How the Kanban Replenishment Process Works

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Timothy Elliott
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1 How the Kanban Replenishment Process Works

2 Table of Contents Introduction...1 Kanban Planning...3 Kanban Doing...6 Kanban Checking...10 Kanban Acting...12 Final Thoughts...13 About Falcon...14 B

3 Introduction Before you can you can reap the significant benefits of kanban, you must first experience the pains of implementing kanban. Since those who use kanban find it easy, kanban is often described as simple. That simplicity is deceptive, though. Consider the operation of a car. Driving is simple, but designing, building and professionally driving a race car is not. Similarly, kanban is a simple yet complex pull system that requires planning, designing, executing and improving. It is worth noting that the benefits of kanban are well worth the effort of implementation, but you have to be committed to starting off right. Fortunately, implementing kanban replenishment is far-easier than designing a race car. When kanban is implemented effectively and your processes are robust, efficient part replenishment will happen in a continuous cycle: parts are used, orders are triggered, new parts are delivered on time and then those parts are used. The loop only works, though, if all of the particulars of the system are in working order. You can ensure this with a Plan-Do-Check-Act (PDCA) cycle: Plan: Collect data and set the limits for your system. Calculate your kanban solution needs and prepare for the kanban card deployment. Do: Put the inventory replenishment plan in place. Consume parts, trigger orders, receive orders and bring them to the point of use. 1

4 Check: Verify that the system is, in fact, working. Count parts, assess lead times, review metrics for performance and validate data integrity. Act: Use the information gathered in audits to repair any kinks in the system. Correct inventory counts, offer training, fix mistakes and update data. In the pages that follow we ll examine each phase of the PDCA kanban cycle in more detail. 2

5 PLAN The first phase and most important phase in the PDCA cycle is plan. To be successful, you have to be proactive, not reactive. Kanban planning consists of three primary steps: Kanban Planning Step 1 - Construe Kanban Rules First, you must identify the parameters needed to calculate kanban solutions and the rules for determining which part numbers to include and how many kanban cards (or signals) to deploy with each part. The parameters, which are values you should ideally already have predetermined, include ABC Classification thresholds, target lead times, target safety stock, and anything else necessary for properly calculating kanban solutions. Kanban Planning Step 2 - Collect Part Data Once kanban rules have been agreed on, it is now time to gather the information that will make sure kanban works for you. This includes data like each part number s actual lead time, daily demand, minimum order quantity and standard package quantity. Although this is only step 2 in the kanban planning process, the collection of these details should actually be started as soon as possible. Data collection takes the most time and effort when initiating a new kanban system, but must be completed before step 3. Keep in mind, that some of the parameters you ll need when construing rules may rely on the part data. This is often the case with ABC classification thresholds. It is completely normal and reasonable that you may find yourself making a few back-and-forth adjustments between the first two steps. For this reason, you are strongly encouraged to start data collection as early as possible in the planning process. 3

6 Kanban Planning Step 3 - Calculate Kanban Solutions Once part data has been collected it s time to calculate kanban solutions. Calculating kanban solutions is a considerable portion of kanban planning. Using all of the accurate data that has been collected, a powerful spreadsheet or kanban calculator is used to determine the necessary kanban solutions that will accommodate supply chain requirements. In order to retrieve valid solutions, two criteria order quantity and number of cards are needed. This information, which can be found using basic kanban formulas, is extremely important for your kanban process to be successful at keeping your inventory adequately stocked. Kanban Solution Calculation Step 1 - Categorize Inventory Items Classify each part based on whether it will be on kanban or another replenishment method that your company uses. Then, for each part that is a kanban item, assign the number of kanban signals (number of cards) the item will utilize. Kanban Solution Calculation Step 2 - Calculate the Perfect Solution Determine each item s ideal kanban solution that will serve as a target to be used in inventory planning and when negotiating with suppliers. Kanban Solution Calculation Step 3 - Calculate the Resized Kanban Solution For each item, if the ideal solution is not practical to implement then adjust the kanban solution as needed. 4

