Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

6.5.2 Comparison of Techniques: Kanban versus Order Point Technique

Intended learning outcomes: Explain the development of the physical buffer inventories on several production structure levels when production is rhythmic. Differentiate between the order point technique and the Kanban technique when defining production structure levels and (buffer) storage.

The implementation of the JIT concept also entails advantages to the order point technique (see Section 11.3). Indeed, short setup times result in smaller batch sizes, shorter lead times, and thus a lower order point. Smaller batch sizes lead to more frequent repetition of the same orders (which will increasingly overlap). Defining work contents of approximately the same length per production structure level improves the flow of goods.

Figure shows the physical inventories on several production structure levels.

Fig.        Development of the buffers when production is rhythmic.

The symbol Dt stands for the necessary reaction time between reaching the order point (or, in Kanban, registering that a container is empty) and withdrawing compo­nents from the next lower production structure level. With the lean / just-in-time concept, Dt is as small as possible, due to direct communication between supplier and user operation. TP is the wait time of the item in the buffer or intermediate store. With just-in-time production, the buffer is located directly at the workstation, or user operation. TP is thus time in storage.

Order release according to consumption is common to both techniques. Storage time functions as a time buffer. If usage is smaller than forecasted over a longer period, the production or procurement cycle will be triggered less often. In the Kanban technique, fewer and fewer containers will be sent back and forth. But inventory in the buffer increases. From this, the same effect results as with the order point technique. In the reverse case, if usage is greater than predicted over a longer period, safety stock in the buffer would ensure delivery capability. Thus, the percentage of stock for safety stock in the formula in Figure and the number of Kanban cards must then be increased.

So much for the common effects of both techniques. Now let’s look at the differences. One feedback loop in the Kanban technique will usually encompass only a few operations. There is a buffer between each loop. Consequently, a production structure level controlled by the order point system is divided into a number of Kanban feedback loops, ideally of the same length, as illustrated in Figure

This results in the following advantages of the Kanban technique:

  • Inventory tends to be shifted to lower production structure levels, which is important for items with great added value. These are usually high-cost items, too (A items).
  • Lead time through a Kanban feedback loop is reduced for two reasons. First, a Kanban feedback loop includes only a few operations. Second, there are no administrative expenses, as the buffers are located directly at the user operations.
  • It is a visual control system, that is, stockkeeping takes place “at a glance,” and there is no paperwork or need for any other organizational unit to intervene.
  • The process can be automated, because approximately the same quantities are produced again and again in short, sequential periods of time.
  • Batch size in each feedback loop is small, because there are fewer operations and less setup time to consider.

Fig.        Definition of production structure levels and (buffer) storage: order point technique versus Kanban technique.

It would be possible to design production structure levels controlled by the order point technique whose value-adding would equal that of the Kanban feedback loops. However, because of the large number of small orders being processed all at once, the amount of administrative effort required to control production remotely (away from the flow of goods) — through consulting computer lists, for example — would be prohibitive. The sensor that registers the Kanban order (an event) to be released (state) is, namely, the simplest, most natural and rapid sensor imaginable: the human eye.

The large number of intermediate stores with the Kanban technique can, of course, be seen as a disadvantage, as in the extreme case a buffer must be set up for each operation. However, the large number of stores is only a problem if an external agent or expensive measuring devices (such as tallying by hand) must be used to perform inventory control. Figure has already suggested that automatic data collection is a good way to register the Kanban process, including both open Kanban orders and inventory in the buffers.

There are further important differences between the order point technique and the Kanban technique with regard to flexibility and to assigning requisition control tasks:

  • With Kanban, control is decentralized. The shop floor workers take over requisitio­ning activities, which encourages their autonomy. But one of the rules for Kanban use demands that capacity be adapted to load, which is infinite capacity planning. The due date for all Kanban orders is “now” — which actually restricts autonomy.
  • The order point technique can be implemented with either central­ized or decentrali­zed control. The more the lead time contains temporal reserves and the more infinite capacity planning is possible, the more requisitioning with the order point technique can be turned over directly to the workers.[note 619] If the inter­operation times are short, or if capacity limits must be considered, possible resulting interruptions in the order cycle could affect the entire value-adding chain. If the value-adding chain is made up of many organizational units, central control (with central order release) may be more flexible, but it also involves greater effort.

Course section 6.3: Subsections and their intended learning outcomes

  • 6.3 The Kanban Technique

    Intended learning outcomes: Explain Kanban as a technique of execution and control of operations as well as a technique of materials management. Disclose the adequate long- and medium-term planning for Kanban.

  • 6.3.1 Kanban: A Technique of Execution and Control of Operations

    Intended learning outcomes: Describe the Kanban card. Explain the Kanban feedback loop. Present in detail Kanban rules of order release and control of the feedback control system.

  • 6.3.2 Kanban: A Technique of Materials Management

    Intended learning outcomes: Present in detail the basic data for calculating the number of Kanban cards. Identify the number of Kanban cards in the system. Explain Formula to calculate the number of Kanban cards.

  • 6.3.3 Kanban: Long- and Medium-Term Planning

    Intended learning outcomes: Describe the role of a long-term plan (and, if required, a medium-term plan for resources according to an MRP II concept. Identify the lean / JIT principles that must be implemented as prerequisites for a successful implementation of the Kanban technique.

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