by Burkard J. Kiesel1, Peter Kluge2, Andreas Gillessen
With the introduction of Kanban control for the production of components and the JIT principle for the assembly of the end devices of the Bohème writing instrument family in March 2003, Montblanc laid the foundation for improved delivery readiness, shortened throughput times and reduced inventories. The total stock reduction potential amounts to 48% of the existing stock value at the start of the project. Due to the successful launch of this project, the Meisterstück writing instrument family will also be converted with immediate effect. From a project management perspective, the “go-live” of Kanban went particularly smoothly. In operation, the solution developed especially for Montblanc impresses with its simplicity and transparency for every employee.
After Montblanc, with the support of Abels & Kemmner, had reengineered the sales planning process last year, from budget planning and the forecast process to rolling monthly demand planning (see Potentials issue 1/2002), the project plan included ensuring the delivery readiness of the central warehouse in Hamburg and reducing throughput times and stock levels. Due to the high level of vertical integration, the long replenishment times and the large and constantly growing number of variants, efficient value chains should be established by setting up decentralized organizational control loops that reduce the supply risk at all production levels to a minimum. However, the MRPII logic used (see diagram), with its very high coordination effort, did not deliver satisfactory results. The previous approach lacked flexibility, particularly in the event of short-term fluctuations in demand for individual end products. In order to ensure delivery readiness on the market, excessive inventories were necessary along the entire value chain up to the finished goods warehouse.
At Montblanc, the main lever for improving delivery readiness while simultaneously reducing inventories was to set up JIT production and thus shift inventories from the variant-rich end device to the variant-forming component level. The analysis of throughput and set-up times had shown that JIT production was possible without major costs. However, setting up JIT production requires a reliable supply of components and purchased parts for final assembly. For this reason, a central Kanban warehouse was set up before final assembly, as well as further Kanban warehouses before various upstream production stages. Suppliers are currently also gradually being integrated into the system.
Thanks to the precise design of the Kanban system and the intensive and thorough preparatory work, the “live switch” to the Kanban system was able to take place without any problems. The carefully prepared changeover was completed in just three days. As Kanban systems are self-controlling systems that, in principle, do not require an additional IT system for production control, the Kanban system at Montblanc was designed in such a way that production can also run without the SAP system in use. At the same time, the SAP processes were redesigned so that they do not hinder the processes of the Kanban system with additional administrative work. The employees only open a production order at the start of production of a batch size and report it back again after completion. No further SAP processes are necessary. All stock and stock transfer postings are already automated in the background. Over the next few weeks, the Kanban system will be linked even more closely with the SAP system. SAP’s own Kanban control system is being introduced for this purpose. In future, orders will be opened and closed automatically by scanning the barcodes on the Kanban cards. This all sounds very easy. However, many details had to be considered in order to successfully introduce the Kanban system.
Establishment of the just-in-time principle (JIT) in final assembly
Thanks to the short set-up times and short throughput times, writing instruments can be assembled in small batches in final assembly and forwarded to the central warehouse for replenishment at short notice. These were the decisive prerequisites for the introduction of the JIT principle in final assembly. The component warehouse for supplying final assembly was designed as a Kanban warehouse to ensure that sufficient components are always available. The assembly of the end devices is triggered directly on the basis of customer orders or on the basis of sales planning to replenish the central warehouse. This approach made it possible to shift increased warehousing away from the end device and back to a lower level of the value chain (components instead of end devices).
Thanks to the security of supply of components in final assembly, it is now possible to respond to and meet changes in market demand at short notice. In addition, by shifting warehousing to a lower stage of the value chain, but above all before the actual variant-creating production stage, a higher delivery service was made possible while at the same time greatly reducing stock levels. In addition, the assembly of the end devices, which is closely aligned with customer demand and sales planning, enabled the replenishment requirements of the upstream production areas to be harmonized to a greater extent, thereby reducing existing supply bottlenecks in preproduction.
