Apply Kanban to Eliminate Kanban!

For decades, production has relied on the old principle mass production invented by Henry Ford where parts are being produced in batches and pushed to the market hoping for a customer to buy. Things are based on forecasting and sales were too optimistic. This system disconnects the factory from the customer. The factory is producing only to a forecast. The production at the supplying (assembly) process also called customer process is being regulated by a schedule.

Pull is one of the lean principle. The production at the customer process is being regulated by the customer’s process withdrawals from the supplying process’s store, rather than by a schedule. A pull system begins with the customer, then backs up through production where the user goes to get-or pull-parts from supplier operations in just the amount needed, only when needed. This continue all the way back to raw material suppliers so that every segment of the business, from grower or miner to consumer, is tied together like links of a chain.

This may sound easy but hard to implement. Toyota made this only after establishing a production cell or one-piece flow, and after the whole operation is working to takt. 

Mistakenly, many companies inversely apply lean by trying to introduce a pull system in an environment where batches are being produced and no one-piece flow process at time. 

You aren't alone!

You can't use a pull system only with your customers without connecting it to your suppliers and throughout the value chain. You need to tell your supplier to deliver parts to you more frequently and on daily basis. Vendors may resist at first, but you have to explain to him that frequent deliveries mean minimum amount of holding inventory raw material, as well as the cost of carrying. The space needed to store all of these parts will be freed. The free space allow more business grow and future expand of business rather than being wastes in sluggish materials. The material movement cost will be reduced, and the amount of resources required to move material will be minimized. The finance team will no longer have to track the excess inventory. And once you get the supplier to deliver to you on daily basis, the risk of running out of stock of those parts is eliminated.

At Toyota, pull principle is the key to avoid over production waste. You want to deliver to customer what he wants, when he wants and in the amount he wants. You want to eliminate inventory but keep a little buffer to protect your customer. This buffer is based on customer demand not on an internal schedule or plan like what many companies are still doing.

Think of a pull concept like a supermarket. The supermarket has a warehouse. This warehouse is the shelves. The supermarket stock items on shelves based on the customer demand experience and keep a little stock for future demand. When customer take something from the shelf, it will be replenished. A market attendance should come regularly and check what has been taken and replenish the items. A pull system mean the company is tied to customer. The company is no longer producing based on schedules and plans that in many cases based on machines capacity.

When a company produce based on its capacity, what will happen if the production capacity is higher than the sales capacity? The purchase department will stock raw materials from suppliers to cover the production needs. The company is now buying raw materials that they don’t need, spend resources to transform these raw materials into finished goods, and through the finished goods out in the warehouses hoping for a customer to buy. The company will find itself stuck with unsold inventory. This is the ideal case in the mass productivity environments. Conversely, this chain should be connected to the customer and tied together through a replenishment system using pull cards, also called a Kanban.

What is Kanban and how it works?

Kanban is a Japanese word for sign or signboard. Kanban card is literately a card that contains information part’s name, part’s number, consuming process…etc.

Kanban works between the assembly process and the customer, between the assembly process and the supplier process, and between the supplier process and the vendor. So when the customer process (assembly process) receives some form of production instruction, the material handler serving this assembly process regularly goes to the up-stream store and withdraw parts that the assembly process needs in order to fulfill the production instructions, the supplier process then produce to replenish what was withdraw from the supplier store.

It starts from the assembly lines, so when the line has consumed raw materials and need more, this is signaled through the Kanban system so new parts are delivered to replenish the consumed items.

As Liker explained in Toyota Way, Toyota production system is based on zero inventory, but since there are natural breaks in flow from transforming raw materials into finished products delivered to customers, you have to build in some necessary inventory. When pure flow is not possible because processes are too far a part or cycle times to perform the operations vary a great deal, the next best choice is often Toyota kanban system.

When an assembly line operator begins to use parts from a container (parts needed for the assembly like bolts, nuts…etc.), assume there is two containers worth of parts, they take out a Kanban card and put it in a mail box. A material handler will come on a time route and pick up the card with the empty container and go back to the store to replenish what is used on the assembly line. When parts are withdrawn from the parts store shelves, they must be replenished by sending a Kanban card and the empty containers back to a production cell where parts are produced and sent to re fill the parts store shelves. In this system the market attendance should come regularly to the parts supplier store and replenish what has been taken.

Kanban is an organized system of inventory buffers, and according to Ohno, inventory is a waste. So Kanban is something to strive to get rid of! 

