Electronic Kanban vs. Kanban -- It's Evolution

Previously, we defined Kanban in a post on this blog. If you are a regular reader, you have no doubt also heard us frequently mention Electronic Kanban, as we are purveyors of Electronic Kanban software. So what exactly is Electronic Kanban (or eKanban)?

We defined Kanban as a signaling methodology that prompts the movement of materials within a production facility or company. Electronic Kanban users employ technology to replace non-electronic components like Kanban cards with electronic signaling or messaging.

While Electronic Kanban could utilize things like a stop signal and still techincally be "Electronic", we think of it as more of a manufacturing software driven system that encompasses barcode scanning to accurately measure parts inventory throughout the supply chain. The use of a part would be noted through barcode scanning and depletion could then electronically signal a need for replenishment across the production process.

In our Ultriva system, everyone from floor employees to managers accesses a single web portal to receive signals and alerts while their activities within the production process are automatically updated through barcode scans.

At its core, despite the fact that activities and signals are transmitted and received through a different format, the principles of Electronic Kanban and Kanban remain the same:

1) The signal, which drives activity or movement is still at the center of the system
2) The system becomes a demand-driven system with or without the deployment of technology
3) The signaling system remains highly visual and simple and is inclusive of all employees. As web usage has become mainstream, so has the ability for workers across a supply chain to utilize the web to manage a Kanban system

If both Kanban and Electronic Kanban inherently drive the same positive outcomes, what is the advantage of Electronic Kanban? Simply put, when inventory tracking and signaling happens automatically, it requires fewer humans to make it happen and it happens instantaneously, which translates to less waste and more speed and accuracy across the supply chain -- exactly what you want to see in a Lean production system. While the deployment of a Kanban system will drive lower inventory, lower costs, and faster turnarounds than a supply chain without, an eKanban system will drive even greater benefits.

Is There A Lean Employee Deficit?

Two recent articles in respected manufacturing publications highlighted a topic of interest for us at Ultriva: The difficulty of finding and retaining manufacturing talent.

The first was an article from the American Society for Quality published last week in Reliable Plant about the aggressive luring of Lean manufacturing experts to the services sector. The article quotes Jack Stiles, the president of an executive search firm, that experts are enjoying 20 to 30% pay raises to take their Lean thinking from manufacturing to service industries, like Healthcare or Banking. A Bain executive, Mark Gottfredson, adds "There is a whole industry luring away Toyota and General Electric people".

Then today, Industry Week's Traci Purdum published a piece online entitled "Help Wanted". The article looks at the difficulty manufacturer's are having in filling jobs from the plant to the management suite.

While each looks at different segments of the work force, both address the same problem: skilled labor shortages. This isn't news to us. We've been hearing it from our customers.

While you might think we look at this as a great opportunity, you'd only be half-right. Sure, automation helps companies reduce their need for labor and we're in the automation business, but skilled labor is required to identify the problems and prescribe solutions, like Lean production, for which automation is the answer. It's in our best interests, naturally, for our customers to stay in business and it takes the right talent to do that.

So what's the problem? Why is the manufacturing sector having a tough time attracting and retaining talent.

The American Society for Quality thinks Lean implementation failures might be to blame, while Purdum places much of the blame on industry image.

Well... they probably both have a point, but we think the image problem is the greater of the two. Let's face it -- if you've grown up in the last 40 years, you haven't heard many stories about the golden era of American manufacturing. This despite the fact that pockets of industry have provided tremendous rewards to many firms' shareholders and employees.

To address the issue, it's going to take a pretty darn good marketing effort, as well as some targeted hiring. Purdum's article cites the company ATS, who focuses recruiting efforts on ex-military personnel. That's a great solution for that company, but the manufacturing industry as a whole will have to start younger to change its image if it wants to avoid future employee deficits.

Kids who don't want a college degree but do want a skilled job need exposure to manufacturing industry opportunities early. Same with engineers. While many engineers will change focus during college, industry perception might make it tough to get them thinking about that particular sector. Better PR is needed. We know this is a tall order, but it will have to be addressed or the industry-at-large could face a worker-deficit, in which case, no one wins.

Amazon Blowout Quarter - What's The Secret?

Amazon's announcement of it's second quarter results brought a massive increase in the price of the stock in its aftermath, creating billions in additional market cap for its investors. I did not think to cover it here until reading the excellent management blog, Curious Cat, and its take on the quarter. That post made me realize -- I knew Amazon, having worked with them in the past and I felt I could add some insight to their success here.

