Lean in Government | Episode 11 | Inventory Reduction

In Episode 11 of the Lean in Government podcast, Alen Ganic discusses one of the biggest hidden wastes in government, excess inventory. 

He shares real-world Lean examples from his 14+ years in local government, showing how organizations can reduce inventory, free up warehouse space, improve flow, and save millions of taxpayer dollars without hurting operations. 

This episode covers hidden inventory, fear-based purchasing, data-driven decision making, 5S, Min/Max systems, Just-in-Time thinking, supplier partnerships, and how inventory reduction can create better customer service, lower costs, and even new job opportunities. A powerful introduction to Lean inventory management in government.

If you are a leader in government, this episode is for you.

🎧 Listen, reflect, and start focusing on what truly matters.

Transcript

SPEAKER_00 0:01

Hello, and welcome to episode number 11, Lean in Government. Today we're going to talk about a special topic, very, very important topic in government. And we're going to be talking about inventory reduction. I'm going to have several series on this one because it's a big topic. It's going to take a while to explain the best practices and what I have personally learned from reducing inventory in government. Many government organizations do not realize how much money is trapped in inventory. Excess inventory quietly drains budget every single year. Most organizations think inventory equals security. But too much inventory creates waste and hides problems. Lean teaches us that inventory is one of the biggest forms of wastes. Inventory is not only warehouse stock. Many people think it's just a warehouse stock. It is not. There are different types of inventory in government. First, what I want to talk about is a physical inventory that most of us are used to. Parts that we use to fix the roads, street signs, street signals and other things. Supplies, gloves, hard hats and other things. Tools that we use every single day in government to repair things. PPE, safety glasses, airplugs, gloves, and other things. Office supplies are also physical inventory. Office supplies is also physical inventory. Maintenance materials, materials that our maintenance uses every single day. Fleet parts. We know in local government and state government, we have fleet departments that take care of fleet parts, and then we have mechanics that fix our trucks and cars. Water and sewer materials. This is very essential and important. Road salt. This is for northern part of the US, not in the South. We don't have any salt here in Texas, but Michigan and other states have. And IT equipment. Those are some types of physical inventory. Then in government, we have also hidden inventory, backlogged work orders, unprocessed permits, emails waiting for a response, paper piles, access forms, unused equipment, old files and records, digital inventory as well. Then we have that fear in government. I remember when I approached in government some managers, department heads, directors, and their team, and they asked me this one question. What if we run out? Ellen, we're okay with reducing inventory, but we need parts to sustain. And what's going to happen if we run out? Another factor is our poor communication between departments that cause us to accumulate inventory. One department doesn't know what the other has and keeps ordering the same thing, same supplies. Lack of trust in suppliers is another fear. People pile up and buy inventory because they don't trust their suppliers that they're going to be there when they need them. No visibility into current inventory. This is a very, very common thing. Not having visibility in the current inventory is what I faced. Departments creating their own hidden stockpiles. I'm sure those of you who work for government and have access to the inventory management system, you know what I'm talking about. No standard ordering system. That is a very common approach in government. Buying because the budget money must be spent before year end. That is something I was told personally by many directors, and that's not their fault. That was the policy of the government agency that they work for. That if they want the same budget next year, they need to make sure it's spent. Not overspent, but spent. So people would buy inventory they don't even need. Emotional attachment to inventory. There is an inventory. I'm going to talk about those examples later on. How one individual was so attached to that inventory, even though that inventory expired and has been there for over 20, in some cases, 30 years. And it's actually causing more harm for human beings than good. But just because that person had purchased that 20, 30 years ago, he was just before retirement, he was attached to it. Many organizations in government are not managing inventory with data. That is a fact. I'm not saying everybody, but most. They're not managing with data. And if they are, I can guarantee you that data is not 100% good. They are managing with fear. Today I want to talk about a real example. I want to talk about a department that had inventory in the warehouse, about 1.4, 1.5 million, in the garage, in a basement, another half a million or so. But then they had another warehouse off-site, another huge building, where they in any percent of the space used for extra inventory. What kind of inventory? We're talking about street signals. We're talking about transformers that you use for street lighting. We're talking about components for street signals and signs. Also, we're talking about for street lighting, parts that go with the street lighting. Because they ran out of room, they kept buying inventory, so they expanded, they had to lease another building, not lease, they actually ended up purchasing it to store. Yeah, there were a few pieces of equipment there, large equipment that they stored as well, like a backhoe, bobcat, and so on. But 90% of that space was really utilized for extra inventory. What we did to eliminate that stock at that particular location that was off-site, and how we ended up giving it back to the city, empty building, which they sold to the