This week’s analysis focuses on the impact of lean adoption on inventory levels in automotive industry.
Creating and unlocking value in an organization starts with knowing precisely where things stand, and where the opportunities for improvement lie. To help, SAP’s Performance Benchmarking group publishes a short analysis each Monday, highlighting hot industry topics and high-impact strategies.
KEY QUESTION: How well are you managing your inventory?
Source: SAP Performance Benchmarking, Manufacturing Study
KEY TAKEAWAY: For automotive companies, inventory is a necessary evil that needs to be managed in a precise way. Too much leads to soaring inventory carrying costs and an increased risk of write-offs due to product obsolescence. Too little and customer orders can be cancelled or delayed, with machines sitting idle. In fact, operational excellence in managing inventory can lead directly to competitive advantages for auto companies. Based on SAP benchmarking analysis, average performers have 50% more inventory (measured by days in inventory) than top performers.
Adopting the latest lean approaches, however, can help organizations reduce all three kinds of inventories (raw material, work in progress and finished goods). The same benchmarking analysis shows that organizations that eliminate bottlenecks through lean principles and scheduling best practices have on average 13% lower days in inventory. Similarly leveraging lean principles such as reducing lead-times of manufacturing steps and changeovers can result into 43% lower days in inventory for raw material and work-in-progress, and 30% lower days in inventory for finished goods.
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