Comment

1 October 2006

Kanban Can Cut Inventory

An electronic inventory reduction system helps manufacturers stay lean

By Ellen Fussell Policastro

Luvata, a manufacturer of stainless steel and copper products headquartered in London, faced two bottlenecks in its manufacturing process: knowing what to build and ensuring materials were on hand. The company established an electronic inventory control system, or e-kanban, to form a loop between its customer in Mexico and the actual production cell that makes the copper product. Within seconds of customers consuming product, the production cell manager now knows exactly what he needs to build and when to buy.

Kanban is a visual cue to manufacturers to replenish, said Tom Cutler, president and chief executive of TR Cutler, Inc., a manufacturing marketing firm in Fort Lauderdale, Fla. When a relationship begins between a manufacturer and a supplier, they define a service level agreement. This includes “items such as negotiated lead times, packaged quantities, order receipt confirmations, and advanced shipment notices,” which they need to spell out specifically. “An e-kanban system monitors to make sure each of these service level agreements is being met by the supplier in real time,” he said. “If they’re not, a series of alerts and notifications goes out to all parties. This gives everyone a chance to adjust their behavior to bring performance back in line in real time.”

E-kanban also makes all this real-time information available for historical analysis, Cutler said. It’s available over the internet 24 hours a day, so all parties can see trends in performance. Everyone is aware of late shipments, short shipments, and other supply chain performances, and “these visuals give everyone in the supply chain information about how to focus their energies.”

The old system at Luvata required personnel to send monthly Excel forecasts to the customer service representative, who entered it into the ERP system and re-entered data into the shop floor control system. Daily telephone calls changing order requirements meant the process had to start all over again, sabotaging efficiency in the manufacturing process.

The e-kanban system helps Scott Stringer, operations manager at Luvata’s Franklin, Ky., plant, link the customer’s demand with production efforts. The key is “trying to produce what they really need and streamlining the whole communication effort,” he said. Since it is Web-based, any computer that has access to the Internet can look at the e-kanban levels. So Stringer’s daily routine is, “get my cereal and bring up the Web site to see where the card levels are on the kanban. We’ll link up with customers via a third-party Web site kanban system. A large manufacturing firm will call the third-party company and say it wants the supply base delivered from kanban. Then the large manufacturer brings on one of its suppliers one by one,” he said.

The Luvata product (copper tube for condenser and evaporator coils) deals with microfins pressed inside a tube to increase turbulence and surface area for better heat transfer. “There’s a lot of effort and expense of capacity put in place to manufacture this tube,” Stringer said. That’s where the e-kanban helps. Copper prices three years ago were at 80 cents a pound; now they’re at $3 a pound, he said. With prices like that, “we need to bring inventory down and utilize capacity better.”

Firewall challenges

Firewalls can be a challenge in the e-kanban process, Stringer said, because manufacturers need a trusted port number with which to communicate. “Another challenge for us is we were going to our customers with this, and we had to combine benefits so they win too,” he said. “This brings down their inventory levels. It seemed with the old system “we would always be building the wrong part. The expediting going on was horrendous,” he said. If the customer was out of inventory, they’d call and request break down of the setup or overnight shipments.

The old process was to use SAP, an ERP system, which would try to generate a list of parts that were needed for the manufacturing plan. Customers would send a list, but they’d have to exactly execute the plan. So demand was constantly changing and elicited a round of e-mails. With the e-kanban system on the computer, “it linked our customer shop floor with our shop floor. We bypassed all the other management involved,” he said. “As they use a box of our parts on our shop floor, they go and scan the barcode, and that tells us through the Web site they used a box of these parts, so we build one box for them. That keeps happening 24/7.”

Anybody can use e-kanban, Stringer said, because you can plug in part numbers, give lead time and daily usage part information, and the system does the rest. “So basically it doesn’t care what it is, as long as it knows how much the supply pull or how much the tack time is,” Stringer said. It then calculates the number of cards in the system. “As long as each party is telling what’s being consumed, and the other party is telling what’s being built and shipped, we’ve linked that into our shop floor system, so that’s automated.”

