Pull Production & Kanban Implementation Throughout the Supply
- 1. 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
- 2. 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 2
- 3. 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. 3
- 4. 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. 4
- 5. 5 PUSH SYSTEMS PULL SYSTEMS Pull vs. Push Systems
- 6. 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. 6
- 7. Why? 7
- 8. 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. 8
- 9. 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 9
- 10. 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) 10
- 11. 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
- 12. 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? 12
- 13. Definition of Lead Time 13 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
- 14. 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. 14
- 15. 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? 15
- 16. 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. 16
- 17. 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. 17
- 18. The E-Kanban & Fax-ban Cycle 18 Item XYZ Quantity Supplier Blanket PO Suppliers Key Supplier Fax Machine
- 19. 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) 19
- 20. 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
- 21. 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 Days LT 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
- 22. How System Handles Variability? Kanban relies on “on-order” pipeline for safety stock. ROP keeps it on hand 22 Suppliers Plant Supplier Production Queue Transportation = On Hand Production Purchase Order ROPSS Supplier = On Order Rely on frequent pipeline delivery Rely on on-hand safety stock
- 23. What Happens When Demand Spikes ? # of Kanbans = D x L + SS SLS 23 • 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 W eek 1W eek 2W eek 3W eek 4W eek 5W eek 6W eek 7W eek 8W eek 9W eek 10W eek 11W eek 12W eek 13
- 24. 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 !!! 24
- 25. 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 25
- 26. 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 ??? 26
- 27. The Bullwhip Effect Customer Orders 0 10 20 30 40 50 60 0 2 4 6 8 10 12 14 16 18 20 Week OrderReceived(Units) Customer Demand Tier 1 Supplier Tier 2 Supplier 27 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
- 28. 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 28
- 29. 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 29
- 30. 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 ! 30
- 31. The Bullwhip Effect 31 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 OrderReceived(Units) Customer Demand Tier 1 Supplier Tier 2 Supplier
- 32. 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. 32 If lead times are short, lot sizes are small, and inventory levels low, then system can respond much faster to changes !!
- 33. 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 33
- 34. 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 34
- 35. 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 35
- 36. Questions ? 36