Moving Material Through the Factory
Written by: James K. Allred

The term working capital can be misleading. The fact is, most of the dollars you tie up in inventory and work-in-process (WIP) aren't "working" at all. They're costing you money. A recent Fortune article discussed this phenomenon and the remarkable success that a (too small) number of companies have enjoyed once they realized this basic truth.

So how do we significantly reduce "working capital" so that we apply it where it can produce world class returns? The key is how rapidly our logistics process moves material through our facilities. Previously, I wrote about the need for real time inventory control. But knowing where everything is located means little if it's just sitting there.

It's speed we need. Material must "hurtle," virtually continuously, through the pipeline. Once received, it must be transported, staged, and used. It can be dynamically buffered but never stored in a slow moving warehouse. And, in its value-adding journey, material must travel not only without loss of time, but with accuracy and physical accountability.

Picture a factory carefully laid out to dramatically shorten the distance (and time) material travels. Received in conveyable containers, materials move directly into controlled buffers at the point of use. Integrated work stations enable the manufacturing process or the worker himself to call for immediate, high speed delivery of needed materials and parts. Finished products are automatically whisked away and quickly shipped to customers.

There are real factories where this happens-all day every day. But in most facilities, the pipeline is full of black holes, where material disappears and speed drops to zero. These black holes go by various names. Sometimes they're called "I think it's in the warehouse." Often they are known as "that's another department, not mine." Occasionally they are described as "the lift truck driver is on break right now." And many more, of course.

But by whatever name, they are the vestiges of old systems and outdated methods that have to change if we are to reap the rewards of speed. Instead, we must introduce a logistics system that takes control of material, moves it, and keeps tight custody of it until we have added value and are ready to hand it to our customers. Anything less is simply wasteful.

Examine your material flow pipeline. Eliminate the black holes. Eliminate the opportunities for your material movement system to cause delays and inventory errors. Cut lot sizes, safety stock, and total cycle time. Then you can put your working capital back to work.

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