I had extensive experience working with Amazon in a previous job several years ago. I was running eCommerce for a luxury consumer products company at the time. We had made the decision to private-label outsource our website and fulfillment operations to Amazon. What I saw there was some of the best discipline around the implementation of automated processes I've seen. While it can leave you with a feeling of discomfort when outsourcing to rely so heavily on electronic processes, there was no doubt we quickly accrued positive benefits through waste reduction as a result of their processes. What I in effect saw were Lean principles in action.

We moved from a labor intensive inventory management process to a highly electronic one in which automated signals starting with consumer web orders triggered re-orders from our wholesale warehouse to Amazon distribution facilities. The end result was a highly efficient system that, outside of new product introductions, tended to run itself, allowing my team to focus its energy on marketing and customer acquisition and not inventory management. To see long-awaited improved financials is not surprising given what I saw several years ago when working with them. And I think I know their secret.

Lean Auto Manufacturers Shut Production In Wake Of Quake - Kanban Blamed

The July 16th quake in Northern Japan apparently didn't just injur 1,000 people and destroy hundreds of buildings. It also crippled Japanese industry in other parts of the country. In the wake of the quake, automobile and heavy equipment manufacturers found there reliance on a single piston ring from Riken, whose regional factory was damaged in the quake, forced the temporary closure of their plants. Toyota, for example, closed all 12 of its domestic facilities delaying delivery of 50,000 cars.

As covered on Leanblog, apparently some of the financial press, found Lean, and its fostering of close relationships between Lean manufacturers and their suppliers, was to blame. The Wall Street Journal even went so far as to say "Blame It On Kanban".

It's curious that Kanban would be blamed when it's highly like non-Lean manufacturers would have been similarly affected by the factories of damaged suppliers. While it's true, Lean production does not promote excess inventory that could offset supply issues in the event of natural disaster, I would love to see a journalist present a case that suggests the money lost in the rare natural disaster offset the money saved during the thousands of days over which no natural disaster hit. Since earthquakes and hurricanes don't seem to impact the American Auto manufacturers, seems they should be doing better if blame lies in Lean production.

Kanban In Low-Volume Environments

One reason we often hear from prospective Electronic Kanban clients who are thinking of moving to Lean production , but haven't, is that their operation is too small or lacks the complexity to make a Kanban system necessary. In most cases, we humbly disagree with this assessment.

Remember, what we've previously said: There is no magic to Lean thinking -- it's just common sense. And common sense is typically good business.

Kanban best practices usually apply regardless of the manufacturing environment. Whether it's high mix or low mix, high volume or low volume, so long as there is a reasonable number of repeatable tasks, a Kanban system with Kanban cards and other best practices makes sense. While a factory might not have a high number of activities, it often still has a real opportunity to eliminate waste in each activity by moving to Lean. If it depletes some of the same parts repeatedly in its activities, then it's hard to imagine a Kanban system would not be helpful.

An instance where Lean production might make less sense is when supply consumption is really variable and/or infrequent. An example of this could be some sort of made-to-order, artisan's operation. In this case, the artisan could prep an end customer for a long lead time upon purchase and then order supplies to manufacture. However, even he could still have a fair amount of standardization. If an artisan's factory was making grandfather clocks, for example, would it still use the same parts for each clock regardless of how the face or wood differed?

Regardless of classification, the decision should really come down to best managing demand. If demand cannot be accurately forecast, then manufacturers will order parts with customer orders or carry safety stock. If they order only upon customer order, they've got a long turnaround time to their end customers. If they carry safety stock, then they'll ultimately carry too much inventory.

In either case, regardless of size, Kanban is a good solution. Many customers don't want to wait for their order and will go elsewhere. And sitting on inventory has cost implications. Ultimately, both will eventually tilt a manufacturer to look for efficiency gains and they'd be wise to turn towards Lean for answers.

Management By Walking Around Reduces Waste

I read a short post on the excellent management blog, Curious Cat, the other day on the subject of Management By Walking Around (MBWA). MBWA espouses the importance of seeing what's happening in your business in order to know how to improve it.

Sounds like common sense, doesn't it? If it also sounds like Lean Thinking, it should. The Toyota Production System strongly encourages observation, for without it, your liable to miss kanban that could drive improvement. How would you know your workers are idle if you don't see them idling? I guess you could be told... but it's always good to see it without another's interpretation.