The biggest advantage is “you make what’s already sold,” he said. “We don’t make anything to stock. When we receive a signal, that product is already sold. Our job is to make it as fast as possible and get to customers as fast as we can. Their advantage is they get what they need when they need it.”

Aerospace producer cuts parts

Pacific Scientific HTL (PacSci), a manufacturer of aerospace safety equipment and military defense hardware in Duarte, Calif., discovered managing the integrity of blanket purchase orders for all its suppliers and part numbers was an issue. In an e-kanban situation, blanket purchase orders are important because they minimize the flow of information between buyers and their suppliers, while maintaining the terms, conditions, and integrity of the business relationship between the two parties.

For every kanban release, it was important to make sure an open purchase order still existed, that there was enough remaining balance on the purchase order to cover this purchase, and when or if they had to issue a new blanket purchase order. After a year and a half of using the paper fax release system, it was clear it did not scale for the company’s 100-plus suppliers, more than 100 fax numbers, over 3,500 parts on kanban, and 2,000 signals sent each month. “What led us to decide to go to electronic-kanban was sheer frustration and the need to start managing instead of reacting,” said Cari Gintz, PacSci’s purchasing manager. Managers and buyers were “flying blind as to the health of manufacturing cells and kanbans,” she said.

With the old system, production associates would send duplicate fax releases when they weren’t sure if a fax went through or overdrive material by sending multiple manual signals in anticipation of demand. Sometimes fax releases went out on expired purchase orders or they got lost, so buyers were constantly making duplicates. Without a reality-based, expected-on-dock time and a way to track supplier performance, shipments often went out too soon or too late. Without receiving reports, quantity mismatches were frequent. 

The kanban system also means less inventory on hand said PacSci’s director of operations, Jim Malch. “We’re not bringing in material until we need it as compared to before with a hard PO that forces material to come in,” he said. “At the beginning of this year, there was an issue with a control test that needed to be completed. Had the POs been hard scheduled, the material would have shown up on a monthly basis. But we were waiting for approval, so we weren’t building, therefore we weren’t signaling, so we weren’t bringing in material.”

Pieces, parts, and bins

There are certain parts that work well with the kanban system and parts that don’t. “Piece parts, such as insulators, that are cut in the thousands are impractical to break down if we only use 100 per month,” said Joshua Venzuela, former materials control specialist at PacSci. “On the other hand, we focus more on the parts that have a slightly longer lead time or are more costly. For alternator shafts, the team will plan to build, say, 200 over the course of a year,” he said. “Previously, we would have bought all 200 pieces and stored them. And each shaft would probably cost $250 a piece. Today, we’ll still project we need 200, but since we need to do only five a week, there’s no sense in bringing in all 200, so you decrease the amount of capital.”

Two bins each represent a week’s supply of parts. As soon as one bin depletes, you have one on deck, and it’ll take a week for the other to replenish, so as soon as one is done, the other is filled. 

We signal a manufacturer for 10 pieces of this part due on the 26th of the month. He’ll either confirm or say he can only do seven of these 10 pieces or he can do 10 not on the 26th but the 28th.”

The nice thing about the Web portal is it is convenient, Venzuela said. “E-mail is our notification method. If everything is the way it has been signaled, there are no additional notifications. If they do change though, it lets you know the changes. If they don’t respond, it lets you know they haven’t responded.”

But the process isn’t infallible, Venzuela said. “The supplier may catch themselves short of a particular material. And because everything is so lean, one missing piece will halt an entire product line.”

“In theory, we shouldn’t even have a warehouse or stockroom. Everything should be point of use (where it’s needed, where it’s being built),” Venzuela said. “That poses an even greater advantage. We don’t need a place for it. It comes in and goes straight to the floor.”

About the author

Ellen Fussell Policastro is the assistant editor of InTech.  Her e-mail is efussellpolicastro@isa.org.