This is part 1 of a 2 part series on Kanban VS MRP.
Part 2 explores kanban replenishment and how it compares to MRP.
Kanban is a lean manufacturing tool for implementing “pull”, rather than “push”. Kanban is a powerful inventory replenishment method that reliably overcomes many of challenges posed by MRP replenishment. While MRP inventory replenishment relies on indirect observation via data in the MRP system, Kanban dictates replenishment activities based on actual inventory behaviors and balances.
The Japanese word for “sign”, Kanban employs a system of visible signals to convey inventory usage in real-time. The concept here is that these signals are universally visual. That is, the signals are overt and obvious to everyone in their proximity. Often, Kanban signals are physical Kanban cards with replenishment information about the items to which each card corresponds. Alternatively, a Kanban signal may be a physical flag, or even a hand-drawn line on a transparent bin.
Regardless of the particular form a Kanban signal takes, Kanban signals trigger orders as a result of observable events that can be quickly, easily, and accurately be visually verified, like the number of parts dropping below a certain threshold. Unlike MRP, Kanban doesn’t rely on data integrity in order to accurately manage inventory replenishment. Reliance on physical observance rather than accurate data collection and interpretation is one of the main reasons Kanban is a far more reliable and resilient inventory replenishment tool than MRP.
Kanban’s Two Primary Functions
Kanban has proven itself able to reliably manage replenishment orders because of its ability to execute two important tasks:
- Calculate Kanban Solutions
Kanban calculations take into account the batch sizes and lead times of their suppliers and are able to figure ideal quantities and timing for inventory orders. By calculating ideal solutions and building relationships with suppliers, Kanban can influence the development of a healthy balance between receiving deliveries and consuming items. This way, the inventory level is able to remain low.
- Trigger Replenishment Orders
Kanban cards signal that an order is needed so that stocks can be replenished. There’s neither guesswork about the number of parts that are left nor reliance on unreliable data. Associates use materials until they see the stock reach a certain point. It’s clear whether or not the material is there and whether or not it needs to be ordered. When items have actually been consumed to the trigger point, an order is placed.
Kanban Replenishment Cycle
Kanban’s replenishment cycle cosists of 3 main steps:
During production, parts are consumed by a work cell until there are no more items left in the Kanban bin. When that happens, the work cell places the Kanban card that came with the bin in a predetermined location to visually communicate that a replenishment order is needed (i.e. triggers an order). The cell immediately pulls the next bin and continues working.
In the meantime, the physical Kanban card or the card’s information travels to the supplier, which can be an internal cell or an external business, to signal that an order for the pre-determined Kanban quantity is needed. The supplier accepts the order and schedules a delivery for the correct number of parts on a due date that takes standard delivery lead time into account.
The work cell receives the delivery along with a Kanban card, placing them it in the proper storage location to be pulled when needed. The storage location for the parts should be somewhere near the work cell where they will be consumed. These parts wait a short time to be used while the work cell finishes the previous bin.
Kanban vs. MRP
Kanban and MRP have both been in use for many years, and each can be used to trigger orders for internal and external suppliers to replenish parts. The primary difference between Kanban and MRP, though, is that Kanban solutions are concrete and observable by all who work with the material whereas MRP is more of a shadow of actual conditions only accessible to those with rights to the system.
While MRP is managed by reports and algorithms, Kanban is managed by people who consume inventory. Kanban doesn’t make replenishment orders until parts are needed, and it’s based on current demand. That is, Kanban is pull-based replenishment. By contrast MRP replenishment is push-based, dictating orders based imperfect data and what planners assume future demand will be.
Kanban’s inventory needs are determined by the rate of consumption. For MRP, needs are determined by imperfect data that is fed into the system.
With Kanban, the people who consume inventory have an understanding of how replenishment works and know the status of the inventory they consume. They’re able to take ownership in the process. MRP limits the number of people who can affect, or even view, the processes of the replenishment system. Overstock or stock-outs are likely to cause frustration because those who work with the parts don’t clearly understand the role they play in the replenishment process.
Although MRP strives to monitor on-hand inventory, it doesn’t do it very well. Kanban solutions, however, provide data that can guide plans of action so that delivery times improve and inventory is reduced.
Despite the widespread use of MRP, Kanban has replaced MRP based replenishment at many companies across several industries. Kanban saves time and money by reducing the non-value added activities required to manage replenishment via MRP such as time-consuming cycle counts, excessive expediting, over-ordering.
Is MRP really all bad?
Despite its shortcomings, MRP is not really all bad. The Falcon team believes that MRP is a very powerful tool for the right application. That application is planning. No matter how you define the M and the R in MRP, the P is a constant: Planning. MRP is great for scenario planning and demand modeling. It simply fails at replenishment management. That is why we recommend that manufacturers use MRP for resource planning, but use a lean, pull-based solution such as Kanban to visually manage replenishment. That is, rather than thinking of Kanban and MRP as exclusive methods, it’s far better to think of them as complementary methods, greater than the sum of their individual parts.