If you are a manager or employee in a company attempting to implement Lean principles, it's imperative to see what's going on. Management reports, Electronic Kanban, and spreadsheets with yellow, green, and red are vital management tools, but they're only part of the solution. A commitment to Lean is a commitment to change in all practices. So get out there, see and be seen.

Why Is Kanban Better Than Min/Max Replenishment?

We all understand how difficult it is to change the wheels on a moving bus. If you've heard that analogy applied before, it was probably to justify why business transformation or a change in process is so difficult.

We've certainly heard the metaphor used to explain the entrenchment of Min/Max Replenishment systems. It's about the only excuse left because reality suggests it just doesn't make sense when compared to Lean manufacturing. Min/Max leads to higher inventory levels and higher inventory levels lead to higher costs. Higher costs are tough to swallow in the highly competitive global manufacturing world.

Why does min/max drive higher costs? The min/max approach promotes large and infrequent orders. These large orders result in significantly higher than needed inventory levels for several days or weeks during each replenishment cycle.

Min/max drives larger orders for several reasons. First, fear of stock-outs. Second, it's typically calculated on inventory levels that come from historical ERP functions. These ERP calculations are highly dependent on accurate bills of material and detailed tracking of scrap and defective material. Missing or inaccurate data in any of these areas leads to inaccurate data and inaccurate data makes for poor forecasting. If you fear stock-outs and you tend to have unreliable forecasts, how do you compensate to avoid stock-outs? You overshoot. When you overshoot, you carry higher inventory levels than you should carry.

In contrast, Kanban is based on more frequent, smaller orders and therefore lower inventory levels. With Kanban (or Electronic Kanban), you order upon or near depletion, replenishing what you need as you need it. Because Kanban cards or bar coded labels are tracked where the material is consumed, inventory data can be tracked very reliably, driving a demand-driven system that promotes lower inventory levels and lower costs.

It is hard to change the wheels on a moving bus, but case study after case study is proving a Lean business is a better business. Eventually, the wheels must be changed.

What is Kanban? A Brief Overview

As with Lean, a web search for definitions of the Japanese word Kanban will yield a variety of answers: "signpost", "billboard", "signal", "signal card" among others. At Ultriva, we define Kanban as more than a signal, but rather a signaling methodology that is a key component of Lean.

In our definition, Kanban has four primary components:

1) The signal -- At its core, Kanban is about the use of a signal or signals that represent an instruction to drive some sort of activity. The instruction, in a factory, for example, could be to build a component or order more parts.
2) Demand-Driven -- In Kanban, signals are demand-driven. A Kanban card is used to drive production because demand suggests the need for production. A supplier will get an order for components because their customer has consumed or will shortly consume all it's components.
3) Visual and Simple -- Kanban utilzes signals easily understood by the recipient. It could simply be the presence of a card that drives action or it could be some other kind of symbol that is not open to interpretation - an empty supply cart for example. Regardless of the type of signal, it's presence very clearly states: "order more", "Im out of... ", "build more....", etc.
4) And lastly, it puts the employees in control. When Kanban is utilized in a manufacturing business, for example, the employee should have total control to reorder a part or supply a part, based on an activity or process HE or SHE controls. Rather than have a semi-detached buyer order parts for a line employee, the line employee signals his need, setting off a chain that results in the replenishment of parts.

To illustrate, think of a bin full of widgets for a motor on a factory floor. The depletion of that bin prompts the usage of a card to signal the need for more widgets. That signal is received and filled by the supply room who brings out more parts to the factory floor. Bringing out those parts, now leaves the supply room near inventory depletion prompting the use of another card for the widget supplier. The recipient supplier sees the signal and schedules shipment and/or prodution as a result.


Signals prompt action, demand drives the signals, simple visual cues are used, and those employees who are part of the process ultimately drive activity.


So why does Kanban matter? Kanban is a key component of Lean. It helps create the link between the different cells in a supply chain to keep the chain moving. By clearly and simply communicating needs throughout the supply chain, waste is reduced and waste reduction ultimately results in significant financial benefits to its practicioners.


There is a lot more we can say about Kanban and we will in future posts.

P&G Goes Lean?

Mark Graban posted an interesting article on his blog the other day regarding Proctor & Gamble and what I'll characterize as Lean thinking. To drive sales in developing countries, where low-income people carry their daily wage with them, P&G is adjusting its product mix and pricing to meet the needs of the consumer. While it does pertain directly to Lean manufacturing, it's a great illustration of how business realities force cost reduction and ultimately drive waste elimination throughout the supply chain.

