THE EFFECT OF WORK-IN-PROCESS
INVENTORY LEVELS ON THROUGHPUT
AND LEAD TIMES
RICHARD
TIMOTHY
College of Business, Appalachian State University, Boone, NC 28608
Historically, manufacturing companies have oper-
ated with work-in-process (WIP) inventories.Justifi-
cation for WIP has been that it provided buffers
be-
tween operations which helped to prevent the shut-
down of a machine for lack of work and, as a corollary,
to maximize the utilization of equipment capacity or
to otherwise improve other measures of manufacturing
efficiency. The rationale was that the cost of having
idle capacity was greater than the cost of carrying the
inventory. The inventory buffers also tended to reduce
the need to formally balance the loads in the process
steps. In recent years, particularly with the advent of
the Just-in-Time (JIT) philosophy, the trade-off be-
tween the cost of idle capacity and the cost of carrying
inventory has come under closer scrutiny. A number
of writers claim that the WIP increases the lead times
(time in system) and reduces the flexibilityof the
manufacturer in meeting customer demands. They
believe the objective should be to minimize the WIP,
thereby also minimizing lead times. [6, 7, 8, 91.
Consequently, JIT programs have the reduction of
WIP inventories as one of the major objectives.The
general approach suggested is to arbitrarily reduce the
allowable inventory and then identify and correctthe
problem(s) created by this inventory reduction. Once
the problems have been corrected and the system is
operating satisfactorily at the reduced inventory level,
the inventory-reduction-problem correction cycle is
repeated. This process is continued until a minimum
level of inventory is reached. The result of reduced
inventory is expected to be reduced lead Hmesand
greater flexibility in responding to customer demands.
A possible negative consequencefrom reducing in-
ventory is that of reduced throughput (in this article,
defined as the number of units processedwithin a
given time period). In some casesof JIT implemen-
tation, throughput has increased, thereby suggesting
that reduced inventories can lead to increased
throughput [2 J. However, in most cases, JIT programs
also call for other changes, such as increased schedule
6 PRODUCTION AND INVENTORY MANAGEMENTJOURNAL—FirstQuarter, 1993
CPIM
E. CRANDALL,
PHD
H. BURWELL,
stability [31, reduced product complexity [1, 2] and
reduced process complexity [2, 5]. Consequently,
the relationship between reduced inventories and
throughput has not been clearly defined.
Blackstone[21 points out this potential problem
when reporting on the results of a simulation study in
which he compared the mean times to complete 500
units under varying process times. He concludes, "It
is apparent that as variabilityof job times increases,
the output of a line with little WIP decreases dramat-
ically." Later, in discussing the importance of quality
in JIT applications, he says: "Successful JIT imple-
mentation requires that variations in job times be re-
duced in order to avoid slowdowns on the entire line
. very little has been done explicitlyon the rela-
tionship between variance, WIP, and capacity utili-
zation. This relationship needs to be researched in or-
der to assist the design of JIT lines."
PURPOSE OF STUDY
A study was designed to examine the effect of re-
duced WIP on throughput, lead time (average time in
system), and utilization (ratio of time worked to time
available). Two primary questions were considered:
• Can the reduction of WIP cause a decrease in
throughput? Under what conditions?
• Can increased throughput be achieved even as WIP
is decreased? How?
If reduced WIP leads to reduced throughput, the
problem then becomes one of evaluating trade-offs
between the costs of reduced throughput and the ben-
efits of reduced lead times. Obviously, the ideal situ-
ation is the combination of reduced WIP, reduced lead
times, and increased throughput.
DESCRIPTION OF MODEL
The manufacturing process modeled is that of a flow
shop where product is processed through a fixed se-
quence of operations/ machines/ departments. The
machines are not directly linked such as in a contin-
uous process; therefore, inventory buffers can be ves-
tablished between each machine.
In all alternatives, several assumptions are made so
that the process conditions are very close to those de-
scribed as ideal for a JIT environment.
I. The processing sequence of first-come, first-served
is used throughout the study.
2. Setup times are zero. This assumption precludes
the need for batching, so lot sizes can be equal
