Tag: kanban

The Future of the Organization is On Your Shoulders

Imagine this: You’re in a high-level planning meeting with senior leadership, when the CEO and CFO issue a clear mandate: Get inventory levels under control. The VP of Sales, never being one to hold back an opinion, steps in to argue that the organization needs to become more competitive if it’s to survive. Right now, your promised lead times are the longest in the industry – even longer considering how often your promised delivery dates are not met. Lowering inventory levels will only make things worse!

The VP of Sales claims that, if service levels don’t improve, sales’ only recourse is going to be to offer deeper discounts even though margins are already paper thin. The CFO and the CEO declare, in no uncertain terms, that playing the pricing game is not an option.

The meeting ended with everyone looking at you, clearly expecting you to come up with a way to lower inventory levels, decrease lead times and improve on-time deliveries. Basically, the future of the organization is riding on your shoulders. No problem, right?

Right!

eKanban Saves the Day

Since senior leadership expects you to be Batman or Wonder Woman, it’s a good thing you’ve got a utility belt called Demand-Driven Manufacturing. On this belt are a number of utilities that can help manufacturers achieve what may seem like impossible (and conflicting) goals.

In today’s post, I want to focus on one of the easiest utilities to master: eKanban. Since eKanban also targets one of manufacturing’s biggest issues (excess inventory), this is where many manufacturing superheroes begin. (There are some other rather nifty tools on this utility belt, like constraints management, but it makes sense for a lot of manufacturing managers to tackle improvements in stages.)

As most manufacturers already know, Kanban is the visual inventory replenishment system that is fundamental to pull (demand-driven) manufacturing. When production is pulled through the factory based on actual orders, inventory levels go down because no more than is needed is produced.

eKanban is a more powerful version of Kanban as the visual signals are electronic instead of physical cards. Electronic signals can be sent upstream faster, and there are no cards to lose. It’s also easier to learn to use an eKanban system because there are typically fewer steps involved. One manufacturer we worked with reduced the number of steps in their replenishment process from 66 down to 6 by replacing their manual Kanban system with SyncKanban eKanban software from Synchrono^®.

SyncKanban further magnifies the benefit of eKanban by making the system even more responsive to actual demand. Whereas many eKanban systems still require the operator to set the number of Kanban signals in the system, SyncKanban automatically recalculates the optimal number of signals based on actual demand. If there are more orders than anticipated, the number of eKanban signals in the system goes up in real-time. If there are fewer orders, the number of eKanban signals goes down, ensuring no more is produced than is necessary to fill orders.

eKanban: Your Multi-Purpose Utility

While you’re delivering a big Kapow! to excess inventory, don’t be afraid to tackle other key performance metrics at the same time. eKanban can also help here because eKanban signals pull production through the facility based on actual orders. When work center C needs more of a subassembly built at work center B, a signal is sent for replenishment to workstation B. With work at every work center focused on only what is needed, queue times decrease and flow increases. On time deliveries often increase as well with SyncKanban because of the application’s ability to match flow to demand in real time.

One manufacturer was able to reduce inventory by 55% while also reducing leads times from 12 weeks to 2. Read the full story. Another manufacturer’s implementation of SyncKanban landed them on Supply and Demand Chain Executive’s 2017 list of 100 great supply chain projects. Learn more.

Be a Superhero in a Hurry

Clark Kent changed into Superman with a quick hop into a phone booth. If only it were that easy! Not only are phone booths in short supply these days, production management is a bit more complicated than donning a red and blue onesie and a cape.

Nevertheless, SyncKanban eKanban software is one of the easiest tools to implement, and many of our customers start seeing the positive impact of eKanban on inventory levels in less than 90 days. eKanban doesn’t even require the manufacturer to replace their ERP system. You can learn more about this in our paper The Changing Role of ERP in Manufacturing.

We have a ton of material about implementing eKanban on our website. One of the most popular is the white paper series on eKanban that starts with Gaining Control: Exploring Push v Pull. If you’re already convinced eKanban is the right tool to use and it’s just a matter of how to get started, you’ll enjoy the series of guests posts from one of our customers that starts with Real-World Advice for Getting Started on eKanban. You can also watch a demo of SyncKanban or request a free trial version on our website so you can explore the tool first hand.

March 5, 2018
How the Internet of Things Can Help You Lower Inventory Levels
McKinsey Global Institute predicts the Industrial Internet of Things (IIoT) will have an economic impact of up to $11 billion by 2025. As much as $3.7 billion of that is expected to come from manufacturing improvements in things like operations management and predictive maintenance.

