I am often in "ask the experts" sessions where someone describes a process where the production department wants to run production (make parts) without a production order. The typical responses are "they shouldn't do that" or "that is really bad," but I disagree.
There are legitimate reasons LEAN implementations should do this. Here I am going to try and give the background.
What is LEAN
LEAN is a framework for manufacturing operations developed by Toyota Motor Company (and has moved beyond manufacturing into services and project based businesses). It is predicated on the concept of removing waste from processes, where waste is defined in specific ways (for instance, rework or defects are wasteful).
The wastes defined by lean can be overcome by more flexible production processes, and the most flexible machine anyone has found is still people.
LEAN vs ERP
According to LEAN these flexible people need to be empowered to make decisions to take advantage of them. This means that in a LEAN company, decision making should be closer to where the work is done. LEAN empowers workers to control processes since they can see what is happening (right on the shop floor) in real time.
This empowerment of staff closer to where work is happening, and the core feature of modern manufacturing ERP systems are in conflict.
Using Business Central as an example, many people would consider that Dynamics Business Central Planning Worksheet (ie: MRP) is the most important module for manufacturing in the entire system. MRP is designed to let the ERP system make decisions about inventory levels, production schedules, quantities and timelines.
It is by its nature a highly centralized, top-down decision-making system.
You can see the problem.
These two concepts are totally in conflict (if you accept one assumption – see below).
What is Kanban
LEAN practitioners are not so naïve as to think staff on the shop floor should make decisions without any rules to guide them. To that end there are several (about 20) LEAN tools that are used to help reduce waste and guide behavior. Some of these tools have no impact on ERP (5S is a common LEAN tool that falls into this category).
One of the most implemented LEAN Tools is Kanban – and Kanban and MRP are a major source of this conflict.
Kanban is Japanese for “Visual Card” and is used to describe a process in which a card is kept with inventory. This card would likely have an Item No, Minimum Stock Level, And Reorder Quantity written on it – along with instructions as to where it is to be placed.
The card is placed in a specific location that makes it obvious that the card is available and should be moved to the board. Often this is between specific boxes on a shelf.
When the Kanban (or card) becomes available it is brought to a Kanban board which is often a pegboard or a “mail slot” style board on a wall. The Kanban are then processed (usually) in the order they are received.
Example of Kanban
You will see this in some “big box” stores or supermarkets. 5 boxes are kept on a shelf, and between box 4 and 5 is a card. So as the first 4 boxes are removed (leaving only one box on the shelf) the card “falls down” and is picked up and brought to the planning department.
There are some other implementations of Kanban (sometimes under different names – but they amount to the same thing).
Two Bin is a form of Kanban in which there are (usually) two reusable containers, each of which is marked with information. They would have a dedicated Item No. that goes in the bin, how many the bin should hold and the location the bin is to be placed in. When one bin is emptied, it is sent to a department that is responsible to refill it while inventory is consumed from the second bin.
Why Kanban (and Two Bin) Cause Conflict in ERP
Kanban is a replenishment method that is used in LEAN manufacturing environments. The actual real-world consumption of the product triggers the signal (the card or bin). The ERP is almost always going to be behind the signal. The reporting in the ERP that the bin is empty won’t happen until some hours or even days AFTER it is ACTUALLY empty in many environments.
Production management wants to use Kanban and Two Bin because these methods are recognized as best practices in many organizations around the world. Toyota and other masters of LEAN use these techniques extensively, and they have been proven to work.
The trouble comes when the ERP system does not have a mechanism to report the replenishment. Therefore, you get the following conflict:
- Production wants to use Kanban because in real time, with virtually no need to use an ERP, inventory can be replenished quickly with little fuss. Employee training is easy and it creates better FLOW (another feature of LEAN)
- Accounting or IT (and sometimes Purchasing) wants to push this replenishment through the ERP (via MRP) because otherwise the raw material inventory and finished component inventory will be mismatched.
How To Overcome the Kanban / ERP Conflict
There are two possible ways to resolve the conflict.
First: There is an underlying assumption from some people who want to stop Kanban on the shop floor and move decision making into the ERP. That assumption is that all planning for all parts should be done with MRP. That assumption is wrong. Not all parts are best planned via MRP, and if the part in question and it’s raw materials do not need to be MRP planned, then just implement Kanban.
Second: There is an assumption from the shop floor production team implementing Kanban that the reporting the Kanban into the ERP is not important and is not needed in real time. This is wrong too. You need to report back into the ERP that you executed the Kanban in real enough time (report that you filled up the bin and used the raw components). It is critical because most of the time the raw materials are common and shared, and purchasing relies on inventory data to place purchase orders.
The Answer to this conflict is the Kanban tool.
A Kanban tool is an ERP tool that lets someone report the completion of the Kanban. In many manufacturing ERP systems from other vendors this is combined with an eKanban – which sends the Kanban into a Queue in the ERP system itself, will print a label (with appropriate information) and lets the users report the production without needing the planning department to pre-create a production order for them.
In my next article I’ll describe a simple Kanban tool for Business Central.