From the push to the pull principle
With Kanban, replenishment or additional deliveries may only be made if a certain quantity of a certain article has been consumed at a certain point. Cards (Kanban) or the production containers themselves serve as information carriers for communication between the producing and receiving areas. Material is thus only drawn according to actual consumption. Kanban is simple, it demands and promotes the autonomous control of production units and creates transparency regarding consumption and stocks.
If the downstream value-added stage (customer) requests parts from the upstream value-added stage (supplier) via Kanban, the latter is responsible for the correct subsequent delivery, particularly with regard to the time, quantity and quality of the parts to the consumer (customer). This conversion first required an organizational change in the affected production areas. For this purpose, an organizational set of rules was established for each individual production area, which defines the control behaviour according to the respective inventory limits. Smaller reject quantities are balanced out by the available order-independent Kanban buffers, so that the desired order quantity can be served in each case. Likewise, fluctuations in demand (within certain limits) are dynamically balanced out by a faster or slower circulation of Kanban cards and containers. The targeted arrangement of Kanban buffers before variant-forming production steps and at stages with low added value has also relieved production capacities and reduced stock levels.
At Montblanc, the main Kanban warehouse is located before final assembly. In addition, there are further Kanban warehouses in upstream production areas. The employees in final assembly take their components from the Kanban warehouse according to the SAP production orders. The goods are so-called plugged goods that are stored in styrofoam trays or bulk goods. A roller warehouse serves as a Kanban warehouse for the bulk goods. When a container is empty, the employee throws the Kanban card into a so-called Kanban mailbox. The Kanban transport visits the production areas 3 to 4 times a day to deliver or collect the Kanban cards and transport the full Kanban containers to the other production areas or to final assembly.
The production areas were equipped with the greatest possible flexibility within the framework of the defined Kanban rules. Every employee must adhere to these rules. Although this requires a high degree of discipline from everyone involved, experience has shown that it rarely poses an acceptance problem, as in a well-designed Kanban system the interrelationships are clear to the employees and the necessity of the rules is therefore understandable. The flexibility of the production areas is ensured via “traffic light functions”. The circulating Kanban cards are delivered to the production areas by the Kanban transport employees. In the Kanban board, each component has a green, yellow and red area. If the Kanban cards are in the green area, production may not begin. Only when the yellow area is reached is it up to the area manager to decide whether to produce or not. However, if the red zone is reached, production must be started. The production areas use these “can” and “must” limits to control their capacities. These area limits allow the production areas to determine the time and quantity of subsequent deliveries themselves. They open up scope for flexibility and optimization for the production areas. To design these areas, all production-relevant parameters such as container quantity, number of parts per container, minimum and maximum production batch sizes, lead, set-up, production and transport times as well as reject quantities, customer production batch sizes, etc. were taken into account.
The existing flexibility in production planning minimizes the supply risk for downstream areas. In addition, setup-optimized sequence planning is possible and productivity potential is uncovered thanks to the autonomous self-control of employees.
Concession for more transparency
Kanban control is best suited for items with regular consumption (XY components). The analysis of the movement data at component level at Montblanc showed that, with the exception of a few components (e.g. large spring units), all components exhibited consumption behavior suitable for Kanban control. What remained, however, were Z and Z2 components with sporadic consumption behavior, for which Kanban control is not the most efficient solution. However, to ensure that the overall system can be set up and managed easily and with minimal coordination effort, these components were also converted to Kanban. These components, which are difficult or even impossible to forecast, were given a higher safety stock in order to guarantee the required security of supply. In purely mathematical terms, the optimum stock level was not achieved, but the advantages of transparent planning outweighed the benefits of minimal stock levels: the administration and control costs remain manageable and the risk of missing quantities due to new production orders not being triggered on time is also reduced, which further calms production and ultimately ensures quality.