The word seems to have gotten out. In a 2016 study conducted by Morgan Stanley and Automation World, 70% of respondents said it was important for their company to adopt an IoT strategy within the next five years. In fact, Morgan Stanley expects IIoT-related CapEx spending to increase from approximately 8% to 185 over the next five years.

Predictions like these leave many manufacturers with questions such as: How can the IIoT help my business? How can we get our share of that $3.7 billion pie? If I’m going to increase my CapEx spending on the IIoT, where should I focus those dollars? And, what kind of ROI can I expect?

In a series of posts, we’re going to focus on IIoT projects that meet several criteria:
- They don’t require a major overhaul of processes or retooling the factory floor.
- Capital outlay is often minimal.
- They support key manufacturing philosophies like Lean, Theory of Constraints, and Six Sigma.
- The ROI is real and measurable.
- They can be executed relatively quickly, often providing an ROI in less than two months.
The High Cost of Excess Inventory

Lowering costs will probably always be a top goal for manufacturers, so we’re going to begin our series by tackling this challenge. One of the best (but not always the easiest) ways to lower costs is to lower inventory levels. Here’s a quick way to see how much your excess inventory is costing you:

The commonly accepted carrying cost for inventory is around 20%. (Different industries might have a higher percentage, such as when the inventory requires special handling or is perishable.) If a manufacturer has an annual inventory value of $1 million, lowering that by 10% could save $20,000. If the manufacturer has $100 million in inventory, a 10% reduction in inventory levels could save $2 million. ($100,000,000 * .10 * .20 = $2,000,000)

There are more complicated ways to calculate the cost of excess inventory. Go ahead and use them if you are comfortable with the math, but this simple calculation works well for most accountants. Regardless of which method you use, the bottom line is always this: Excess inventory is costly!

But how much of my current inventory is “excess”?

That question encapsulates the challenge for manufacturing. Manufacturers often feel they need to keep a certain number of weeks’ supply on hand to meet lead times and deal with variability. That may be warranted in some cases, but when we talk to manufacturers about lowering costs, we find that many over-apply this principle by treating all inventory the same way and overestimating how much they actually need to keep on hand to meet service levels.

Implementing a pull strategy for manufacturing, where inventory replenishment signals are based on consumption, can lower both raw material and WIP inventory levels throughout the enterprise

Related Resource: White Paper – Gaining Control: Exploring Push v. Pull Manufacturing

A common way to implement pull-based replenishment signals is to implement Kanban. But, there are a couple of inherent challenges to implementing Kanban manually. The first is that manual Kanban requires workers to do certain things, such as to manage physical Kanban cards which are prone to error or getting lost. The second challenge to manual Kanban is in determining container sizes. How large should they be, and how many should you use?

eKanban is the IIoT in action

eKanban can resolve both of those challenges. The signals are electronic, so there isn’t a card that can get lost, damaged, sent to the wrong place, etc. Applications like SyncKanban (the Snynchrono eKanban solution) also responds instantly to changes in demand, resizing containers and adjusting K-loops.

A K-Loop (Kanban-Loop) is the number of Kanban Cards in the replenishment and usage cycle of an item. The K-Loop is created as a closed loop of activity between all involved in the use and supply of materials.

eKanban is the IIoT in action, using technology to connect people, data and processes for improved operational performance. But, at the beginning of this post, I promised to focus only on IIoT projects where the ROI is real and measurable. That demands an example:

Dynisco is a leading manufacturer of materials-testing and extrusion-control instruments, and they take continuous improvement seriously. They implemented a manual Kanban system in several factories but found it was too prone to disruption to help them achieve their goal of a 30% reduction in inventory levels. After replacing the manual system with eKanban software across four factories, they achieved inventory reductions of 51%, 55%, 43% and 29%. The factory that reduced inventory by 55% also reduced lead times from 12 weeks to 2. Read the full case study.

If you’re ready to reduce inventory levels in your organization, you can schedule a demo of eKanban here or reach out to speak to one of our representatives at info@synchrono.com.

Related Resources:

White Paper: Going eKanban: Moving from a manual to an eKanban system

Brochure: SyncKanban

Guest Blog: Real-World Advice for Getting Started on eKanban
January 29, 2018
It’s Time to Revisit Vendor Managed Inventory

A few decades ago, Vendor Managed Inventory (VMI) was a hot topic. Many manufacturers saw it as a way to reduce inventory levels and costs. If they could get their suppliers to maintain ownership of raw materials or subcontracted components until consumed, inventory levels would naturally drop—on paper anyway. Because they were giving most, or all of their business to one supplier, they were also in a position to negotiate better terms. For the supplier, VMI was a win, too, because it allowed them to lock in the manufacturer’s business.