private sector. So the private sector, private business could start the business there, which is good for the government, right? When we give buildings back to the private sector, what do we gain? They start paying taxes, they need to get permits, and so on. So they have to utilize our services and pay taxes like all of us. So that's good. That's a good news. But how did we get there? Let's find out how we get there. In earlier episodes, I was mentioning that software that I introduced to the directors and my manager that we had on the stock, on a shelf somewhere, and that was CityWorks. CityWorks is designed very good software. It's not the only one, but it's a very good software when it comes to like local and county and state government entities. Very, very good software. And they had this add-on application called Storeroom. Was it perfect beginning? No. I might talk about how we enhance that software by providing details to the developer what should be in the software to help us out. But I had a team who started adding parts, every part that we had, regardless if it's in a warehouse, a garage, a basement, second floor of the building, across the parking lot, or at the offside location, or in the lot that we had not far away from our building. It was a secure lot. It was a surface lot, it's not covered. And then we're that's where we had maybe big poles and stuff like that, cement blocks, things that you can keep outside and elements. Now, what did we do? So the person started documenting everything that we have. I had a team doing that. Even I would spend hours in even on the weekend. I remember in the backyard, my house, I would sit and start entering from paper into this database all the parts that we have. And then we took pictures and attached those as well to each part. So we had a picture of the part, we had part number, part description, all the in necessary information that we need to have. So first thing first, you need to know what you have. Before you make any improvements, you need to know what you have. Next step was to figure out and do some analysis, the usage of those items. It took me a really 12 months, a full year since we implemented this software and added all part numbers to the software to figure out how much we use for each single item on an annual basis and what hasn't been used. What parts have been collecting dust for 12 months? Then I went to that building that had all the extra parts, and I started asking people why did we end up having so many extra parts? We have the same identical parts at the local warehouse. So even in addition to the garage, second floor or basement that we had. Same parts. And then now we had pallets and pellets in this warehouse. So people told me something that is very, very common in government. They said, Alan, you know what? We get a better deal if you buy bulk. Sometimes, and I've seen that, they tried with me too. The salespeople will come around and say, hey, if you buy bulk, I'll give you a good price. In addition, you're going to get this ladder jacket. Or I'll give you a small gift or gift card or whatever. Which in government is not acceptable. That's the first thing I stopped when I became inventory and asset manager for the City of Grand Rapids. I stopped that. And to make that visual and not to allow anyone to take down those type of advantages that have been taken in the past, you have to do something. And that is transparency. You have to create transparency. I can't remember how many times people were asking me, you in charge of the entire inventory here in the city. Why are you making this transparency so people can see what we do and our failures as well? And I said, that's the real reason why. We need to create transparency because we're here to serve people. We're not here to get a leather jacket or something else, another gift from these salespeople. That's not what we hired for. That's what the taxpayers want us to avoid. To me, that's illegal, but that's another story. I'm not the attorney. What I'm trying to say here is you gotta create transparency. When you create transparency and you know everything you have, and you can see clearly, you and others, how you handle inventory management system, people will not just give you criticism, but they will also help you out. They will give you some advice. When they see that you're honest and transparent, people will help you. I guarantee you that. I spent 14 and a half years in government and I always saw that. Did I see negative people? Yes, I did. But majority of people working for government are good, honest people. I that's all I saw and I witnessed with my own eyes. Very decent, honest people. They want to serve their country, they want to serve the people that they and serve the city and the area that they live in. Honest and decent people. That's why our government functions still good. Even though we have some things that need to improve on all levels of government, nothing is perfect. But we should be looking just at those things, those negative things. We need to look at positive things and learn and talk about it. What are we doing? Well, you're never going to see this in the news. News will never advertise this or say on any news network things and positive things that the city, county, state, or federal government has done. Typically, they go after negative things. And if they can get enough negative things, sometimes they like to add some fluff to it. So transparency is good. That's what you need to do. So my team added everything up into the software. Now we knew what we had. Then I started measuring and watching how we utilize those items and when. When do we use those parts the most? And when do we use those parts the least? Data is power. But you have to know how to use it. Then what I did, I start investigating based on some old work orders. How long would it take to burn some of the inventory that we have in stock? And I found out, I remember one part that they bought thousands of it. It's a like a plastic bracket, plastic bracket that you use in um underneath the street. So you open up the manhole cover, you go down and you put this bracket to hold conduit. So when