7 Kanban Solution Calculation Step 3 - Analyze Impact Estimate how kanban solutions will affect your inventory. This analysis can guide you on timing when making inventory reduction plans. To complete this step, assess your expectations of the following for each kanban part: The part's on-hand inventory The extent that the part's inventory can be reduced The results of the applicable kanban formulas: Empty-a-Bin (EaB) Formulas EaB KOQ, 2 cards = (Actual LT Daily demand + Target SS units)/ (2 cards - 1) EaB # cards for defined order quantity = [(Actual LT Daily Demand + Target SS units)/ KOQ] + 1 Break-a-Bin (BaB) Formulas BaB KOQ, 2 cards = (Actual LT Daily demand+ Target SS units)/ (2 cards) BaB # cards for defined order quantity = (Actual LT Daily demand + Target SS units)/ KOQ A Note on Resizing In order to ensure that your solutions are reflective of the actual conditions that your system is operating in, you must conduct resizing analyses regularly. Some manufacturers will only need to update their calculator parameters each quarter while others will do it each week. Either way, the process should be one that is fluid and allows for frequent smaller changes instead of intermittent massive changes. Notice, too, that sizing and resizing functions are basically the same. However, resizing calculations employ a slightly different logic than the initial sizing calculations do because they have to account for currently deployed solutions whereas the initial sizing does not. 5

8 DO With our Kanban plan in hand, it's now time to deploy our new kanban solutions. This should be done as soon as the calculated solutions have been determined. If you wait and production rolls on, the information that was used in the calculations will get stale and won't be a good reflection of current conditions. Order Cycle Each kanban part will cycle through stages of order in an infinite loop. An order is triggered, and then it is received. After the parts are stored, they will then be used. Once they are used, a new order will be triggered and so on. Order: After a kanban bin is broken (the first piece from it is used) or emptied (the last piece from it is used), a new order is triggered. It should be placed automatically because orders that require human approval create waste in the form of over-processing and waiting. Keep in mind that depending on your specific circumstances you may require the supplier to confirm your order. However, your goal is to have reliable suppliers and transmission methods so that this requirement, which is a source of more waste, can be eliminated. You should, however, instruct suppliers to alert you as soon as possible if any changes occur with an order s expected arrival date or the quantity that will arrive. Receive: Receiving ordered parts is a process that takes them from their arrival to their storage location. Upon delivery, the order is matched with its waiting kanban card, and the replenishment order is closed. Then, the parts are taken to their point of use or (less efficiently) to another storage area. 6

9 Stock: To be in line with lean principles, kanban is a visual system that works to reduce waste. Because of this, the most effective place to store your parts is at or near the work cell that will use them. If all parts are stocked in a centralized warehouse, there will be a visual disconnect between what you need and what you have. Not only that, but storing parts away from their point of use also increases transportation, which is a waste. Except for extenuating circumstances that prevent point-of-use storage, all parts should be within eyeshot of those who use them. Use: Orders that are made are directly determined by the number of items that are consumed. You will know it s time to reorder when you are signaled by some physical or observable means. For example, when signaled by BaB or EaB, a kanban card can be pulled from that part s storage location and placed on the kanban board. There are also ways to use visual replenishment where cards are not necessary to trigger an order. Items can be staged in such a way that it s clear when replenishment is necessary. For example, an item that is fully stocked will cover a mark that acts as a cue, such as a spot or a line. When the painted spot or line is visible, it s time to reorder. Another way to signal a replenishment is by positioning a container a certain way. For example, flipping a container over would signal a need for more of its contents. If you choose to use some visual replenishment systems, remember that they should also be managed and tracked just as closely as card solutions. Card Cycle Like the other parts of the kanban system, kanban cards revolve in a continuous loop. Perpetually revolving cycles are part of what makes kanban so efficient. The card cycle is part of the overall system rotation, but it is its own smaller cycle as well. Depending on where a card is in the card cycle, it will either be located with the parts at the point of use, submitted for an order but not yet processed or waiting on the kanban board for the parts that were ordered. The kanban board typically takes the form of a calendar with 31 spots for cards. This lets everyone have a tangible picture of expected order arrival dates. 7

