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Kanban and ERP

1 Different approaches

“Kanban and ERP have quite simply different approaches!”

If it were that simple, this article would be redundant. Why is it not that simple? It is complicated to answer this question also.

The most common statement is:

“Kanban pulls and ERP pushes”.

This answer is not necessarily correct. ERP also “pulls”, which means based on a need at a particular time the optimal throughput of the material will be planned in consideration of the capacity.

What makes the difference?

Indeed many features. The system parameters are quite different for both:

Parameters ERP Kanban
Demand Forecast of the demand for the future Current demand by maintaining a defined inventory
Lot Size Optimization relating to direct costs Optimum lot size = 1
Time frame From today to the delivery date Short term
Effective date of the result Point in time in the future Point in time now
Cycle time Determined by costs “Very rapidly”
Degree of capacity utilization As high as possible Insignificant
Workflow at the desk Referring to priorities, on demand, according to various other criteria The first will be delivered, unless an artificially order will be defined

Let’s start with the demand as the first parameter:

If you do not produce in relation to a specific order, the demand in a production chain is always predicted, because at the beginning it is not yet clear what is really required at the end.

The expected sales will not be achieved, orders can be canceled, urgent demand of customers will be ordered, etc. Of course, you are able to produce strictly according to a predeterminded plan, however this behavior is uneconomically for your own market position in a modern economy. It has to be considered that the end consumer constantly changes its buying intentions, influenced not only by economic and political reasons, but also by pleasant and unpleasant changes in the personal situation.

The producer tries to estimate the demand with the help of sales forecasts or production capacity utilization based on fixed contracts (e. g. order contracts). ERP works on these estimations and also Kanban at the end of the chain.

However, with Kanban, changes in demand can be considered in the workflow process. This can be realized by setting up a fixed inventory in the process of production between the workstations which has to be stocked as soon as possible. At short-term reaction times, this fixed inventory can go down toward zero without reducing the delivering timeframe. Thus, a pressure is exerted to reduce the reaction times in order to reduce inventory.  This inventory could be trash when the production of this product is abruptly discontinued or subsequently is recognized as an error.

ERP ideally reacts through the control of the supply chain, meaning by immediate change in the planning going back to the current time according to the motto “forget the past.” This ideal situation will be rarely achieved as usually the system reacts more slowly or does not react at all. This inventory can also be waste. With Kanban, a sustainable and evident pressure can reduce this risk.

The second parameter is the lot size.

In best case the optimum lot size for a Kanban is “one”. You can discuss whether this is correct because the capacity of the container is the objective measure. But this is a purely pragmatic solution because you can choose smaller containers.

Here the motives for the use of Kanban appear.

In the article “Kanban, motives – requirements – introduction” goals were pointed out.

If the goals are:

  • Pressure of the customer and clients
  • Simplified control of material flow both internally and with external suppliers
  • Force to rationaliziaton

the lot size is not productive to reach the goal.

The targets

  • Improvement of the product quality
  • Improvement of the staff communication
  • Increase of the productivity in the manufacturing process
  • Increase of the availability of materials and reduction of missing parts

in combination with the lot size “one” can help to achieve the goals.

The targets

  • Reduction of inventory
  • Visualization of inconsistence in material flow

in combination with the lot size “one” is substantial to achieve the goals.

In the classic ERP, the lot size will be optimized related to the direct costs. This difference has to be considered at the time forming an interface like by a definded lot size.

The time frame in ERP ranges from the present into the future until the delivery date. The whole time frame is used to schedule the production process. The planning will often not be modified and the adaption to the reality of the demand will be carried out by discrepancy to the plan (pre-drawing or missing deadlines). Applying a “transition period” a reserve will be created as a security for the production process.

This stock in Kanban will be controlled by the existing number of kanbans however the goal is the limit to one kanban.

A major difference between ERP and Kanban is the time at which the result of control occurs. ERP is based on a plan for events in the future which sometimes has be adjusted during the production process. Kanban manages the need for an action at the time in which it is required.

An optimum is mathematically seen dependent on the target. This is the point at which the derivative of the function which describes the dependence of the target variable on the parameters is zero.

The cycle time of a production order in ERP is determined depending on the cost, so the production is started when the costs have at least to be a minimum taking into account of the presumed delivery. Very often this means that the production is started as late as possible. This constraint does not apply to Kanban, because there exists only the time “now”. The cost optimization occurs by using Kanban to control the inventory. In this way constraints exist, such as steady quality, exhaustion of reserves in retooling and thereby improving of capacity utilization.

This brings us to the new keyword: capacity utilization.

The planning with ERP is based on the existing capacity structure. The set-up time, downtime, error causes, etc. are not influenced by ERP, but are taken as given. In contrast, Kanban permanently shows an incentive to improve the capacity of machinery constantly, through its ability to reveal faults in material flow.

Another difference is also the order how to scheduled the processes at work. ERP takes into account a possible indication of priorities, but it is planning by taking into account the delivery of a more or less random order. Disadvantages are the mix between small and large lots, because small lots could be distributed so that there is no room for large lots.

Also therefor optimization algorithms exist to seek a way.

With Kanban and the desired small lots as well as the demand for “immediate use”, there is no specific sequence planning, unless you create a distribution board in a specifically way to specify a certain order to optimize the setup time.

2 Interfaces

Kanban always has interfaces to the environment, at least to the suppliers who have no Kanban and at the end to commodity production. Here we are talking about interfaces to ERP systems within a company. In general you can distinguish several types.

The entire production of a business running with Kanban. The ERP system is used to plan, to procure material with long-term delivery time, provide the necessary resources, mainly those persons and mayby also rented equipment to plan long-term maintenance activities.

Then it runs parallel to Kanban, which is assuming that the required material is always in stock and other resources are available.

The prerequisite is that the ERP system always sufficiently accurately determines the demand. This is the easiest solution which is often practiced and has the simplest interface. This condition is only achieved when a company is doing a reorganization or after a long time. But you should not forget that using Kanban is a good way to make problems visible in flow of material, rather than to cover it up with stocks.

Mostly the young or not refined Kanban application only covers a part of the work orders or a part of the production areas. If it includes a part of the production areas, these orders,  in the simplest case, can included an operation for the Kanban area if this area is used. In this case only the feedback process must be organized. And for the surrounding areas, the production orders  are then triggered by the ERP. This solution is a reality, but not desirable. It is possible to achieve a smoothing of the interaction behavior with the Kanban area until a Kanban has developed from these measures by suitable adjustment of the production orders for the remaining areas,

but this is dependent on the will of the management and the capabilities of the ERP system.

The third version,  in individual areas, depending on the product either to control them by kanban or by ERP, is solvable, but rarely insightful. In this case (easiest case), a Kanban operation can be set up which schedules corresponding capacity utilization, or in general the capacity is reserved for Kanban, by reducing the data capacity of the affected plants. Critical for this choice and the implementation of these solutions are the possibilities offered by the ERP system.

The goal should be, however, to control everything through Kanban!

manufactus GmbH in cooperation with Mr. Helmuth Gienke

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