Costikyan Jarvis, of Jarvis Cutting Tools, recently wrote to me about a manufacturing executive program he recently attended at Harvard, in which the instructor told the class that, "Inventory is ignorance."
As if to prove the point, I was sent another story from a lean coach at one of the better MEP’s. I’ll keep it anonymous at this point – after all, the MEP lean guy was there because the company wants to become lean and there is no cause to embarrass them. If the would-be lean company still thinks this way a year from now, I’ll name names and we’ll see if I can’t shame them into becoming leaner. At any rate, here’s the story:
"Last week I was working on a set-up reduction kaizen project. We were applying the usual SMED methodology and carefully analyzing the elements of the set-up when it was mentioned casually that the order we were observing was not for a customer but was destined for stock. I understood this to be a make-to-order situation with a substantial backlog of orders, so I was confused. Why were they making this product in lieu of actual orders? Simple – because the raw material was getting old, and was about to be downgraded in inventory value. With the application of some direct labor, the near-obsolete raw material was magically transformed into a brand new asset."
While not all inventory equates to ignorance, most of it does, and this inventory most certainly does. So if inventory is ignorance, what does that say about Pierre DuPont whose ROI logic put inventory on par with cash in evaluating manufacturing performance? And what does it say about Alfred Sloan who took that formula and created modern management theory around it? And what does it say about Donaldson Brown, the ‘Father of Modern Cost Accounting’ who worked out the details of the system that made the MEP story commonplace? And what does that say about the overwhelming majority of business school accounting faculty members who continue to teach this system? And what does that say about the investment community who heaps billions of dollars on companies and senior managers who close plants and outsource manufacturing based on the results of this system? And what does this say about the people at the IRS and the SEC who have codified the ignorance of inventory into law?
Before 24 hours goes by, better than a thousand lean thinkers from all over the world are gong to click in and read this. The comment section is wide open. Can anyone explain how a company can ‘kaizen event six sigma black belt Toyota Way culture change’ itself to lean while still formally managing itself by this system?
Or is changing the financial system a funamental prerequisite to lean?