Kanban and purchasing management
The introduction of Kanban with external suppliers at Montblanc differs from the customer’s perspective only in that external parties are integrated into a control loop. When integrating external suppliers, it is advisable to always control the entire range of articles via Kanban so that different control mechanisms do not exist in parallel. Consequently, the selection of items suitable for kanban is always linked to the selection of suitable suppliers. At Montblanc, all suppliers who only deliver a few, mostly low-value components were not converted to the Kanban system. Reorders from these suppliers are controlled via a reorder point procedure so that the pull principle can be maintained here as well and there is no need to switch to the push principle of classic MRPII logic.
The changeover to the Kanban system has not yet been completed for the other suppliers, as the process stability/quality at these suppliers is still inadequate and should not be “bought” by Montblanc through increased incoming goods inspection costs. A supplier qualification project is therefore currently underway. Once this has been successfully implemented, the selected suppliers will deliver with a process stability and quality that completely eliminates the need for an incoming goods inspection by Montblanc. The first deliveries have already been made in accordance with the requirements jointly developed with the suppliers. The first conversions to the Kanban system are now pending.
In addition to process stability, there was also the problem of long replenishment times for some suppliers. The replenishment times were often set too generously by the system, which inevitably led to overstocking. However, reducing replenishment times and batch sizes is another key lever for reducing inventories and inventory values, in addition to shifting inventories to upstream production stages. They were therefore revised and in most cases could be shortened without major negotiations with the suppliers. A further reduction in WBZ and batch sizes will therefore be the task of the coming months.
In order to further streamline external material procurement processes, framework agreements are currently being concluded with suppliers. In future, MRP will only call up the Kanban requirements from these contracts. Suppliers are also integrated into Montblanc’s sales planning to enable optimal production planning and control.
Implementation and introduction
The introduction of Kanban began with a change in the working methods and behavior of the employees involved at Montblanc. This alone necessitated the decentralization of production control back to the individual production areas. One of the main reasons why many companies have problems when introducing Kanban systems is that employees are not prepared to comply with the Kanban rules. They manufacture for stock, stockpile components, do not adhere to batch sizes or throughput times. If the employees are not convinced by the system, they do not adhere to its rules and thus cause the system to fail. A key success factor in the introduction of Kanban at Montblanc was therefore the integration of employees into the system concept. All organizational processes were developed together with the employees in the respective production areas. In this way, the employees’ trust in the concept and their understanding and identification with the overall processes and the detailed processes of the respective production areas could be created.
In practice, however, many companies experience a disaster during the introduction phase because the system has not been adapted to the reality of production processes. At Montblanc, all relevant material, information and order handling processes were therefore recorded before the actual dimensioning of the control loops and tailored to the requirements of the Kanban processes together with the employees in the production areas. The processes were considered under the following aspects:
- Is a flow principle across production area boundaries possible without setting up a Kanban warehouse?
- If a Kanban warehouse is indispensable, can it be set up at a lower value-added stage or before a variant-forming production stage?
- Can production and set-up times and batch sizes be reduced?
- Is the process stability sufficient to guarantee production times and is the process quality controllable?
- Is the capacity situation (employees / machines) sufficient or sufficiently flexible to guarantee security of supply?
- Are the discipline and qualifications of the employees sufficient for managing the Kanban system?
All identified major reorganization potential was deliberately postponed until after the introduction of Kanban control. On the one hand, this made sense because initial experience with the new system in live operation can only be gained after the Kanban introduction and this has a decisive influence on the question of how the processes can and should be changed. This also avoids duplication of work. On the other hand, the changeover to Kanban should not be delayed by other reorganization projects.
As already explained, the use of a Kanban system requires comprehensive qualifications and a high level of discipline on the part of employees (and external suppliers!). As part of the Kanban system, you are responsible for ensuring that components are delivered on time and in the required quality. The actual reason for the considerable reduction in the control, coordination and booking effort of Kanban control lies in this increase in the employees’ self-control competence. The selection and training of employees therefore played an important role during the implementation phase.
