The solutions that will add value on your lean journey!

Keep An Eye On Your Stocks!

Traditional View

“In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash.

Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment.(Source wikipedia)

According to this explanation inventory(stock) is an asset in view of the fact that it can be converted into cash and thus create wealth. If you, for this reason create stock piles(push) which have a coverage rate of months even years and think that you are productive(!), please have a look at the issue from another angle.

Lean View

Stocks can be converted into cash if they are created according to customer demand, since this is the only reasonable explanation for your inventory(pull principle).

Pull principle production is consistently based on the demand of the internal or external customer, it is demand oriented.

Stocks are wealth sources, nevertheless they are also used to conceal problems and waste(Muda). They are symptoms of the losses like: motion losses, quality failures, production/machine downtimes, changeover times, planning or managerial deficiencies, long material lead times and etc.

More often the advantages of the stocks are seen but the disadvantages are underestimated. In the chart below, most of the  advantages and disadvantages are depicted:

stock cost

As you see, there are many disadvantages which increase the total cost of your stocks.

Key Performance Indicators(KPIs)

You need to keep an eye on your stocks, because they are not as innocent as you think!

In order to track the costs of the stocks, organizations check the performance levels of the processes that have an inventory output. They follow, track, monitor and evaluate  below KPIs(Key performance indicators) and take proactive and reactive actions to be a more competitive organization:

~Raw material stock coverage (day)
~Raw material stock (€)
~Semi-finished stock coverage (day)
~Semi-finished stock (€)
~Finished good stock coverage (day)
~Finished good stock (€)
~Materials in transit stock coverage (day)
~Materials in transit stock (€)
~Scrap Cost
~Lead time
~Headcount cost
~Overhead cost
I also like the article of “Lean Ofis” about The Impact of Stock Turnover, DSO and DPO on Profitability.

Come and share your valuable views  and what you think at LinkedIn group,



Eda Yılmaz

Lean Manufacturing I TPM I Business Excellence Management I Trainer at Turkish Society for Quality (KalDer)


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This entry was posted on January 8, 2013 by in Inventory, KPI/Metrics, Lean and tagged , , , , , , , , .

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