10 The parts of the cycle are made up of the three locations where cards can live: With the Parts: Parts are stored either in a dedicated storage location or at their points of use. Whatever the storage location, they should also be accompanied by a card. The card should have a dedicated home while it is with parts. Sometimes the home is just inside the same bin with the parts. Other times, there might be a clear plastic sleeve for the card to be kept in at a specific location near the parts. In Processing: Once cards are used to trigger an order, they are destined for the kanban board. Before that, though, they might be left waiting to be processed. Since the kanban process strives for continuous progress, cards waiting to be processed are actually a waste. Ideally, the cards could be processed, or scanned, immediately and then placed on the board. Keep in mind, sometimes it is necessary to have a wait time so that the overall process can be efficient. If this is the case, designate an area (like a place on the kanban board) for cards that have yet to be scanned, and label it as such. The wait time should not last more than four hours. Keep in mind that the time and space between the card being signaled at the point of use and it being processed leave room for mistakes to happen. Any wait time must be accounted for so that delivery remains timely. On the Board: Once the cards have been scanned, they are sent to the kanban board. Here, they wait for the order that they triggered to arrive. The board is usually similar to a calendar, and the card is hung on a peg that corresponds to the date of its expected arrival. When the order is delivered, that kanban card goes with it to its storage location, and the process repeats. 8

11 The Kanban Board It s typical for the kanban board to be made up of 31 pegs - enough to have one for each day in a calendar month. It s designed this way to make it easy to get an overall picture of the deliveries for the next 31 days. Once orders are processed, an associate can determine the date that it s expected to arrive by simply adding the lead time to the date of the order. The arrival date should account for holidays and weekends that might delay the lead time. Kanban boards also should be marked as such. If the arrival date is estimated to be more than 31 days, the card waits on a side peg until that board is ready for it. The side peg should be labeled to indicate that it belongs with next month s deliveries. Labeling, training and standard written instructions are all vitally necessary for a kanban board to work as it should. 9

12 CHECK Kanban, when practiced correctly, is a powerful tool that can help several processes in a manufacturing setting. In order for it to be effective, though, the cycles within the system must be running smoothly. The best way to ensure this happens is by continuously monitoring and managing the sizing, ordering, card loops and storage situation. In time, delivery times and quantities will be under control, and on-hand inventory will be balanced. Remember the mantra "that which you track improves". Continuous improvement is only possible if you're actively looking for problems. In fact, disciplined auditing regimen is just as crucial to maintaining a successful kanban solution as planning. By frequently paying due attention to the various parts of the kanban process, you will be able to catch problems while they are small. To be deliberate in how you check up on your processes, it s a good idea to have a written guide or checklist for auditing as part of your kanban system. It is also strongly recommended that a standard work is developed for how kanban is both implemented and audited. While there is no one-size-fits-all kanban auditing protocol below are a few recommendations: When Checking Cards and Boards Be sure that cards are either with parts or waiting for an order. Ensure accuracy of the boards, and make sure they are current. 10

13 When Checking Stock-outs Perform a Root Cause Analysis to determine why it happened because it is a system failure. Monitor inventory levels continuously until stock-outs are no longer happening. When Checking Kanban Data Verify that your data from resizing is still valid since these errors can burden you with stock-outs or too much inventory. Confirm that deliveries are arriving on time and that the product meets your quality expectations. Reassess the ABC class of items regularly. Evaluate the daily demand, and compare that to target lead times and target safety stock. When Checking Inventory Performance Survey how well the inventory reduction plan is being implemented by following the progress of daily inventory on hand, turns and overall reduction. Review your goals and timeline to ensure you re on track. Make sure that all solutions are being executed as they were designed. 11