to one.
3. There is a constant supply of product at the first
machine so that the downstream machines are
never idle for lack of work in the total system.
4. There is a constant demand for finished goods so
that the last machine is never blocked.
5. The mean processing time for each operation is the
same so that, in theory, the result is a perfectly
balanced line.
The following variables are considered:
Number of machines. The number of machines in
the sequence represents a measure of process com-
plexity. In the study, runs are made with four, six, and
eight machines to see the effect on throughputand
lead time.
Processing time variance. The machine processing
time is a key variable in the study. All machinesare
assumed to have the same mean processing time and
the same processing distribution.The processing mes
are varied to simulate the effects of different levels of
product or process variation. Product variation can be
the result of a range of sizes, customizing featuresre-
quired, number of process steps, and quality require-
ments. Process variation can be caused by variances
in machines, tooling, setup adjustments, operators,
materials, and yields. In this study, no attempt was
made to distinguish among the causes of variation.
Type of process distribution. Two differenttypes
of distribution are used to create processing time vari-
ation: uniform and exponential.The uniform distri-
bution is used to provide a closed-end form of distri-
bution, one that suggests that the product line is fairly
standard and does not contain "specials" that could
require greatly extended periods of Hme. Four different
uniform distributions are used: (45, 55 ), (40, 60), (30,
70), and (10, 90) to show the range from very little
variation to wide variation, around the mean of 50
time units per unit produced. The coefficients of vari-
ation (the square root of the variance divided by the
mean) for these distributions are 0.058, 0.115, 0.231
and 0.462, respectively. The exponential distribution,
THE EFFECTOF WIP ON THROUGHPUTAND LEAD TIMES
also with a mean of 50 time units and a coefficient of
variation of 1.000,is used as an alternative distribution
to simulate the existence of a few "specials" with ex-
traordinarilylong processing times and many standard
items with relatively short processing times. A constant
processing time (zero variation) is used as a theoretical
reference point.
Queue capacity. Four different levels of queue ca-
pacity are used: 50 units, 10 units, five units and one
unit. Limiting queue capacity causes blocking of ma-
chines, which imposes the discipline of a "pull" system
as queue capacities approach one. Queue capacity can
be considered as performing a function similar to the
number of kanbans allowed in a JIT environment. If
the kanbans are reduced, the average WIP decreases.
The effect of reducing the queue capacity is the same
as reducing the number of kanbans.
In summary, the model contains many of the con-
ditions usually specified for a JIT operation, such as
constant loading, minimal setup time, lot size of one
unit, pull system at low queue capacities,and no major
machine breakdowns. The major variables to be con-
sidered are product and process variability. As pointed
out by Crawford and Cox [41, "JIT works because its
elements are designed to continuouslyidentify and
eliminate causes of process variation. "
The combination of the above variables resulted in
the selection of 18 combinations (six levels of pro-
cessingtime distribution times three lengths of lines)
of product/ process variability for each of four levels
of queue capacity.
In addition, the simulation model provided status
( % operating), block ( % of time blocked), and queue
(average units of inventory) for each machine.
Measures were taken to achieve steady-state status
in the simulation runs, and appropriate statistical tests
were used to confirm mean differences between
groups. The results of the simulation are based on 30
runs for each of the combination of input variables
described above. At the beginning of each run, all
queues were cleared and each station was idle. Each
run had a length of 20,000 time units.
RESULTS
The primary output measures are average WIP,
throughput, lead time, and utilization. The results for
each simulation run are shown in the Appendix. Fig-
ures 1 through 4 show the results for the six-station
line for each processing time distribution type. Even
though these graphs are for a six-station line, the same
relationships are observed in the four- and eight-sta-
tion lines.
7
 4

