Pull Production & Kanban

Implementation Throughout the

Supply Chain

& How Kanban can help cure the bull-whip

effect

ICEN ARSIN

SSA GLOBAL COMBINED USER GROUP CONFERENCE – 2004

ROSEMONT, IL

Plant Logistics Lean Initiatives:

Dock to point-of use inventory management

Line-managed inventory at each assembly line

Team responsibility

Running each line as a business unit

5S program

Employee training

Visual kanban pull with internal suppliers (within plant)

E-kanban with external suppliers

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A Leap Foreword…

Each assembly line to hold its own line-managed inventory.

Purchased materials go directly from dock to point-of-use.

On-hand inventory clearly visible adjacent to line.

Production team responsible for keeping lines running. If the line runs out of parts, they themselves are the ones affected.

Cycle counting simplified, inventory accuracy improved. Fewer locations to check and count.

Kanban triggered pull (e-kanban, fax-ban etc.) Replenishment system with suppliers.

Visual pull system with in-plant upstream departments.

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What is Pull Production?

A pull production system is one where production, and shipping

are initiated by downstream customer demand.

A push system is one where parts are routed to downstream

operations by upstream suppliers based on a forecast or

schedule from a centralized planning and control system. A

department that completes a batch, sends it downstream,

regardless of demand.

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5

PUSH

SYSTEMS

PULL

SYSTEMS

Pull vs. Push Systems

What are the advantages of Pull ?

Proven time and time again that for a given supply chain, a well managed pull system will have less inventory than an equivalent push system.

Resources allocated only to what is needed and when it is needed.

Synchronizes system with actual demand rate.

Scheduling and forecasting functions eliminated or simplified.

Pull systems react rapidly to demand changes, including ceasing production when required.

Pull systems are by nature customer focused.

Pull systems effectively cap, and thus control inventory levels, and prevent them from rising out of control.

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Why?

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What is Kanban?

Tool used to achieve JIT production

The kanban system is an information system that controls the right

parts in the right quantities within the right time

Controlled batch technique

Lot-for-lot reordering

Reorder one lot for every one lot consumed

Critical subsystem of Toyota production system

Translation: “signal”

Different types of kanbans

Multiple card

Electronic signal

Two-bin

Reusable containers, etc.

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Pull System & Kanban Principles

No production before a kanban trigger

No producing to forecast

Standard pre-defined lot sizes

Orders processed FIFO

When demand increases: add Kanbans, don’t change lot

sizes

When demand decreases: take out Kanbans don’t change

lot sizes

Quality parts. Eliminate waste in system

Reduce / eliminate dependence on inspections

Partnership with key suppliers

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Kanban Calculation

Number of Kanbans in system = D x L + SS

SLS

D = Demand rate for part, (parts/day or parts/week)

L = Lead time to replenish (days or weeks)

SS = Safety stock

SLS = Standardized lot size for part (a.k.a. Kanban Quantity)

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Where Are the Kanbans ? 11

Suppliers

Plant Supplier

Receiving

No Inspection

Delivery to Line

Production Queue

Backlog

Set-up

Transportation

= Kanban

Example: 7 Kanban System

Production

Lead Time

Components of lead time

Administrative order processing time

Backlog

Set-up

Value added activities

Transportation

Which component historically is the smallest piece of lead

time?

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Definition of Lead Time13

Item XYZ

Quantity

Supplier

Blanket PO

Suppliers

Supplier

Receiving /

Inspection –

Delivery to Line

Line Managed

Inventory

Production Queue

Backlog

Produce Lot

Set-upTransportation

Lead Time = PO Creation/ Receipt + Backlog + Set-up + Production Time + Transportation + Receiving/Inspection

Determining Kanban Quantity

Standard container quantity

Must be a realistic quantity

Easy material handling & ergonomics

Single tote or single cart etc.

Reusable containers where possible

Unit load principle – single pallet, single box etc.

Take into consideration physical limits

Steel sheet size, coil length, etc.

Conducive to line-managed inventory

Typical order of magnitude: hours or days, at most a week. Never multiple weeks or months.

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Safety Stock

Inventory is a buffer against uncertainty.