What Is Lean?

Wondering what's behind Toyota overtaking GM as the largest auto manufacturer on the planet or how about the incessant rise in the price of Danaher's stock? At Ultriva, we think it's Lean.

The origins of Lean probably go back as far as the factory, but it probably makes sense to begin our historical overview with Henry Ford and the moving assembly line which significantly reduced standardized production times. The success of Ford, led to a transformation in global manufacturing. Processes evolved and improved, taking a significant leap forward with Toyota's quest for increased efficiency after the Second World War. One man who rightfully gets a lot of credit in the birth of Lean is Toyota executive, Taichii Ohno.

Legend has it than when Ohno came to the Unitied States to examine American assembly lines, he was less impressed by the factories he saw than the American supermarket What did he observe there? Real-time replenishment of inventory. A product was removed from the refrigerator and what happened? Another one took it's place. It did not take shelf-space until it was needed and demand for the product drove it's replenishment. It was likely only a small driver in the insipiration behind the Toyota Production System (TPS), but it's a great story and, as you'll see shortly, it's a great illustration of the principles of Lean.

TPS with its emphasis on waste reduction, continuous improvement and doing more with less was, in a way, a culmination of many of the principles of Lean, even if Lean did not yet have a name. Finally, in the 1990s, Jim Womack coined the term and Lean as a philosophy, methodology, and discipline was born.

So what is Lean? Search the web and you'll find many related, but varied definitions. We too have ours. Combined with the genesis story above, we think the spirit, if not the definition, of Lean can be reduced to 3 basic tenets:

1) Lean is first and foremost about the elimination of waste. Waste can be wasted shelf-space, wasted time, wasted money, wasted effort... it's all waste. In the supermarket example, the grocer eliminated wasted shelf-space through a demand-driven system of replenishment. A mik is taken, another takes its place. Which leads to our second tenet of Lean:
2) The elimination of waste transforms an organization, a process, an operation... into a demand-driven one. What this basically means is that if someone doesn't want IT, IT is not produced, because producing IT would be wasteful if no one wants IT. Demand for a carton of milk drives the replenishment of milk on the store shelf. That milk was not "produced" on the shelf until it there was demand for it. This then leads to our final tenet:
3) Demand driven businesses cost less to run than their forecast-driven counterparts. This should be intuitive. If you aren't wasteful in your operations, you should have lower costs than your competitor.

Lean principles are frequently applied in manufacturing. We'll touch on this in greater detail in future posts, but Lean manufacturers produce based on demand signals. Demand signal production is visible throughout a Lean manufacturing operation. A line worker demands a part from the supply room when he's depleted (or nearly depleted) what he has (often using a Kanban card, which we'll discuss later). As the stockroom depletes to satisfy the line worker, demand should drive the replenishment of that part from the supplier. Demand drives replenishment throughout and in doing so, waste is eliminated. Perhaps the line requires less space because unneeded parts aren't stacked up or the supply room is smaller because the part is acquired from the supplier only when needed. Less wasted space means lower costs. Or maybe there is less wasted communication based on estimates of needed parts, helping to save additional time and money. As our expertise is in manufacturing software, we believe that the more automated the process is, deploying, for example, electronic kanban software to send signals, typically the more efficient an operation will ultimately be.

Lean principles can be successfully applied in other industries. There is a burgeoning movement, for example, to apply Lean in the healthcare sector (covered here). As waste elimination is smart business, Lean has applications across industries. Today, Lean is being adopted by companies across the globe and driving impressive business results.

Business Lean - Ultriva's New Blog On The Business of Lean

Welcome to the Lean Blog. We've been talking for some time about creating a single place to share Ultriva's expertise in Lean manufacturing, kanban, inventory control, and supply chain management, as well as news on manufacturing best practices, global manufacturing competitiveness, and software for the modern manufacturer.

If you don't know us, Ultriva is a leader in lean manufacturing software. Through our manufacturing software products, we support automated electronic kanban, inventory analysis and supplier replenishment, as well as customer demand management and lean scheduling. Over the last few years we've acquired many manufacturing partners and have thus accumulated a vault of best practices in manufacturing that we hope to share with all interested parties.

This blog will be enhanced by the participation and engagement of its readers. We encourage you to share and comment on posts and provide feedback on how we can improve. We look forward to seeing you back here soon.