash end up back in your pocket? Just-in-Time Manufacturing, Pull Systemz and/or Value-Add Processes should:

1. Produce only the products that customers want (no unwanted products in inventory).
2. Produce products at exactly the rate that the customer buys them (no extra inventory),
3. Produce high quality (customers will buy more)
4. Produce instantly - no unnecessary lead-time. (customer won't have to go elsewhere if they need it right away. This also reduces cost, but that may not be obvious yet).
5. Produce with no waste, 100% yields, and with no idle inventory (lower cost of manufacturing).

In one of my assignments, the company had $13 million of inventory with a 90% order fill rate. Process time was dramatically reduced such that inventory turns improved from 3 to 15. More important, inventory was reduced to $6 million and order fill rates improved to 99.5%. The inventory reducton alone put $7 million of CASH back on the company balance sheet. There was also a significant reduction in cost of goods.

I can tell you that the prevailing thinking before we started was that it would take more inventory to improve fill rates. The only way to fill all the orders all the time was to have enough inventory to cover any scenario. This is an incredibly flawed approach which is still prevalent in many businesses.

In fact, the best way to improve fill rates is to reduce process time...the ability to (nearly) instantly make what the customer wants. Maufacturing flexiblity and turnaround time are the key.