Demand fluctuations

Equipment reliability & maintenance issues

Quality issues

Employee flexibility

Long setups

Unreliable delivery

Etc., Etc., Etc…

Which can we impact?

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Methods for Determining Safety

Stock Levels

Where historical data is available

Determine required service level (typically 95%)

Calculate standard deviation of demand ()

Safety stock to be 1.65 (or 95% confidence level.)

Use difference between average demand and average

peak demand. (Average of three highest periods.)

APICS coefficients method

SWAG, intuition etc.

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E - Kanban

Definition of electronic pull:

Utilizing a computer-generated signal to cover

large distances with visual inventory controls at

both ends of the signal. The visual inventory

controls are managed and moved by the

associates that handle the inventory.

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The E-Kanban & Fax-ban Cycle18

Item XYZ

Quantity

Supplier

Blanket PO

Suppliers

Key Supplier

Fax

Machine

Integration with Purchasing

Blanket POs or quotes

Fax-ban or kanban looks like and is a PO !

No major change in most cases

Each kanban will be a new PO off an existing quote

Can be sent by fax, e-mail, web etc.

Whichever works best for a particular case

Pre-arranged kanban lot sizes

Accurate labeling of part number and PO required by vendor

Reusable containers (where possible)

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When Lead Times are Too Long:20

Suppliers

Plant Supplier

Receiving /

Inspection –

Delivery to Line

Production Queue

Backlog

Set-up

Transportation

Warehouse /

DC

Replenishment

= Kanban

Example: 10 Kanban System

Production

•Supplier Lot Sizes Too Large

•Supplier Backlog Too Long

•Set-up Times Too Long

•Transportation Time Too Long

•Demand Too Erratic

Differences Between Min/Max,

ROP and Kanban 21

Inventory Cycle with Kanbans

8

10

12

14

16

18

20

0 1 2 3 4 5 6 7 8 9 10

Inventory Cycle with Min/Max or ROP

0

4

8

12

16

20

0 1 2 3 4 5 6 7 8 9 10

ROP

SS

LT

Days

DaysLT

KL

Min / Max or ROP:

• Large reorder quantity

• Time-lag between orders placed

• Infrequent replenishment

• Explicit safety stock kept

• Amount reordered independent of amount consumed

• Fluctuating inventory level

Kanban System:

• Small reorder quantities

• Continuous replenishment – frequent reordering

• Simultaneous overlapping open orders

• No explicit safety stock – built in to kanban lot size

• Lot-for-lot reordering – consume one kanban lot, order one kanban lot

• Smoother inventory levels

How System Handles

Variability?

Kanban relies on “on-order” pipeline for safety stock.

ROP keeps it on hand

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Suppliers

Plant

Supplier

Production Queue

Transportation

= On Hand

Production

Suppliers

Purchase Order

ROPSS

Supplier

= On Order

Rely on frequent pipeline deliveryRely on on-hand

safety stock

What Happens When Demand

Spikes ?

# of Kanbans = D x L + SS

SLS

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• Kanban systems rely on pipeline, whereas ROP systems rely on explicit safety stock to cover spikes.

• Kanban safety stock ties up less cash and takes up less space than ROP.

• Kanban may therefore be more vulnerable to shipment delays than ROP.

• Ability of any inventory management system to handle variability is dictated, by the size of safety stock planned.

• Kanban systems too can be designed to be “fat.” like Min/Max or ROP systems, and made to carry a lot of safety stock.

• If Safety Stock is heavy, kanbans will move slowly, a lot of inventory will be on-hand.

• Little or no improvement compared to Min/Max or ROP.

• No inventory management system can weather a storm larger than planned safety stock level.

Demand

0

5

10

15

20

25

30

Week

1

Week

2

Week

3

Week

4

Week

5

Week

6

Week

7

Week

8

Week

9

Week

10

Week

11

Week

12

Week

13

Myth About JIT

Suppliers must hold more inventory:

=> Only if your set-up times are long, lot sizes too large

and thus lead times are unacceptably long !!!

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What is in it for Our Suppliers ?

Lot-for-lot ordering

Better visibility

Level ordering & production

Participate in reduced list of suppliers

If we work together overall inventory levels in system (ours + yours) will go down !

Defense against the bullwhip effect

They too become world class and can become more marketable

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What is the Bullwhip Effect ?