But VMI came with inherent risks to both the manufacturer and the supplier. On the supplier’s side of the equation, the risk lay in the manufacturer’s ability to forecast demand. Unless the contract between manufacturer and supplier had some sort of “shared responsibility” clause, the manufacturer had no incentive to minimize actual inventory levels. Safety stock and reorder point levels could be set high, with minimal risk. And if the forecast was overstated, the manufacturer didn’t need to worry about excess vendor-managed raw material or contracted-components inventory.

From the manufacturer’s point of view, the risk lay primarily in the reliability of the supplier. If the supplier didn’t hold up their end of the bargain or a shipment had material defects, the manufacturer risked a material shortage and significant production delays. While these problems could occur with any supplier, one of the visions of VMI was to reduce the headaches that come from managing supplier issues.

As a result, many manufacturers limited their use of VMI to Class C items that were relatively inexpensive and easily sourced. That way, high safety stock levels didn’t impact their balance sheet much, and supplier reliability issues had a minimal impact on production schedules.

Demand-Driven Manufacturing Technology Makes VMI Easier

The technologies our customers use to manage their internal Demand-Driven Manufacturing initiatives have the added benefit of making VMI feasible once again. Electronic Kanban (eKanban) software is a classic example.

Most readers of this blog are probably familiar with Kanban. They are the automated replenishment signals that are so vital to Lean and Demand-Driven Manufacturing environments. Kanban comes in multiple flavors such as the manufacturing Kanban that signals the need for internal replenishment of materials; the supplier Kanban that initiates replenishment from external suppliers or outsourced manufacturers; and a customer Kanban signals from the customer to the manufacturer for finished goods or replacement parts. Often tugger routes are introduced into the process to deliver materials as needed (regularly or on demand pull) from the warehouse to point of use.

The eKanban system enables real-time, electronic signaling. As materials are received into inventory, they are scanned into the system – and, they are scanned again when consumed. Upon consumption of a Kanban, a signal is sent to a supplier or contract manufacturer, bypassing the standard procurement process and shortening cycle times.

Demand-Driven Manufacturing Reduces the Risk of VMI

OK, so eKanban can make VMI more functionally feasible and efficient than it was twenty years ago, but what about the risks inherent in VMI?

That’s where Demand-Driven Manufacturing comes in.

Technically, implementing Kanban replenishment signals doesn’t automatically qualify your approach as Demand-Driven Manufacturing. You could be in a traditional manufacturing environment using reorder point planning (ROP) to trigger replenishment. For example, your bin sizes are based on ROP calculations that have little to do with actual demand. Since the signal comes from downstream consumption, some would consider this to be pull manufacturing, but it is not in the same way that Lean or Demand Driven environments consider “pull”. Pull is getting close to the actual demand signal; the more inflated the bin sizes, the further the process is from pull – and the larger the bullwhip the process will create.

In true pull-based or Demand-Driven Manufacturing, replenishment is based on actual demand or consumption. (And some buffer stock which we talked about here.) Projected and actual demand, demand variability, and supplier reliability are monitored and inventory is right-sized to meet these specific attributes of the item. The allows Demand-Driven manufacturers to continually adjust their Kanban Loop sizes so they are always in alignment with demand, supply expectations and actuals. As variability is removed and lead-times are reduced, the Kanban Loop adjusts to become one step closer to demand.

Demand-Driven Manufacturing makes VMI far more attractive for your suppliers. They understand that the signals they receive for replenishment aren’t based on some pie-in-the-sky forecast that will leave them sitting on tons of materials in the supply chain that they will eventually have to write off. And, it puts you in a better position to negotiate the kinds of service levels agreements (SLAs) you need to reduce the risks associated with supplier variability.

If you’d like to learn more about eKanban, here are a few additional resources:

White Paper: Gaining Control: Exploring Push vs. Pull Manufacturing

Article: Moving From a Manual to an eKanban System

Case Study: Continuous Improvement Immersion Plus the Right Tools Proves Profitable for Dynisco

January 8, 2018
Guest Blog: Real-world Advice for Getting Started on eKanban
by Jim Shore

Through this guest blog series, I’d like to share some of my experiences implementing supplier quality and Lean manufacturing initiatives by focusing on eKanban systems. This first entry offers advice for planning an eKanban rollout – suggestions that can also be applied across any Lean manufacturing project.

As a result, my hope is that you, too, will experience successful Lean results.

Leadership matters

My training as a U.S. Marine gave me many skills I carried over into civilian life and into my work as a Lean practitioner. First, I gained deep respect for strong leadership; and second, I’ve come to value a pragmatic approach to project execution.