270 2

o 10
so 1

FIGURE 1: Average throughputvs. queue capacity FIGURE 3: Average WIP inventoryvs. queue capacity

Throughput same processing distribution, say uniform (40, 60),

Increasing, or at least maintaining,the level of
throughput is considered to be a desired objective.
• Throughput decreases as queue capacity decreases.
This relationship is observed for all distributions and
is more dramatic for distributions with a higher de-
gree of variability.
• Throughput decreasesas product/ processvariation
increases. For example, the throughput for a uniform
(45, 55) distribution is higher than a uniform (10,
90) distribution at all queue capacities.
• Throughput decreases as the process complexity
(number of stations) increases. Hence, given the
a four-station line has greater throughput than an
eight-station line at any queue capacity.
The above suggests that reducing the average WIP can
cause adverse effects on throughput unless product/
process variability and process complexity are reduced.
Lead Time
There is a direct relationship between lead time and
work-in-process inventory, in that lead time is the sum
of the processing time and the queue, or waiting, time.
The following equation closely approximates the re-
sults for lead time obtained in the simulation runs.

2.4 1.03
2.3
2.2
2 0.93

0.0

0.83

o.e

a. 73

0.7
0.9
o.ø
0.7 0.65

0.6
0.4
0.3 so
0.55
1 10 s 10 so

a COSTANT + O 70)
X V DÄ<SO)

FIGURE 2: Average time in system vs. queue capacity FIGURE 4: Average utilizationvs. queue capacity

8 PRODUCTION AND INVENTORYMANAGEMENTJOURNAL—FirstQuarter, 1993

Lead time (LT)
—processing time (PT) + queue time (QT)
where
PT = is processing time per station times number of
stations
QT = is processing time per station times average WIP
times (n —1) number of stations (first station
has no WIP).
Example: (6 stations, uniform (40, 60) distribution,
queue capacity of 10
LT = (50 X 6) + (50 X 0.98X 5)
= 300 + 238 = 538 time units.
This is identical to the simulation result; however, the
calculated LT may vary slightly from the simulation
result under different conditions.
As a result of the relationship described above, the
following positive results can be expected.
• Lead time decreases as queue capacity decreases.
This relationship is observed for all distributionsand
is more dramatic for dish-ibutionswith a higher de-
gree of variability.
• Lead time decreases as product/ process variability
decreases. As an example, average lead time for an
exponential (50) is higher than a uniform (45, 55)
at all queue capacities.
• Lead time decreases as process complexitydecreases.
Hence, given the same processing distribution, a
four-station line has a smaller lead time than an
eight-station line at any queue capacity.
Clearly, actions that reduce average work-in-process
inventory will reduce lead times.
Average WIP
Reducing lead times is a desirable objective that de-
pends on reducing WIP; therefore, reducing WIP is an
important action to be taken.
• Average WIP decreasesas queue capacity decreases.
This relationship is observed for all distributions with
a higher degree of variability.However, increases
in queue capacity do not necessarilyresult in in-
creased WIP. This occurs when the product/ process
variation is so small that the extra queue capacity is
not needed.
• Average WIP decreasesas product/processvaria-
tion decreases.
• Average WIP for each work station increases as the
number of work stations decrease. However, the
average total WIP (number of work stations minus
THE EFFECTOF WIP ON THROUGHPUTAND LEADTIMES
one) in the entire system decreases as the number
of stations decrease. For instance, with the uniform
(40, 60) distribution, the average WIP when queue
capacity is 10 is 1.20, .98, and .88 units, respectively,
for four-, six-, and eight-station lines, respectively.
The average total WIP is 3.60 (1.20 times 3) units
for a four-station line, 4.90 (.98 times 5) units for
the six-station line, and 6.16 (.88 times 7) units for
an eight-station line.
AverageUtilization
Average utilization follows the same pattern as
throughputin that it decreases as product/ process
variation increases, queue capacity decreases, and the
number of stations increase.
DISCUSSION OF RESULTS
For the sake of discussion, let's assume that we have
a six-station operation with exponential (50) process-
ing times. Hence, the curves in Figures 1 through 4
labeled Expon(50) show the relationship between the
performance measures and queue capacity. By ob-
serving these curves, the first point that can be estab-
lished is that the advocates of conventional manufac-
turing thinking and JIT are both correct, to a point.
The advocates of JIT are correct that average lead
time and average WIP inventory will decrease as we
reduce allowable inventory levels. This follows since
these respective curves drop in value as queue capacity
is decreased.However, conventional manufacturing
thinking is also correct since both average throughput
and average utilization drop as allowable inventory
levels are decreased. These reductions in performance
measures are least in those situations with the smallest
time variations at each step (i.e., uniform (45, 55))
and greatest in those situations when the process time
variation at each step is the greatest (in this case, the
exponential form).
Suppose in the six-station, exponential processing
time operation that the processing time variability is
reduced as the allowable inventory levels at each sta-
tion are also reduced. In terms of our graphs of the
performancemeasures, this is the same as moving to
points on adjacent curves as we reduce process Hme
variability. In particular, let's assume that we start with
exponential processing times at a queue capacity of 50
units. We are able to reduce the processing time vari-
ability to that of a uniform ( 10, 90) distribution and
drop allowable inventory levels to ten units. For each
successive drop in inventory level we are able to reduce
processing time variability to that of a uniform distri-
9

