INTRODUCTION
KANBAN Kanban (カンバン?), literally meaning "signboard" or "billboard", is a concept related to lean and just-in-time (JIT) production. According to its creator, Taiichi Ohno, Kanban is one means through which JIT is achieved. Kanban is not an inventory control system. It is a scheduling system that helps determine what to produce, when to produce it, and how much to produce. The need to maintain a high rate of improvement led Toyota to devise the Kanban system. Kanban became an effective tool to support the running of the production system as a whole. In addition, it proved to be an excellent way for promoting improvements because reducing the number of Kanban in circulation highlighted problem areas MRP Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives:
Ensure materials are available for production and products are available for delivery to customers.
Maintain the lowest possible material and product levels in store
Plan manufacturing activities, delivery schedules and purchasing activities.
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OBJECTIVE Briefly discussing on Kanban and MRP of their system and hence differentiate which is the better system for operation management
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DISCUSSION KANBAN Versus MRP In conventional MRP procedures, production quantities and dates are calculated in accordance with actual customer/planned independent requirements and the required quantity and dates of the components are calculated by exploding the bill of material. The production quantities can be compiled for various requirements. The creation of lot sizes is based on the selected lot sizing procedure. In each production level, the lots are usually produced completely before being passed on for further processing. The dates calculated in MRP are the results of a detailed planning run for the current production level even if it is not known exactly when the material is required for the subsequent production level at the time of the planning run. The material is pushed through production on the basis of these dates (PUSH PRINCIPLE). This often leads to queue times before production can be started or until the material can be processed further. These queue times are planned as increased lead times or floats in planning and are rarely undercut. This results in high inventory and longer lead times in production. In KANBAN techniques no separate, higher-level planning is used to control the material flow through production. Instead, the work center further down the line (demand source) requests material from the preceding work center (supply source) only when it is required (PULL PRINCIPLE). For this purpose, a control cycle is created - with a fixed number of kanbans (cards) - between the supply source and the demand source. Each kanban represents a specific material quantity and usually represents a container (however, this need not be the case). When the material quantity of a kanban has been consumed, it is given the status EMPTY and is sent to the supply source. The kanban is the signal for the supply source to go ahead and produce the quantity of material recorded on the kanban. Once production is complete, the material is delivered to the demand source which confirms the receipt of the material by setting the status back to FULL. The lot size is determined by the kanbans and this quantity is produced by the supply source in one run. The total production quantity is calculated by the total number of kanbans sent to the supply source within a predefined period. Replenishment frequency is based on actual consumption. This means that if more material is required, the kanbans simply circulate between the supply source and the demand source more quickly. If less material is required, the kanbans circulate more slowly. If no material is required, then all the kanbans will remain at the 3
demand source with the material, meaning that all of the components required to start producing the corresponding assembly are available. There is never more material in circulation than is defined by the number of kanbans in the control cycle and all of the production levels that are controlled using KANBAN techniques are always in a position to start production.
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THE SCOPE OF MRP IN MANUFACTURING The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. "Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required." Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below: If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time. If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all. Beginning production of an order at the wrong time can cause customer deadlines to be missed. MRP is a tool to deal with these problems. It provides answers for several questions:
What items are required?
How many are required?
When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to subassemblies, produced internally, that are components of more complex items. The data that must be considered include:
The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM (Bill of materials).
How much is required at a time.
When the quantities are required to meet demand. 5
Shelf life of stored materials.
Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers.
Bills of materials. Details of the materials, components and sub-assemblies required to make each product.
Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.
OUTPUTS There are two outputs and a variety of messages/reports:
Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS).
Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules.
Messages and Reports:
Purchase orders. An order to a supplier to provide materials.
Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing orders.
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PROBLEMS WITH MRP SYSTEMS The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master production schedule, then the output data will also be incorrect ("FIFO": First In, First Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors,production reporting errors, and system issues. Many of these type of errors can be minimized by implementing pull systems and using bar code scanning. Most vendors in this type of system recommend at least 99% data integrity for the system to give useful results. Another major problem with MRP systems is the requirement that the user specify how long it will take for a factory to make a product from its component parts (assuming they are all available). Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory. A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have plenty thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory, and inter-communicate the needs in order to enable each factory to redistribute components, so as to serve the overall enterprise. This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example, systems like variety reduction and engineering, which makes sure that product comes out right first time (without defects), must be in place. Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions. Parts must be booked into and out of stores more regularly than the MRP calculations take place. Note, these other systems can well be manual systems, but must
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interface to the MRP. For example, a 'walk around' stock intake done just prior to the MRP calculations can be a practical solution for a small inventory (especially if it is an "open store"). The other major drawback of MRP is that takes no account of capacity in its calculations. This means it will give results that are impossible to implement due to manpower or machine or supplier capacity constraints. However this is largely dealt with by MRP II.
Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials. In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the functions of the company), ERP has been the next step.
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KANBAN REPLENISHMENT: WITH OR WITHOUT MRP In KANBAN production control, there are two options for organizing replenishment:
Replenishment is only triggered by the kanban signal. Materials for which replenishment is only triggered by the kanban signal are not planned in the planning run. However, you can include these materials in long-term planning.
The materials are planned in the planning run and corresponding procurement proposals are created. These procurement proposals do not directly trigger replenishment but provide a preview of future consumption. In this process, replenishment is also triggered by the kanban signal.
KANBAN WITHOUT MRP If you do not want the material to be included in the planning run, that is, you do not want any additional replenishment elements (planned orders or purchase requisitions) to be created, you have to exclude the material from the planning run in the storage location assigned to the supply area of the supply source. If a material is procured without MRP, you must make the following settings:
You have to exclude storage locations that are used for procurement with KANBAN without MRP from the planning run. You must also define from which storage location the components are to be backflushed. In certain circumstances, you must also maintain a valid MRP type for materials procured without MRP. This is necessary:
If run schedule quantities or planned orders are to be created as replenishment elements for KANBAN (KANBAN with run schedule quantities).
If capacity requirements are to be created.
If the material is to be included in long-term planning.
If the material is to be procured at certain storage locations using KANBAN production control. However, the other storage locations are planned in MRP. 9
You must maintain a repetitive manufacturing profile (in the MRP data screen) for replenishment strategies with a cost collector (in-house production with run schedule quantities, manual KANBAN). In the SAP standard system, a profile is available that is specially intended for KANBAN, that is, using this profile, the system creates a cost collector without a run schedule header. For more information, see also Cost Collector for KANBAN
FEATURES
When the demand source requests a kanban from the supply source, the system creates a replenishment element (run schedule quantity, production order, purchase order, and so on) for the required quantity. The material is replenished using this element and it is also backflushed with reference to this element. The system also posts the goods receipt to this element when the material is delivered. In this process, you must take two things into account if KANBAN controlled materials have a BOM:
At the storage location excluded from the planning run, the BOM is not exploded further. That is, procurement elements in this storage location do not create dependent requirements for the components of the material controlled by KANBAN procedures. Therefore, if a material planned in this way has lower-level components, these components can only be procured using KANBAN or consumption-based planning procedures.
However, it is possible to plan the component requirements using long-term planning. In long-term planning, you can also create simulative dependent requirements for KANBAN materials which provides you with the information you require to negotiate with your vendors.
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However, it is possible to plan a material with KANBAN at certain storage locations and with MRP at other storage locations. This means:
Procurement elements in storage locations that are included in MRP trigger the creation of dependent requirements for lower-level components.
Procurement elements in storage locations that are excluded from MRP do not trigger the creation of dependent requirements for lower-level components.
KANBAN WITH MRP In this process, the storage location assigned to the supply area is not excluded from MRP. If a material is planned and procured with MRP, you must make the following settings:
You must maintain a valid MRP type for the material. This means, the setting "ND" (No planning) is not allowed.
You must maintain all other control parameters required for MRP for the material.
You must maintain a repetitive manufacturing profile (in the MRP data screen) for replenishment strategies with a cost collector (in-house production with run schedule quantities, manual KANBAN). In the SAP standard system, a profile is available that is specially intended for KANBAN, that is, using this profile, the system creates a cost collector without a run schedule header.
FEATURES Here, the total production quantity or the procurement quantities of a certain period are planned in the planning run and the replenishment elements are also created in the planning run. For in-house production, you can use either Repetitive Manufacturing or production orders to plan the production quantities per period. For external procurement, all the standard replenishment elements are available. The replenishment elements created in the planning run, however, are not intended to trigger production or replenishment directly. Instead, they exist to provide the supply source with a preview. Actual production and material flow are controlled and triggered by setting the kanban to FULL and EMPTY. Backflushes and goods receipts are
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posted with no reference to the kanban. This means that you can backflush daily quantities, for example. In this procedure, the following is valid for materials with BOMs: Components that are used in KANBAN materials can be planned using any one of the MRP procedures. However, the system has to be organized so that the supply source does not produce the material for the replenishment element created in MRP immediately but awaits the kanban request.
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CONCLUSION Some of our materials group are Kanban advocates, while some think that it is a waste of time or dangerous because it can cause stock-outs if not monitored carefully Kanban can be applied in many situations, but the magnitude of effectiveness depends on the degree of compliance with a few prerequisites:
The Pull Rule must be in Effect.
The Pull Rule means an item can only be made after the Kanban signal is received. No signal; no production.
Repetitive Usage.
