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

6.5.2b Kanban versus Order Point Technique: Differences

Intended learning outcomes: Differentiate between the order point technique and the Kanban technique when defining production structure levels and (buffer) storage.

Continuation from previous subsection (6.5.2)

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

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

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.

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 6.5: Subsections and their intended learning outcomes