Successful projects start with buy-in from the top and an eKanban initiative is no exception. At a minimum, recruit an executive sponsor to serve as the project spokesperson – someone who will fully support and clearly communicate with all stakeholders the rationale for the project. I know it sounds simple. Even though the benefits to the business are real (e.g., reduced inventory waste and carrying costs and more) asking people to change the way they work is also real. Let your leaders know project success is accelerated through gaining universal buy-in. (If you think about it, this is also a waste-reducing, Lean strategy!)

The reality is that sometimes change is welcomed and other times you may meet resistance. Efficiency programs, whether Lean, Six Sigma or Theory of Constraints (ToC), require that teams understand the impact change can have on an environment. Change management strategies stress over-communication of:
1. What the organization intends to accomplish;
2. Why the organization is undergoing the change;
3. What the change means to each individual;
4. How success will be measured;
5. How accountability will be measured.
From the plant floor to senior management, buy-in starts with a clear rationale and explanation of how the new eKanban process or Lean methodology will add value. Leaders must effectively engage all levels of the team; explaining how the new process is great for them, the company, the customer and suppliers (for those using supplier Kanbans). The last two bullets are extremely important. Ensure it is clear how success will be defined and how everyone will be held accountable for achieving it. In my experience, the best method is tying the annual bonus to the success of the project.

Overcoming barriers to create lasting change vs. “initiative-of-the-month” change

While rare, resistance can manifest as blatant sabotage of the new Lean initiative. More likely, resisters will remain quiet and hope the advocates of the new method will lose enthusiasm and the execution of the Lean project will fade, reverting to the status quo. To reverse this, make them part of the solution.

On an eKanban project I led for a materials testing and extrusion-control instrumentation manufacturer, the rollout of the new software involved multiple sites. Corporate leadership sponsored and evangelized the project, but we still needed buy-in at the local plant level. By involving outspoken resisters in the process, we ended up gaining some real advocates – it also helped that we were able to reduce the replenishment process from 66 to just 6 simple steps.

It goes without saying that for this – and any eKanban project – you achieve success through consistent communication and universal team buy-in. Depending on where your replenishment occurs, this principle extends beyond the four walls of an individual plant or enterprise, to your suppliers. (I’ll provide advice for engaging suppliers in the next post.)

As part of their advocacy for the eKanban initiative – or any modern demand-driven supply chain project – leaders need to distinguish the project as a serious, ongoing operating process, not an initiative of the month.

Drive the planning process with bottom-line facts

A significant part of the planning process is business justification. Automating replenishment with an eKanban system provides some highly quantifiable returns.

There is a real cost of carrying inventory and eliminating this cost frees up accessible cash that can be reinvested into the company. Consider the following:
- The cost of just carrying inventory at a component level adds 10% to the valuation of the actual part – and that valuation increases by 10% for every month the material is not transformed into sellable goods.
- On average, the cost of carrying finished goods is approximately 20% of its cost.
For manufacturers managing materials with expirations, these costs can be compounded through scrap.

These are just some examples of costs I help clients quantify as part of their business case for investing in an eKanban solution. Examine how these cost savings could impact your business. You can see how real-time inventory replenishment with an eKanban system can pay for itself fairly quickly.

In the next post, I’ll cover some best practices for eKanban implementations utilizing Kaizen events and value stream mapping.

Related resources:

Article: Going eKanban – Moving from a Manual to an eKanban system

Case Study: Continuous Improvement Immersion + the Right Tools Proves Profitable for Dynisco

White Paper: Common Barriers to Moving from Push to Pull Manufacturing

Jim Shore is the Principal of Quality Lean Solutions, a Consultant Firm that specializes in Medical Device companies, Supplier Quality and Lean Manufacturing principles. Mr. Shore is co-author of “Proactive Supplier Management in the Medical Device Industry” (2016: Quality Press). Jim has 25 years of quality and supplier management experience in medical devices, semiconductor, aerospace and defense for firms and organizations including Titan Medical, Nypro Healthcare, Boston Scientific, Aspect Medical, Brooks Automation, Raytheon and ACMI Gyrus (now Olympus). He is Six Sigma Black Belt and Quality Manager/Operations Excellence-certified by the American Society for Quality (ASQ), as well as an ASQ-certified Quality Auditor and Mechanical Inspector. A veteran of Operation Desert Storm, he served in the U.S. Marine Corps for more than 15 years.
October 30, 2017
Doing more with less: Learning from Kanban

The manual Kanban cards that were the precursor to Lean Manufacturing have evolved into eKanban systems that automate inventory replenishment and reduce material waste...