Kanban in healthcare industry

In hospitals, Kanban has been used to manage medical supplies, commonly dispensed drugs, office supplies, linen and other commodities. Kanban started to appear in healthcare in the late 1980s through the development of a two-bin system for medical supplies. When one compartment is empty, the nurses use the second (or backup compartment), and identify that a bin has been emptied. Material handlers normally conduct rounds of the nursing units to be replenished according to a fixed schedule. Material handlers can simply scan the Kanban cards and transfer the requests to the material management's information system. For items stored in the central warehouse, a pick list is generated from the material management's information system. For direct purchases (items sourced externally), a requisition is transmitted to suppliers. Finally, material handlers deliver medical supplies directly into the empty bins, thereby ensuring stock rotation in each unit.

When it is very difficult to reach the ideal state of one-piece flow, it is good to create small stores of parts between operations to control inventory.

Kanban is a production regulation tool and it is a good method to connect the chain of production to the customer instead of a schedule.

In many businesses, when try to implement kanban, a lot of problems appear. This has created a mystery that Kanban initiate problems. Kanban only reveals problems and don’t create any.

It is a highly advised to implement Kanban slowly and not to implement it immediately throughout the plant. When a failure occurs, the resistant would be huge with a large implementation and failure can be out of control.

Remember the main purpose is to eliminate Kanban not to implement Kanban (Mike Rother). Toyota itself is shame of those kanban. Toyota production system is a pull system not a Kanban system! Kanban is just a step for continuous improvement. As you move closer to one piece flow of product and tight your process to customer, you will be able to reduce and eliminate the buffer. However, in safety, health and critical situations its still OK to use some buffer in case of emergencies and to protect your customer.

Getting the system to work

Here are some guidelines for implementing a Kanban system (I recommend Making Materials Flow by Lean Enterprise Institute as a good source for this subject):

• You will need to develop a purchased parts market for every purchased part in the facility.
• You can start with a market for specific product family or a cell, then expand the market to cover all parts used in the plant.
• The location of the purchased parts store should be located as near as possible to the receiving dock this is to allow the material handler to directly move the materials from the truck to the purchased market. In Toyota and other companies that operate with ultra-low production volumes and small number of parts per product, materials go directly from the dock to the value creating cells in one step.
• To determine the amount of parts to hold in the purchased market, you need to calculate the maximum amount of each part number required in the market to support normal operations by the cells. This mean you should determine the average daily usage of each part number to be stored in the market, and multiply this by the current receiving shipment size of each number (in days of usage). Then add the necessary buffer (in days of usage) for each part number. This information allows you to calculate the maximum inventory level for each part. For example, if we have a daily usage of specific part as 50 pieces, the shipment size in days is 5, and we need to preserve a buffer of 20 pieces, the maximum inventory should be 270 pieces.
  
• If you can get your supplier to deliver more frequently you can reduce the maximum inventory hold.
• You have to find an easy method to operate the purchased parts market to load and unload parts easily. Most of purchased parts market I have seen are using flow racks as a storage media to hold parts.
• Determine the minimum inventory levels and the re order point. Put in a procedure to act when parts reach the minimum inventory level. The minimum inventory level usually depends on the transportation time (with few transportation interruptions considered which you should always work to eliminate and improve).
• There are many methods to convey parts from the purchased market to the point of use (eg. production facility). Either use tugger, walking, or forklifts. Tugger is the best method when the purchased parts market is quite far from the production cells. Walking is the best method when the purchased market is close to the production facility. Forklifts should be avoided whenever possible as they are expensive, not easy to maintain, and can cause safety problems.
  
  When designing the delivery routes (the routes in which parts are being transported from the market to the cell) you should consider a smart design so the material handler (who deliver parts from the purchased market to the cell) won’t disturb the cell operator. Equally important, the operators should never need to leave their work positions to get parts or dispose of empty containers.

• You have to decide the delivery frequency of the parts from the market to the point of use at the cell. Delivering every one-hour mean just one-hour worth of material is being delivered. There should be 2 hrs. worth of material plus the buffer at the point of use. If the material handler has a delivery problem and delayed for up to two hours, the cell operator will still be able to continue production using the buffer.

Increasing the delivery time mean less inventory will be in the system and more response to the changes in the production requirements. This is good. However, frequent deliveries always come with costs. You have to reach a compromise and the best practice. 

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What about you, have you tried to implement Kanban in your organization? What were the problems & obstacles? Have you tried to improve the buffer after using Kanban by improving your process and working with your suppliers? Or you decided to live with this amount of buffer forever?!

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