Kanban assumes we are going to use more of the item just consumed. This is a valid assumption for repetitive use, low demand variability items. On the other hand, it's a dangerous assumption for non-repetitive items like one-time specials, seasonal items or items with highly erratic demand. The Kanban technique must be modified for non-repetitive use items and the benefits of Kanban are minimized when this is done.
Very Few Items.
Remember: Kanban is based on having some inventory at all times of every item and triggers immediate replacement of inventory when it is consumed.
Very Small Lot Sizes.
Kanban signals when to make more.Large lot sizes could tie up a piece of equipment for a long time while making one individual item, increase the queue, lengthen lead times and thus increase the Kanban inventory. But, before small lot sizes can be economically manufactured, obstacles such as long setup or changeover times must be eliminated. Lot size reduction is an effort usually associated with Lean. Extra material handling to frequently issue material or many transactions to record material issues are two additional obstacles created with small lot sizes. Moving to a point-of-
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use inventory and backflushing bills of material to reduce inventory transactions is usually required.
Very Short Lead Times.
The downstream work center must be able to quickly produce what is used and replenish the inventory. Otherwise, Kanban signals must be triggered long before the inventory is used up, thus potentially increasing the total inventory.
Very Few Rejects.
If material waiting to be consumed is frequently found to be defective, buffer inventories are required to avoid production delays. The benefits of smaller inventories with Kanban are then reduced. Raising quality and reducing defects is a contribution from Total Quality (TQM) initiatives.
Excellent Material Planning.
The material must be there to make more when the Kanban signal is received. This won't happen by accident. Material doesn't just magically fall out of the sky when the Kanban signal appears. Kanban without excellent material planning means heavyduty expediting! Valid master schedules, accurate bills of material and inventory records and on-time deliveries are essential to high performance material planning.
Excellent Capacity Planning.
For Kanban to work, the work centers must have visibility of future capacity requirements before the Kanban signal shows up, giving them time to adjust capacity if needed.
Kanban levels to trigger replenishment and the Kanban lot size must be frequently reviewed and re-sized.
The level of inventory when Kanban signals should be launched is based on anticipated usage in the future. When a Kanban signal is launched, the assumption is the remaining inventory will satisfy demand until we get more. For example, if we 14
send a Kanban signal when 100 pieces are in inventory, we expect to get more within the planned lead time before the 100 pieces are used. How much more we expect to get is the Kanban lot size, say 250 in this example. The assumption is demand during lead time is less than 100. Frequently, some safety stock allowance (thus additional inventory) is baked into the Kanban trigger level calculation to absorb some demand variation during lead time. When the demand consistently exceeds (or consistently is less than) the planned usage and the Kanban is not re-sized, excess inventory or shortages will occur.
All of these prerequisites must be satisfied before Kanban will be effective and thus have an effective pull system. KANBAN and MRP are not exclusive concepts. In fact, the best results occur when they are used together. In consulting practice, working with clients who establish KANBAN systems to control the flow of components between departments and suppliers, while using MRP for the same components to provide forecast information and to adjust the KANBAN quanities as the situation changes.
KANBAN is a tool that is designed to facilitate replenishment of components as they are used. MRP is a tool to allow for mid and long range planning (forecast) of future needs. The combination of the concepts allows good planning, but prevents overproduction when things don't go to plan.
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REFERENCES 1. POWER, CONTROL AND THE KANBAN, Barry Wilkinson*, Nick Oliver, Article first published online: 5 MAY 2007 2. Flexible kanban system , Surendra M. Gupta, (Northeastern University, Boston, Massachusetts, USA), Yousef A.Y. Al-Turki, (King Abdulaziz City for Science and Technology, Riyadh, Saudi Arabia, and), Ronald F. Perry, (Northeastern University, Boston, Massachusetts, USA) 3. On the design of generalized kanban control systems, Yannick Frein, (Laboratoire d'Automatique de Grenoble, INPG, Saint Martin d'Hères, France), Maria Di Mascolo, (Laboratoire d'Automatique de Grenoble, INPG, Saint Martin d'Hères, France), Yves Dallery, (Laboratoire MASI, Université Pierre et Marie Curie, Paris, France) 4. An analysis of Material Requirements Planning (MRP) benefits using Alternating Conditional Expectation (ACE), Chee-Chuong Sum, Kum-Khiong Yang, James S.K. Ang, Ser-Aik Quek, Department of Decision Sciences, Faculty of Business Administration, National University of Singapore, 10 Kent Ridge Crescent, Singapore 0511, Singapore 5. Critical success factors in implementing MRP and government assistance: A Singapore context, James S.K. Anga, Chee-Chuong Suma, Wah-Fook Chungb , Department of Decision Sciences, National University of Singapore, 10 Kent Ridge Cresent, Singapore 0511, Singapore
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