The biggest challenge to any organization, whether manufacturing or distribution, is the availability of the right material at the right place at the right time. Companies invest enormous amount of resources – technology, people and time – to accomplish this goal. Supply chain segmentation is the buzz word that is being commonly touted for planning and managing this inventory. Once you segment your supply chain whether it is by customers or suppliers or high runners you need a strategy to manage them. The Kanban system is one such technique that is often used very effectively within the supply chain.
Kanban is typically used for just-in-time production and replenishment. It is a visual signal that is used to initiate an action. Kanban was first introduced as a manual card-based system. Specifically, material handlers picked up and delivered Kanban cards (pieces of laminated cardstock affixed to the front of bins or other storage containers) between work cells and storage areas. These cards were either treated as a production signal to produce and deliver or replenishment signal to purchase and deliver.
Automation Drives Process Improvement
Electronic Kanban or eKanban technology converts a manual card-based system into a closed-loop Kanban system – a system that provides visibility into real-time order flows, shipments and receipt information.
An eKanban system may be a part of a company’s enterprise resource program (ERP), or the system may be part of a cloud-based application that automates the transfer of the Kanban demand signal, via bar code, to a supplier.
The underlying criteria for an eKanban signal should be actual consumption and not a plan. This is the primary reason, ERP driven Kanban doesn’t cut it in real world. Most of the ERPs tend to equate a P.O. to an eKanban signal where the underlying methodology to generate that P.O. is a forecast or planned demand.
Using eKanban digitizes the signaling process. This eliminates many of the errors that arise from faxing or emailing Kanban orders to suppliers. Moreover, eKanaban should be able to auto-adjust to the changes in downstream demand through the metrics computed.
eKanban Case Study
Take the case of a major medical device manufacturer that was using a manual card-based Kanban system. The system included 24 steps; it was complex, labor intensive and had several failure points and a high error rate. The material handler would often forget to fax the Kanban release to the supplier, or would neglect to update the supplier confirmation on the Kanban release sheet. Sometimes the material handler did not take the time to check that the date and quantity were correct on the Kanban card. The Kanban release sheet was not updated with the actual quantity and dock date thereby impacting KPI tracking and reporting on supplier performance.
In short, the system was not working. The company decided to move to an eKanban solution. The company explored several options and decided to employ Ultriva’s Collaborative Supply Portal (CSP) with integrated eKanban functionality.
Implementation of the eKanban solution enabled the company to greatly reduce the number of steps in their Kanban process. This resulted in process time being reduced by 92%. Moreover, the company realized significant productivity improvements on all core buyer and inventory control businesses processes. Within the first six months of implementing the automated system, inventory spend declined resulting in $1 million in savings. At the same time, the company was able to eliminate stock-outs.
These results are not unique to this manufacturer. Over the last 15 years Ultriva has seen similar improvements at 100’s of manufacturing facilities. The paradigm shift coming out of the eKanban implementations has dramatically improved service levels and cash flow.
For a more detailed account and to learn more about how automating your Kanban process can drive results, view the full medical device manufacturer case study.