bution with a mean 50 and smaller variance. In Figures
1 through 4, we illustrate the resulting changes in the
performance measures with a dashed line. The impli-
cation of these figures is that we can actually achieve
increased throughput and utilization in addition to
smaller lead times and WIP inventories while reducing
allowable inventory levels if we address the issue of
process variability. This is consistent with some of the
actual results observed when JIT concepts were em-
ployed [21.
It follows that the approach suggested by JIT pro-
grams to first reduce inventory as a means of identi-
fying the problems in a production process may not
be successful (except where WIP is excessive) unless
product / process variability is also reduced as a result.
Two general approaches can be used to reduce the
variability.
1. Reduce the length of the line (reduce process
complexity). In the study, this meant reducing the
number of staåons. In practice, this is accomplished
by reducing the labor or machine content of prod-
ucts through methods improvements or through
product redesign.
2. Reduce the process time variation. In this study,
this meant moving from one processingtime dis-
tribution to one with a smaller variance. In practice,
this can be achieved by reducing the number of
special orders or standardizing the products to be
marketed. Other ways include the reduction of
machine variations, cross training of operators,
more consistent loading of the shop from one day
to the next, and the use of group technologyto
standardize the products being processed.
In those situations where this variabilitycan be re-
duced, companies can expect to receive the benefits
of reduced WIP inventories and lead times while
maintaining or increasing current levels of throughput
and resource utilization.
If it is not possible to achieve a suffcient reduction
in product/ process variability, then the trade-off be-
tween the benefits of reduced lead times and the costs
of reduced throughput must be evaluated. There may
be occasions when a company would be willing to
10 PRODUCTION AND INVENTORYMANAGEMENTJOURNAL—First Quarter, 1993
1
accept reduced throughput to provide greater mar-
keting flexibility.On the other hand, there may be
circumstances where maintaining high levels of
throughput and utilization are paramount. In this cir-
cumstance, sufficient (not excessive) WIP inventories
would compensate for the variability associated with
the production process.
SUMMARY
The results of this study should help explain why
both conventional and JIT thinking about WIP inven-
tory have some points of merit. If there is large product
or process variability, some WIP is required to prevent
a reduction in throughput. If product/ process varia-
tion can be reduced, it should be possible to benefit
from reduced WIP inventory and reduced lead times
while maintaining current levels of throughput and
resource utilization. The more this variability can be
reduced, the more inventory can be reduced, leading
to even greater benefits.
REFERENCES
1. Bandyopadhyay, Jayanta K. "Product Design to FacilitateJIT
Production." Production and Inventory Management Journal 31,
no. 4 (1990): 71-76.
2. Blackstone,John H., Jr. CapacityManagement.Cincinnati, OH:
South-Westem Publishing Co., 1990: 221—224.
3. Chapman, Stephen N. "Schedule Stabilityand the Implemen-
tation of Just-in-Time." Productionand Inventory Management
Journal 31, no. 3 (1990): 66-70.
4. Crawford, Karlene M. and James F. Cox. "Addressing Manu-
facturing Problems Through the Implementation of Just-in-
Time." Production and Inventory ManagementJournal 32, no. 1
( 1991): 33-36.
5. Gaither, Norman. Productionand OperationsManagement.4th
ed. Chicago, IL: The Dryden Press, 1990.
6. May, Neville P. "Measurement and Reduction of Lead Times.'
APICS 1990 Conference Proceedings: 306-307.
7. Toomey, John W. "Establishing Inventory Control Options for
Just-in-Time Applications." ProdUctionand Inventory Manage-
mentJoumal 30, no. 4 (1989): 13—15.
8. Umble, M. Michael and M. L. Srikanth. SynchronousManufac-
luring: Principles for World Class Manufacturing. Cincinnati, OH:
South-Westem Publishing Co., 1990.
9. VanDeMark, Robert L. "Process Lead-Time and Cost-Reduction
Simulation." APICS 1990 Conference Proceedings: 475—478.
APPENDIX: DATA SUMMARIES BY NUMBER OF STATIONS

