Inventory Waste: What Excess Stock Hides in Your Plant

What is inventory waste?

Inventory waste is holding more raw material, work in process or finished goods than you need right now. Inventory itself is not waste. Excess inventory is. Excess stock locks up money, takes space, needs handling and counting, and hides problems in your plant.

A simple home example: a family uses 5 kg of rice a month. If it buys 10 kg, the kitchen overflows and the extra rice can spoil. Factories do the same thing, with larger amounts.

How does stock hide problems?

Think of a river. The water is your stock. The rocks under the water are your problems: breakdowns, long setups, rejections, late suppliers.

When the water is high, the boat floats over the rocks and nobody sees them. When the water is lowered, the rocks appear. Now they can be seen and removed one by one.

High stock is a blanket over your problems. It keeps you comfortable and stops you from fixing anything.

This is why Lean lowers stock slowly. Lower it a little, see which rock appears, fix it, then lower again.

Where do we see it?

In the shop

• Three months of steel bar in the yard.
• Crates of half-finished parts in every aisle.
• Finished goods for a model the customer no longer takes.
• Spares that nobody knows about, so they are ordered again.

In the office

• A cupboard full of old printed forms.
• Files kept for years with no reason.
• Software licences bought and never used.

What does it cost? An example

A purchase team buys three months of bar stock in one lot, about 6 tonnes, "because the price may rise".

• Price (example): Rs. 75 per kg.
• Money locked in: 6,000 kg × Rs. 75 = Rs. 4,50,000.
• The price did not rise.
• The stock lasted two months longer than planned, because the demand was lower.
• About 300 kg at the bottom of the stack rusted and needed extra cleaning.

(These numbers are an example.) That Rs. 4,50,000 could have paid for other material or reduced bank interest. And nobody counted the cost of holding it.

Why does stock grow?

• Poor forecasts. We do not know what we will need, so we buy "enough".
• Long setups and long supplier delivery, so we buy and make in big lots.
• No minimum and maximum level for each item.
• Distrust of the supplier.
• Bulk buying for the discount, without counting the cost of holding the stock.

For finished goods there are two more causes. Dispatch waits until a whole set is ready, with no partial dispatch. And the plant builds ahead for large customers because its own delivery time is longer than the customer will wait.

How do we bring it under control?

For materials

1. Set a minimum, a maximum and a reorder level for every important item.
2. Use a bin card or stock card so the stock of each item is visible.
3. Use two-bin signals for fast-moving items: when the first bin is empty, order again.
4. Agree smaller, regular deliveries with suppliers.
5. Use first in, first out, so older stock goes first.
6. Review slow-moving and non-moving stock every month.

For finished goods

• Plan from the trend of past orders, not a guess.
• Put only part of a probable order, for example a quarter to a half, into the plan.
• For a very large order, ship in parts, so invoicing and payment start earlier.

Before buying in bulk, count the full cost of holding: money, space, handling, damage and the risk that the design changes.

Who should watch the stock?

Stock is a shared job. The purchase team buys it, the store keeps it, production uses it, and sales promises against it. If each department looks only at its own corner, the total grows. A short monthly review with all four, looking at the top items by value and the items that did not move, keeps it honest. Ask one question for each item: when will we use this?

How to start in your plant

1. List your top 20 items by value.
2. For each one, write the minimum, maximum and reorder level.
3. Compare the actual stock against the levels, and mark the excess.
4. Hold the next order for any item above the maximum.
5. Check physical stock against records once a month.