14 ACT When audits and observations reveal a problem or change in the process, you must act promptly to correct them. The kanban system relies on your data being correct and up to date. The Plan for Every Part (PFEP) is full of information that may be altered over time. It is imperative that you are proactive about maintaining it for all items, even the smallest class-c parts. Acting on a problem is more than just correcting that problem. It requires fixing the source of the problem. When mistakes occur that are the fault of an employee, you need to determine what the employee is missing. Is it aptitude or attitude? Since kanban is too important to be destroyed by careless and neglectful attitudes, undisciplined employees should be dismissed. However, employees who genuinely don t understand should be trained and refreshed until the process is understood. As the program matures, mistakes will happen less often. If evaluations reveal that a supplier issue is disturbing the kanban process, you can act by contacting the supplier. Sometimes a problem on their end will be temporary, and you may need to negotiate a new schedule or different quantities for the time being. It s up to you to ensure your contracts result in a balanced inventory. 12

15 Final Thoughts Kanban is a vital tool for establishing lean inventory management and facilitating material flow. Kanban relies on timing triggers for reliable replenishment. This guide has covered the essential overview of how the kanban process works. We hope you find this guide informative and useful. The Falcon team welcomes any feedback or questions you may have about the information in this guide or anything else to do with best practices in regards to supply chain management, inventory optimization, material flow, kanban implementation, or lean manufacturing methods. In the event that you are considering kanban implementation and find yourself concerned with the complexity or nuances of your specific situation, don't allow yourself to become overwhelmed. Remember, in addition to the thousands of kanban experts around the world, Falcon is here to help. The good news is that a qualified kanban expert will expedite successful kanban implementation and ease some of the early pain. Furthermore, you will only need your kanban specialist in the beginning, not forever. Whether you have feedback, questions, or are seeking assistance with implementing kanban or any other inventory solution, you can reach us by calling and asking to speak with a Strategic Coordinator. 13

16 About Falcon Falcon Fastening Solutions is a full-service provider of lean, data-driven inventory and supply chain solutions for fasteners and other class C production components. Our cross-disciplinary team of engineers, six-sigma experts, lean specialists, and inventory technicians enables us to contractually guarantee to all clients continuous cost savings from day one. THE FALCON TEAM HELPS MANUFACTURERS AROUND THE WORLD TO: Slash time purchasing class C production components and spend more time on high value activities. Eliminate the stress in validating fastening/joining methods. Spend more time designing products. Reduce inventory levels and supplier count through lean supply solutions. Lean-out production, increase cash flow and boost profitability. Discover more about Falcon Fastening Solutions by visiting FalconFastening.com or speaking with a Strategic Coordinator by calling THE FALCON PROMISE: GUARANTEED CLIENT SAVINGS Our promise is Guaranteed Uptime and Client Savings. We fulfill this promise by taking ownership of all tasks related to the management of inventory known as Class C production components. We apply best practice, technology and experience inventory and supply chain management, while utilizing our relationships with key manufacturers in order to reduce each client s total cost of ownership without sacrificing their productivity. Our guarantee is a documented commitment that is reviewed and agreed upon by you prior to Falcon becoming your supplier. We review our documented performance to this commitment quarterly, and if the savings commitment is not reached, your company is issued an immediate credit for the difference. No questions asked. If our commitment is exceeded, you realize even greater savings. Our clients never incur lost productivity on items managed by Falcon. 14

BEC. Operations Special Interest Group (SIG)

BEC. Operations Special Interest Group (SIG) Operations Special Interest Group (SIG) Operations Special Interest Group (SIG) Purpose: The purpose of the SIG is to provide the opportunity for attendees to discuss their experience with the topic area