people run through the cities, conduit, they need to have a bracket that's going to hold a conduit. So the sales guy came to whoever, I don't know when it happened, decades before my time. Said, hey, listen, there's this new thing. It's not metal, it's plastic, it's cheap and it's safe. It's better than metal because metal and electricity, for example, don't like to mix. You can kill someone that way. And they sold them pallets and pellets of this. And when I asked the team who was in charge of that, I said, why did we order some pellets? He said, I don't know. The guy or gal, whoever ordered these supplies before our time, ordered for whatever reason, pellets and pellets. Maybe they got a good deal. But what I found out is if we kept every single part that we had in stock on that particular item, we would have enough for I would say 100 to 200 years. How do I know that? Well, I looked at the work orders, historical data, and I found out how many of those new mainhole covers and streets get built every year, approximately, and how many of those brackets you need to build to utilize if the new street is built. Okay. And then I looked at it, I said, okay, that's like 200 some years. Let's say we replace all the brackets, which would be a nonsense. But let's say we replace all the brackets and have some for the new streets. How long would it take? And I remember calculating around 100 years. So I told the team, I said, we are holding this inventory, these palettes, just in this particular item, because we think at some point we're going to need it. We already paid for it, at some point we need it. But what they didn't understand, holding something in inventory costs a lot of money. You have to count every single year. You have to move around from time to time. Sometimes it gets damaged, you have to scrap it and write it off. Um, sometimes a new revision gets introduced, not in this particular item, but new revision gets introduced, new law gets introduced, and now you no longer can use those parts. And there was a case in my other warehouses where certain parts we had to scrap, like brass, lead, uh, lead parts. You probably remember um if you listen in the news, there was a lead law that they passed, how much you can have lead in any uh parts that touch water, um portable water. And um honestly, we we had to scrap hundreds of thousands of dollars worth of product, and we didn't gain any money out of that. A very little pennies and a dollar. So, what did we do? So, what we have done with that part and others, we sent it to City Auction. We now did FIFA, and we talked about that before. So we sort it. Let's sort out and see what we have. Now let's set an order, let's put things in place that we need. How many do we really need? And then we came to a decision as a team, not me, even though I was an inventory asset manager. You don't decide that on your own. You need to involve the people who touch that part every single day, from people installing it to up to the director of that department. We had meetings. I remember bringing the information to them to a conference room, and they would come from the field, director comes from their second floor down to the first floor, and we would review it in the conference room, the information that my team and I have to share with them. And then what we saw is the usage and how much we have. And then we had to decide on the right number. And I had a proposal for every single number that I had analyzed. I had a proposal for them, explained, and then I asked them to challenge me if they know something I didn't. And there were a few particular cases where they said, Alan, I know it looks bad, and I know we we haven't used it in a year, but we have this big project coming up for the next two to five years, and we're gonna burn 90% of that inventory. That is the information that I would never know. Just relying on data is not good, even though you're gonna hear, oh, data is powerful and this, yes, it is. But just relying on data is not good enough. And I just explained to you why. So we have to have that human interaction with the people at the Gemba, actual place of work. So, what we did is we sent a lot, a lot ballotized to City Auction and made some money. Also, we were able to return some inventory back to our supplier and get credit, full credit for those parts. Believe it or not, try it. Talk to your suppliers, have a good relationship with your suppliers. Okay? I'm not saying good relationship, taking them to lunch or dinner. Build that good relationship and be honest and transparent and look at them as your partner, not at somebody uh that is just trying to sell you something. Build some good relationship. And then I had many different suppliers who said, Alan, I always have somebody in the United States that is willing to pay for this part. You paid for this part five bucks or 50 bucks back in then. We're gonna give you that money back, or even more. In some cases, I made more money. Not me, but the government, our department made more money. So we get the big credit. So we don't get cash. When I talk about credit from suppliers, they don't cash you out. What they do, they give you a credit. So when on your future purchases, you can use that credit. Like Amazon, for example. You order something you don't like, you send it back, and they give you credit back on your Amazon credit card, for example. So next time when you want to buy a book or something like that, you can use that, utilize that credit instead of giving a cash. Same thing here. So, what you want to do is 5S your area. And we 5S all the departments. All, not all the departments, all areas where we kept inventory, regardless warehouse, second floor, first floor, basement, garages, and this other offside building. Now we reduce the amount of inventory. Then I decided to move the transformers to a surface lot because they can be in a surface lot. The only thing we needed to do is to put some, pour some cement down and then put those transformers on the cement. That's what the team wanted. No problem. We had our internal team from streets who came and then put some cement level for us and made that area look good. And then