Although customer demand is stable great fluctuations can be seen in upstream supply chain.

Term coined in an Harvard Business Review (HBR) article.

First identified by Procter & Gamble.

Consumption rate of Pampers diapers by babies was very very stable.

Yet, production and shipment schedules, and inventory levels fluctuated wildly up and down the supply chain. Constant expediting was the norm….

Why ???

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The Bullwhip Effect

Customer Orders

0

10

20

30

40

50

60

0 2 4 6 8 10 12 14 16 18 20

Week

Ord

er

Re

ce

ive

d (

Un

its

)

Customer Demand

Tier 1 Supplier

Tier 2 Supplier

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Customer Orders

Steady around 4 per

Week

Tier 1 Supplier:

5 Week Lead Time

Min. Lot Size = 40

Tier 2 Supplier:

8 Week Lead Time

Min. Lot Size = 50

What Causes the Bullwhip

Effect ?

Inefficiencies in the supply chain

Lack of visibility between supplier & consumer

Large lot sizes due to long set-ups

Safety stock requirements to cover delays, quality problems etc.

Lack of trust… “I better order some extra..” mentality

Long lead times

Volume purchasing, discounts, marketing campaigns

Lack of communication between supplier and customer

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What are the Results of the

Bullwhip Effect ?

Erratic, unpredictable demand

Poor capacity utilization

Scheduling nightmares

Having to run overtime

Excess inventory

Delays and constant expediting

Frustration and loss of trust between customers & suppliers – both ways

Overall inefficient supply chain and poor customer service

Loss of sales

Reduced profitability

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What Cures the Bullwhip Effect ?

Partnership between suppliers & customers

Visibility and communication throughout supply chain

Inventory positions

Demand and usage

Line rates and capacity

Upcoming marketing campaigns

Expected bids & projects

Short lead times

Small lot sizes

Lot-for-lot ordering

In short…

=> Small kanban lot sizes and frequent replenishment !

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The Bullwhip Effect

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Customer Orders

Steady around 4 per

Week

Tier 1 Supplier:

2 Week Lead Time

Min. Lot Size = 10

Tier 2 Supplier:

4 Week Lead Time

Min. Lot Size = 20

Bull-Whip Effect

0

10

20

30

40

50

60

0 2 4 6 8 10 12 14 16 18 20

Week

Ord

er R

eceiv

ed

(U

nit

s)

Customer Demand

Tier 1 Supplier

Tier 2 Supplier

How to Handle Demand Changes

with Kanban If demand increases:

Communicate new demand to

suppliers (internal & external)

Increase the number of kanbans in

system.

Try not to increase the kanban

quantity.

Don’t increase lot sizes if possible

Part of line rate increase process

completed in conjunction with

adding headcount & training (or

cross-training.)

It is OK to throw a few extra kanbans

into system temporarily to manage a

spike or special order.

If demand decreases:

Communicate new demand to

suppliers (internal & external)

Decrease the number of kanbans in

system.

Reducing lot sizes is an option !

Part of line rate ramp-down process

completed.

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If lead times are short, lot sizes are small, and inventory levels

low, then system can respond much faster to changes !!

What Must Suppliers Do ?

Also engage in lean manufacturing and continuous improvement efforts

6 Sigma quality

Total productive maintenance

Work on set-up reduction

Achieve lot size reduction

Reliable, consistent delivery

Complete order in single shipment – no partial shipments

Partner with customer and tier 2 suppliers for visibility and communication

Build trust up and down the supply chain

Improve quality, eliminate need for inspections, and returns

Accurate labeling of boxes with part numbers and PO numbers

=> Obtain Supplier Certification

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Lean Manufacturing Tools &

Metrics For Suppliers

% Of parts (by value) supplied on pull

Inventory turnover

Fill rate – ship to promise

Order entry to 1st ship and ship complete cycles (lead

time)

Quality / reject rates

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Conclusions:

Suppliers & customers must partner to make pull

systems and kanban happen

Overall supply chain improvements are to

everyone’s mutual benefit

We must all reduce lead times, set-up times and

lot sizes.

E-kanban / Fax-ban system is efficient and will not

have a negative impact on suppliers

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Questions ? 36