ERP

Pranay Nikam, from VCT Consulting India, asked the following question:

“I have designed and implemented the Kanban System at various type of industries. The challenge I face now is not that of explaining people how the system is designed or how it works. But rather clearing the misconception/misunderstandings key industry people have about Kanban.

My understanding of a Kanban System is ‘A Consumption based replenishment system’ with Multiple Re-Order Point (multiple Bins) as opposed to the traditional Two Bin System. In simpler words you keep enough stock to cover for the total lead time and add a buffer for demand variation and supply failures. And keep replenishing the stock as and when you consumes. The replenishment can be through fresh production or withdrawal from Warehouses or procurement from supplier.

Prime objective of the Kanban System is material availability to enable High Mix and low volume production; ultimately to support production levelling instead of running huge batches.

However, some Lean Consultants propagate Kanban as a inventory reduction tool and nothing more than a material scheduling software that can be configured in any ERP Systems.

I would be happy be receive your comments on the two different perspectives.”

The Kanban system has many variants, discussed in Chapters 10 to 13 of Lean Logistics. All these variants, however, have the following characteristics in common:

1. They implicitly assume the demand for an item in the immediate future to match the recent past. It is a naive forecast, but hard to beat on intervals that are negligible with respect to what Charlie Fine calls the clockspeed of the business. And the fluctuations are smoothed by leveling/heijunka.
2. They use some form of tokens to signal demand. Whether these tokens are cards or electronic messages, they can be detached from bins and parts and processed separately, in ways that are not possible, for example, in the two-bin system.
3. There is a fixed number of tokens in circulation for each item, which is a key control mechanism for the supply of this item.
4. The protocols for handling these tokens provide unambiguous directions on what should be done. No human judgement call is required to decide which item to move or produce. There are variations where that is not the case, like the French Kanban, which, for this reason, I don’t consider genuine.

The Kanban system  is not just a multiple-bin system, because bins are not used as pull signals. The Kanbans are pulled from bins when you start withdrawing parts from it, which you couldn’t do if the bin itself were used as a signal. If the signals are cards, you can organize them in post-office slots or on boards, which you also couldn’t do with bins. And, of course, you can do much more with electronic signals, which does not necessarily mean you should.

Your description of Kanban omits the goal of keeping inventory as low as you can without causing shortages, and experimenting with the numbers of Kanbans in circulation to test where the limit is, which makes it a tool to drive improvement.

Kanbans work for items consumed in quantities that have small fluctuations around a mean, which means medium-volume/medium mix rather than low-volume/high mix. You use other methods for different demand patterns, like reorder point for bulk supplies, consignment for standard nuts, bolts and washers, or just-in-sequence for option-specific large items… In low-volume/high-mix production you have many items that you cannot afford to keep around and only order from your supplier when you have an order from your customer; it isn’t the way the Kanban system works.

You can do many things with ERP systems but, historically, they have been more effective in managing purchase orders with suppliers than in directing shop floor operations. If you have an ERP system with accurate, detailed data about your shop floor, you can, in principle apply any algorithm you want to produce a schedule. Most ERP systems, however, do not even have structures in their databases to model the behavior of production equipment at a sufficient level of detail, and are not capable of producing actionable schedules. They print recommendations, and the final decision on the work that is actually done is a judgement call by the supervisor, or even sometimes the operator. Within its range of applicability, the Kanban system avoids this with simple rules, by focusing on what is actually observable and controllable at the local level.

So, I suppose the answer to your question is that the Kanban system’s immediate purpose in daily operations  is to assure the availability of materials while reducing inventory, with the longer-term purpose of driving improvement. Pursuing either of these goals at the expense of the other would be easier but not helpful to the business.