READ MORE on our guest post on EBN, the premier online community for global supply chain professionals.

October 11, 2017
It’s Time to Revisit Vendor Managed Inventory

A few decades ago, Vendor Managed Inventory (VMI) was a hot topic. Many manufacturers saw it as a way to reduce inventory levels and costs. If they could get their suppliers to maintain ownership of raw materials or subcontracted components until consumed, inventory levels would naturally drop—on paper anyway. Because they were giving most, or all of their business to one supplier, they were also in a position to negotiate better terms. For the supplier, VMI was a win, too, because it allowed them to lock in the manufacturer’s business.

But VMI came with inherent risks to both the manufacturer and the supplier. On the supplier’s side of the equation, the risk lay in the manufacturer’s ability to forecast demand. Unless the contract between manufacturer and supplier had some sort of “shared responsibility” clause, the manufacturer had no incentive to minimize actual inventory levels. Safety stock and reorder point levels could be set high, with minimal risk. And if the forecast was overstated, the manufacturer didn’t need to worry about excess vendor-managed raw material or contracted-components inventory.

From the manufacturer’s point of view, the risk lay primarily in the reliability of the supplier. If the supplier didn’t hold up their end of the bargain or a shipment had material defects, the manufacturer risked a material shortage and significant production delays. While these problems could occur with any supplier, one of the visions of VMI was to reduce the headaches that come from managing supplier issues.

As a result, many manufacturers limited their use of VMI to Class C items that were relatively inexpensive and easily sourced. That way, high safety stock levels didn’t impact their balance sheet much, and supplier reliability issues had a minimal impact on production schedules.

Demand-Driven Manufacturing Technology Makes VMI Easier

The technologies our customers use to manage their internal Demand-Driven Manufacturing initiatives have the added benefit of making VMI feasible once again. Electronic Kanban (eKanban) software is a classic example.

Most readers of this blog are probably familiar with Kanban. They are the automated replenishment signals that are so vital to Lean and Demand-Driven Manufacturing environments. Kanban comes in multiple flavors such as the manufacturing Kanban that signals the need for internal replenishment of materials; the supplier Kanban that initiates replenishment from external suppliers or outsourced manufacturers; and a customer Kanban signals from the customer to the manufacturer for finished goods or replacement parts. Often tugger routes are introduced into the process to deliver materials as needed (regularly or on demand pull) from the warehouse to point of use.

The eKanban system enables real-time, electronic signaling. As materials are received into inventory, they are scanned into the system – and, they are scanned again when consumed. Upon consumption of a Kanban, a signal is sent to a supplier or contract manufacturer, bypassing the standard procurement process and shortening cycle times.

Demand-Driven Manufacturing Reduces the Risk of VMI

OK, so eKanban can make VMI more functionally feasible and efficient than it was twenty years ago, but what about the risks inherent in VMI?

That’s where Demand-Driven Manufacturing comes in.

Technically, implementing Kanban replenishment signals doesn’t automatically qualify your approach as Demand-Driven Manufacturing. You could be in a traditional manufacturing environment using reorder point planning (ROP) to trigger replenishment. For example, your bin sizes are based on ROP calculations that have little to do with actual demand. Since the signal comes from downstream consumption, some would consider this to be pull manufacturing, but it is not in the same way that Lean or Demand Driven environments consider “pull”. Pull is getting close to the actual demand signal; the more inflated the bin sizes, the further the process is from pull – and the larger the bullwhip the process will create.

In true pull-based or Demand-Driven Manufacturing, replenishment is based on actual demand or consumption. (And some buffer stock which we talked about here.) Projected and actual demand, demand variability, and supplier reliability are monitored and inventory is right-sized to meet these specific attributes of the item. The allows Demand-Driven manufacturers to continually adjust their Kanban Loop sizes so they are always in alignment with demand, supply expectations and actuals. As variability is removed and lead-times are reduced, the Kanban Loop adjusts to become one step closer to demand.

Demand-Driven Manufacturing makes VMI far more attractive for your suppliers. They understand that the signals they receive for replenishment aren’t based on some pie-in-the-sky forecast that will leave them sitting on tons of materials in the supply chain that they will eventually have to write off. And, it puts you in a better position to negotiate the kinds of service levels agreements (SLAs) you need to reduce the risks associated with supplier variability.

If you’d like to learn more about eKanban, here are a few additional resources:

White Paper: Gaining Control: Exploring Push vs. Pull Manufacturing

Article: Moving From a Manual to an eKanban System

Case Study: Continuous Improvement Immersion Plus the Right Tools Proves Profitable for Dynisc

January 8, 2017

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