Part V: "It’s muda."

(excerpted from The Pipeline)

“TOC and Lean both use buffers to protect their processes from variation”, explained the intrepid, results-based consultant.  “As we learned from the Law of Variability Buffering, unless we do something to reduce the variation, every – and, I mean every – production process will find some way to buffer or protect itself from the effects of fluctuation, using some combination of reserve/excess capacity, time, or inventory.

“The difference is in how the buffers in DBR and Lean work.  In TOC, the various types of buffers protect the capacity of the constraint.  In Lean, the buffer is dispersed more widely, because the capacity has been leveled.”

The CFO raised his hand.  “Go ahead”, she said.

“Something you just said triggered a thought”, he said.  “When we were talking awhile back about how we are currently buffering for variation and uncertainty – and how much that variation and uncertainty is costing us – I made the observation that we seemed to have large time and capacity buffers, but not a particularly large inventory buffer.”

“That’s right.  RB Builders doesn’t have a large inventory buffer”,  she replied.  “Why?  Why do you think that is?”

“I have no idea”, he said.

“In part, it is because high levels of work-in-process won’t protect a build-to-order process from variation”, she explained.  “As long as starts are pulled into the system at the rate of closings, the FIFO sequencing generally holds down excess inventory, because each resource can only work in a prescribed, first-in-first-out sequence.

“If homebuilding production was a continuous or single-piece flow process, it could more easily protect itself with any combination of the three buffers, but it’s not continuous or single-piece flow.  As we know, homebuilding is a build-to-order process, and a build-to-order process generally buffers itself with excess capacity and extra time, not with excess inventory.”

“I agree we don’t currently have an inventory buffer”, replied the CFO.  “But, at times, we have, in fact, had high levels of work-in-process, and . . . ”

“ . . . you want to know why that happens”, said the intrepid, results-based consultant.  “Simple.  A build-to-order process can certainly contain excessive levels of inventory, but that inventory is not functioning as a buffer that protects the system from variation, because it’s not a case of the system responding to variation.  Excess inventory either happens – or doesn’t happen – as a result of the internal policies that allow it or prevent it.  It’s detrimental, in the same way all excessive inventory is detrimental.

“In the case of a build-to-order process, higher inventory doesn’t protect the system from variation.  To the contrary, excessive inventory exacerbates the problem, and makes managing production and utilizing production capacity even more difficult.

“It’s muda.”

The chant began in the back of the conference room, low at first, but growing in volume and intensity, until it engulfed the entire room.

“Mu-da!  Mu-da!  Mu-da!”