we start transferring those transformers. The equipment relocated the equipment back to the departments for the garages. We freed up garages of all that material, so we now have more space in the garage. We moved all the material that we needed really to keep back to the warehouse. Now, instead of having four or five locations, including that offside location, we only had one location for those parts. Then what I have done, I have presented to the leaders and told them that they can have that building for whatever they want to use. And what they decided to do is in this particular case, they sold it to the private sector and they start collecting taxes uh for that property, which is good. The other thing I want to talk about is people would ask me, why are you so strict on saving money for the city? That's not your money. I heard that God knows how many times. And I would tell people, I can't believe you said that to me. It is my money. I am a taxpayer. I pay taxes. I'm a ratepayer. I pay for water service that I have at my home. I pay to the city of Grand Rapids. It comes from City Grand Rapids. So I am actually technically that is my money. If we waste this money, we're wasting. My money and your money as well. Your water rate is going to go up. If we acquire more and more and spending more and more money every year, we increase the budget. So what's going to happen? They have to increase the water rates. For example, water rates or permits for some in some areas, electricity, and so on. So it is us, our money. You should never ever think about that being somebody else's money. That is wrong. The other thing that is important is that when you accumulate now extra money, and after, to make the long story short, after we made all those improvements, got rid of buildings, put everything in the system, created a min-max economic order quantities, we calculated for every single part. What is the minimum? What's the maximum? And what's the EOQ? At what threshold, at what point do we need to reorder that part? So it comes in just in time, so we don't have to store extra parts. Just in time, purchases in many cases you can do because your local suppliers have it locally. So you don't have to fear, oh my God, I need to order three months' worth. No, you don't. Just order a month or week's worth of product. That way, as you, if you start thinking that way, lean way, you're going to start seeing that you can shrink. Your warehouse space usage gets it keeps shrinking and shrinking and shrinking. And then what happened to us? We were able to consolidate four different five warehouses under one roof. Because we were so good year after year, year after year, we kept improving, we kept learning, analyzing the data, uh, talking to the people in the field, and we kept reducing the inventory to the level where we said these warehouses are too big for the amount of parts that we store here. I remember at one location where we got rid of completely all the storage that we used at that facility and moved it completely to a different department. At that time, people said, Oh, that's not possible. You can mix up these departments. I said, Yes, you can. That's wrong. I investigated, I looked at it with attorneys, I looked at it with the uh auditors. They said, Yeah, as long as you separate the account codes, you know with what budget you purchase something, where you're issuing them uh item, who's gonna pay for it, you're fine. That's why my team and I were able to consolidate several warehouses under one roof. If you are able to consolidate inventory, several warehouses under one roof, what happens at that time is you're gonna be able to utilize these other areas for other purposes. We didn't sell every property that we emptied uh due to inventory reduction. What we did was give back to the city to utilize for other purposes. Police department had some equipment that they need to store. We had a parking department that uh just introduced and purchased some scooters and needed an area where they can uh keep the scooters in stock, maintain the scooters, have a tech or mechanic handle those scooters, fix them up and uh do PMs on them. So that was uh a necessary service that we just added to the city. We never had that before. And those bikes, you know, electric bikes that everybody knows nowadays. Back then it was a big deal, new, only a few cities in the United States had them. So for those bikes, for the scooters, electric scooters, we created some space and we did not have to buy another space or lease another facility to maintain that. Just think about that. That's open up capacity for new business. Same as a private sector. So, well, we're not the private sector. We need to have the same mindset. I'm not saying we are. We're not gonna get bonuses in government if we save. And that's a uh thing that I heard about some people. I say, I'm not motivated because I don't get nothing out of it. So you when you hear that, you need to act. You need to tell people, yes, you will. You might not get immediately a check that you can go and spend. But if you continuously do, and all other colleagues that work for the city or village or county or state, if or federal government, if everybody thinks that way, does it that way, the usage of inventory will shrink. And that means cities gonna or county or state is gonna have more money. What they're gonna do with that, they have to reduce rates in certain areas like water department, sewer department. They have to reduce the rates because they can't keep extra cash. That's law. This is United States with uh government law. So they have to reduce. The other thing you can do, and I've done it, is to create new positions. I told the city and went to city commissioners and said, listen, I know you're bragging about these improvements, million-dollar improvements here, million-dollar improvements there. But to maintain those improvements, I need help. I need people who can now not just give parts over the counter and put a line down in the notepad how many items they issued by part number. I need to people who can work in a computer system, computerized system. They need to be able to do some basic data