Don’t lump everything together
At Montblanc, the characteristics of the range of articles place very different demands on the dimensioning of the Kanban control loops. There are production areas that work with large batch sizes due to the process and other areas that are characterized by minimal to no set-up times. The only way to do justice to these different areas was to differentiate the Kanban dimensions accordingly. The actual dimensioning of the individual Kanban control loops and thus the determination of the number of Kanban types in circulation was therefore placed on a broader, mathematical-analytical foundation. When dimensioning Kanban control loops, often only the replenishment time per Kanban, the average consumption of the article (historical), the quantity per Kanban container and a so-called safety factor are taken into account. With this approach, the number of Kanban cards in circulation and thus the stock level essentially depends on a factor that is not determined mathematically and analytically, but on the basis of a “gut feeling”. Important determinants such as
- Lot size of the supplier (collective kanban)
- Batch size / consumption of the customer
- Consumption behavior of the article (XYZ behavior) and thus the correct safety stock
- Reject factors and
- the future consumers
are usually not even taken into account. However, it is not possible to optimize inventories, throughput times and the delivery service. This is the second main reason why many companies struggle with the introduction of Kanban and do not achieve the desired success.
One of the major weaknesses in the dimensioning of a Kanban control cycle is the calculation using consumption from previous periods. In the dimensioning for Montblanc, on the other hand, the “future” in the form of rolling sales planning was used for the underlying consumption values. As a result, Kanban at Montblanc has become an acting rather than a reacting control system.
Another weak point of existing Kanban systems is often the lack of regular resizing of the system. However, re-dimensioning must be carried out quickly and easily at regular intervals or as required, whether due to changes in sales forecasts or production parameters. At Montblanc, the scheduling department is responsible for this. It will carry out the resizing of each individual item as required or at regular intervals. The result of the redimensioning is a change in the number of Kanban cards in circulation. If the number of cards is increased, the additional cards must be fed into the system or withdrawn from it if the number of Kanban cards is reduced.
The calculation of the yellow and red areas of the Kanban boards and a simulation of the capacity situation of the individual production areas were carried out at the same time as the dimensioning of the control loops. The simulation calculates the maximum and minimum number of set-up operations required per time unit and compares these with the existing capacity situation. In addition, the storage space required for the Kanban items was dimensioned by calculating the minimum, average and maximum storage space required per item and Kanban warehouse over time. This data ultimately formed the basis for the procurement of sufficiently large Kanban boards and shelving systems.
PPS systems and Kanban
Since Kanban is a self-controlling system, it does not require an additional PPS system in principle. Therefore, when implementing Kanban, the aim should not be to forcibly integrate existing PPS systems into the Kanban system. Rather, it is necessary for the PPS system to have a logical interface to the Kanban system. The Kanban system at Montblanc was therefore designed in such a way that production can also run without the SAP system in use. Nevertheless, an image of the production processes in a PPS or ERP system is required for order accounting, procurement and inventory planning.
Why not make direct use of the Kanban functionality of many ERP systems? A key feature of a Kanban system is the visualization of all processes for all employees. This is not possible by mapping a Kanban board purely in the ERP system. At Montblanc, for example, SAP Kanban will run in parallel to the manual Kanban system in the future, but normal users will not notice this. You simply set different statuses in the system by scanning the barcodes on the Kanban cards. This synchronizes the material balance in the SAP system with the physical stock changes. Another argument against pure Kanban control via the SAP system is that the SAP system currently still has major weaknesses in Kanban dimensioning and has no solution for processing collective Kanbans.
Summary
The success of Kanban lies in the self-control of the production areas within the framework of the defined Kanban rules and the exclusive focus on customer requirements. The self-regulating control loops reduce the complexity of the entire logistics planning process. This makes the permanent intervention of the central control system in the processes superfluous. However, it remains a permanent task for all employees involved in the system to further optimize the value chains in terms of throughput times, delivery service and inventories by further improving the framework parameters such as batch size, set-up and production times, reject rates, etc.
1 Burkard J. Kiesel is Director of Technology at Montblanc-Simplo GmbH
2 Peter Kluge is Head of Production Technology and Project Manager for the Kanban project
