Getting Lean on scrap
Every year manufacturers lose profits when they scrap materials and finished goods because of damage or obsolescence. The cost of scrap is far more than the cost of material itself. Hiding behind every dollar of scrapped inventory are several more dollars lost in storage, productivity, customer satisfaction, and potential revenues.
eKanban software can address many of the common causes of scrap and allow manufacturers to apply Lean principles. As a cornerstone of Lean manufacturing since the 1950s, most manufacturers are aware of the Kanban process (even if it’s not implemented fully in the manufacturing facility).
Manual Kanban systems replaced by eKanban
Manual Kanban had several disadvantages, including the physical movement of the signals (cards) through the facility. It was easy for those cards to get damaged, lost, or misplaced. The more SKUs managed, the more error prone. eKanban software solves this situation by replacing the physical cards in the manual process with an electronic signal. Those who use them typically replace manual Kanban processes with an eKanban system when exceeding 200 SKUs.
Because there is less physical movement in an eKanban system, the number of steps required can be reduced drastically. One manufacturer reduced the number of steps in its replenishment process from 66 to six by replacing its manual Kanban process with eKanban software. With fewer steps, learning to follow the process also takes less time, as well as reduces the chance of human error.
Reducing inventory and lowering cycle times
eKanban focuses manufacturers on reducing inventory and lowering cycle times. It also helps best practice operations reduce scrap as part of continuous improvement efforts. There are several reasons a manufacturer might need to scrap materials, including work in process (WIP) or finished goods. Defects can be introduced by damage that occurs during handling or storage. Materials may expire and no longer be fit for use. Alternatively, they may become obsolete as demand for a particular part subsides or when new and improved materials become available.
Damage during storage
Overproduction is the main cause of excess material. WIP and finished goods remain unused for extended periods of time. eKanban is the fundamental principle that nothing is produced until needed. Following this basic principle of pull manufacturing reduces excess finished goods and WIP inventory.
Time spent in queue
Rarely is the time spent in queue calculated, yet it represents as much as 80% to 90% of cycle time in a facility that has not applied pull-replenishment policies. Queue time is the ability to increase flow through a manufacturing facility. It also means materials and WIP spend less time piled up in front of a work cell where they may be damaged.
Metric queue turns
Queue turns equal produced hours divided by queue hours. "Queue turns" is a measure of how often the queue in front of a resource turns over within a given period. That covers WIP and finished goods inventory, but supplier inventory also must be addressed. Because eKanban signals are electronic, it is much easier to extend pull-replenishment practices to suppliers as well. Reducing raw materials inventory also decreases time spent in storage and the likelihood of damage or obsolescence.
With a supplier eKanban, external suppliers receive replenishment signals just like internal suppliers. The external suppliers then fulfill these orders against a blanket purchase order or other long-term agreement, providing a streamlined process that expedites fulfillment and greatly reduces the amount of paperwork involved.
A supplier communication portal provides real-time visibility of order status and delivery dates to the manufacturer and the supplier, making collaboration possible and optimizing supplier performance management.
The ability to automatically resize the number of Kanban loops based on current order demand, supply status, and the realities of the shop floor ensures accurate 24/7 data. When demand goes up, the number of eKanban loops increases so that production automatically responds to the increase in orders. The same is true when the demand goes down.
One of the practices many manufacturers put in place when they implement eKanban is strict adherence to first-in, first out, or FIFO. eKanban signals can direct personnel to the appropriate lots or locations so those items received in inventory first are the first consumed.
This function drastically reduces scrap in most facilities. In Lean manufacturing, scrap (defects) is one of the eight areas of waste, suggesting that it is an issue for many manufacturers and should be included in overall continuous improvement efforts. Many manufacturers are so busy focusing on lowering inventory levels and meeting delivery dates that scrap levels often are overlooked.
Kirk Studdiford is the director of Client Services for Synchrono. He is recognized as a leader in establishing creditability with manufacturing operations, supply chains, and IT leaders. Throughout his career, Studdiford successfully has implemented a wide variety of technologies emphasizing the merits of Lean and demand-driven manufacturing principles.
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