analysis. Okay. They need to be able to do other inventory functions, which are not part of the current job instructions. So, with that, I was able to increase some at once. We increase for storekeepers and move all storekeeper ones to storekeeper twos because I kept adding tasks to them, and the union backed me up. This is we agree with Alan. We should increase it because they're adding, he added all these tasks, our people done it, and they deserve to be paid more. I said, I agree. And we have the funds. We're not going to use all the funds that we uh freed up, but we want to use some of it and give it back to the people. The other thing I've done is adding for the first time material resource planning supervisors. There was no such thing. Somebody supervising really uh at every location. But not just being a supervisor, maybe they had some supervisors, but they didn't have supervisors who do data analysis, who work with their team every single day on shrinking inventory as much as possible, inventory reduction, to the level so we don't run out or cause any harm to the people in the field. So you have to be careful. And to do that, you need to have a lot of eyes that watch every single day. The other thing that people were able to do sometimes deliver inventory to the job site. So instead of people coming with trucks back to the stock room, we started slowly providing services where we bring to you. Order via electronic order or give us a call and we'll bring parts to you. The other thing we did is also people start thinking, you see, when you start thinking that way and train your people, think lean way. We had I mentioned before KPIs, and I talked about KPIs in the previous episodes. Um, if you have KPIs, you know how much you spend, how much your usage, uh your min maxis, where you have too much, where you have too little, and you keep monitoring this daily, not monthly, annually, daily, then people are going to start thinking outside box because you're kind of educating them to think how to improve every single day. One of these improvements that they came up with was, hey, Alan, um, our people come into a warehouse and they spend an hour, everybody lines up waiting to get the parts that they need. And we need to document what they took, and then they go out in the field and do the job for the next seven hours or so. Okay, I said, what is your idea? And one of the ideas says, Alan, how about that we ask our team members what work orders they have for tomorrow? So if it's a street lining, uh, signals, street signs, those people in most cases knew what they're going to be doing tomorrow. They knew what they're going to do for the rest of the week. Water department, sewer department, same thing. Unless they say emergency pops up or something like that, then they drop everything, go take care of emergency. I'm not talking about that. I'm talking about the regular work orders. Listen, we have now CityWorks work order system that we can see their work orders for every day. Good. We know now what we have in stock, how much we use, what the minimax is, where it's located. We know all that. Great. So what's the next step? The next step would can we buy some tubs and then can we prepare all these pre-stage? So when they come in, instead of spending an hour with us, they spend five to ten minutes. They grab their tubs, load it on the trucks, and give us the empty ones back. I said, let's try. What happened? It worked. It worked. And people in the field loved it. They said, Man, you have no idea how much we like this new process because now we don't have to wait in line for an hour or more to get our parts. Now we can get in, get our parts. It's already scanned, add it to the work order, and whatever they don't use, they bring it back, and then we scan it back in inventory. It takes off their work order. So we issue everything to the work order. When they bring back some spare parts, whatever didn't use, that's okay. Don't worry about it. We'll put it back in inventory, and you don't have to worry about it. Our team at the warehouse will take care of that. That is that is amazing. And I loved it. So we start implementing in one department, we tested it, uh, experimented, and uh, this was the best practice for all departments where we could uh put this in place. All right. So today I want to talk about the inventory reduction. I want to talk about how inventory reduction is not about taking things away from people. No, it's not, it's about creating smarter systems, freeing up resources, like I mentioned, that offsite location that we sold private sectors, exposing problems and serving the public better. If you have what you need, only what you need, if you prepare that inventory for your team, then they're going to be able to get on the road and get to the customer faster and be able to repair whatever they need to repair faster. Every dollar trapped in unnecessary inventory is a dollar that cannot be invested into employees, infrastructure, customer service, or the community. So lean organizations learn that inventory is not an asset when it sits unused, when it collects dust. True value comes from flow, flow visibility, problem solving, and developing people to improve the system every single day. Like I said at the beginning, we will continue with the series of inventory reduction, but there's a lot more to learn. But I just wanted to give you this intro and give you some. I just wanted to give you this intro and give you a story, real story, how it was successful at the end. If we focus on inventory reduction, not just to reduce the inventory, smart inventory reduction so we don't run out of parts. And to do that, we're going to talk about in the next episode how to approach that to make sure that you have what you need, but not more than that. And how to work with your suppliers to secure inventory that you have, or secure inventory that you don't want to have in your warehouse, but you want to have it readily available at the time of need, which is called in lean just in time. We're going to talk that. We're going to talk about that in our next episode next time. Until then, keep learning, keep improving every single day.