Question

Operation management Ch.12

1. A system held inventory to protect it from uncertainties in supply. In an effort to be lean, this inventory is used and not replaced, although the uncertainties in supply remain unchaged. What is likely to happen to the operation of the system now?

2. Why is vendor-managed inventory considered a lean practice? Does VMI reduce inventory?

3. Just as lean systems are also called just-in-time systems, earlier approaches to inventory control are sometimes called just-in-case systems. The phrase just-in-case refers to what?

4. What does the lean principle of level scheduling imply about finished goods inventory? Is this a contradiction to the philosophy of lean?

Answer 1

1.

Since the uncertainties in supply chain remained and the safety stock is now 0, this means that the service level of the supply chain will increase and down the stream it will be multiplied due to bullwhip effect. There will be more possibilities of stock out and the company will face the cost of backorder.

Practicing lean is a good approach however, care needs to be taken against the issues such as backorder and stock out. If there are uncertainties and variability in demand then lean approach may not be a good idea in every scenario.

2.

In vendor managed inventory, the inventory is held by the vendor rather than the company. This means that in case of any fluctuation in demand the variation’s pressure is passed on to the vendor. This reduces the overall inventory handling cost of the company and reduces wasted opportunity cost. This is why it is considered a lean practice. VMI does not reduce inventory but instead transfers the risk of inventory cost and management to the vendor.

3.

The phrase just-in-case inventory is the process of holding large amount of inventory in order to protect companies against risk of stock out. The policy is to hold large inventory so that any variation in demand for the inventory can be handled by the additional stock. Here the phrase just-in-case refers to the variation of the demand.

4.

Lean principle of level scheduling implies that finished good inventory is produced at steady rate. It also means that each stage has same capacity and operates at same efficiency. This reduces the overall work in progress inventory within the system and thus reduces waste. This is why it is not contradictory to the philosophy of lean.