Queue Capacity Queue Capacity

5 10 50 5 10 50
Average throughput: Average time in system:
4 Stations 4 Stations
Constant 396 396 396 396 Constant 200 200 200 200
unif (45, 55) 394 394 394 394 Unif (45, 55) 263 279 279 279
unif (40, 60) 389 391 391 391 Unif (40, 60) 274 380 380 380
Unif (30, 70) 373 384 385 386 Unif (30, 70) 286 503 555 557
Unif (10, 90) 371 376 387 Unif (10, 90) 309 572 790 913
Expon (50) 251 317 337 Expon (50) 379 674 1,010 1,645
6 Stations 6 Stations
Constant 394 394 394 394 Constant 300 300 300 300
Unif (45, 55) 391 391 391 391 Unif (45, 55) 394 421 421 421
Unif (40, 60) 385 387 388 388 Unif (40, 60) 422 538 538
Unif (30, 70) 367 380 380 Unif (30, 70) 445 727 795 780
Unif (10, 90) 324 361 366 367 Unif (10, 90) 493 874 1,097 1,279
Expon (50) 232 301 324 Expon (50) 631 1,084 1,656 2,285
8 Stations 8 Stations
Constant 392 392 392 392 Constant 400 400 400 400
Unif (45, 55) 388 388 388 388 Unif (45, 55) 523 552 548 548
Unif (40, 60) 382 384 383 383 Unif (40, 60) 569 709
705 709
Unif (30, 70) 374 374 375 Unif (30, 70) 581 936 953 1,022
Unif (10, 90) 319 354 359 359 Unif (10, 90) 659 1,149 1,399 1,628
Expon (50) 221 291 313 320 Expon (50) 863 1,562 2,095 2,992
Average work-in-process: Average utilization:
4 Stations 4 Stations
Constant Constant .996 .996 .996 .996
Unif (45, 55) 0.41 0.53 0.53 0.53 Unif (45, 55) .990 .992 .992 .992
Unif (40, 60) 0.47 1.20 1.20 1.20 Unif (40, 60) .978 .989 .989 .989
Unif (30, 70) 0.51 1.98 2.36 2.37 Unif (30, 70) .939 .975 .980 .981
Unif (10, 90) 0.51 2.31 3.80 4.72 Unif (10, 90) .836 .939 .959 .970
Expon (50) 0.51 2.44 4.70 9.44 Expon (50) .629 .804 .868 .928
6 Stations 6 Stations
Constant Constant .994 .994 .994
Unif (45, 55) 0.38 0.53 0.53 0.53 Unif (45, 55) .987 .988 .988 .988
Unif (40, 60) 0.47 0.93 0.98 0.98 Unif (40, 60) .973 .983 .984 .984
Unif (30, 70) 0.50 1.67 1.96 1.91 Unif (30, 70) .926 .970 .972 .972
Unif (10, 90) 0.52 2.11 2.68 3.86 Unif (10, 90) .819 .944
.923 .953
Expon (50) 0.52 2.35 4.16 7.75 Expon (50) .587 .774 .845 .910
8 Stations 8 Stations
Constant Constant .991 .991 .991 .991
Unif (45, 55) 0.35 0.43 0.42 0.42 Unif (45, 55) .983 .984 .984 .984
Unif (40, 60) 0.46 0.88 0.88 0.88 Unif (40, 60) .968 .978 .977 .977
Unif (30, 70) 0.50 1.49 1.57 1.77 Unif (30, 70) .918 .962 .962 .965
Unif (10, 90) 0.52 1.96 2.72 3.46 Unif (10, 90) .809 .914 .934 .941
Expon (50) 0.51 2.42 4.06 7.17 Expon (50) .564 .757 .826 .886

THE EFFECTOF WIP ON THROUGHPUTAND LEAD TIMES

11