The third lean principle of The Toyota Way states the following:
“Use PULL systems to avoid overproduction”.
This means that the ideal state is to manufacture or offer products and services when the customers requires them and not before by producing stocks.
Taiichi Ohno said that: “The more inventory we produce and hold, the less chance to have what the customer demands when it is required.”
Holding and managing stocks is a non-cost-effective operation which does not add any value at all. Activities such as,
- Movement of inventory.
- Increase of internal logistics activities.
- Traceability for the new stored goods.
- More workforce to manage the increment of stocks and inventory.
- Machinery and workforce manufacturing production which is not sold already.
- IT activities such as printing labels, managing digital data or others.
are a burden for the generation of profit.
Example: A Lean technique which is commonly used for implementing PULL systems is Kanban.
The purpose of the Kanban system is to have a controlled queue of materials (raw materials, WIP) ready to be pulled by the process which comes afterwards. After the materials are pulled a signal (which can be a card, or and message through the software installed, for instance) is sent to the preceding process step to replace what was consumed.
The most common example of a pull system is a supermarket. When you pull a single product off the shelf, you create an empty gap. At a regular interval, shelves will be checked for quantities of goods removed and purchased and a stockperson will replenish those purchased goods. This check can be done by using an ERP (automatically) or by an operator (manually). The replenishment can be also performed by an automatised system or by an operator.
The key concept of a pull system is to have the smallest quantity of items that are needed, and replenish what is taken only when it has been taken. This managing system helps to avoid overproduction and overordering.
Kanban is a scheduling system for lean and just-in-time manufacturing (JIT). Kanban is an inventory-control system to control the supply chain.
Kanban has become an effective tool to support running a production system as a whole, and an excellent way to promote improvement. Problem areas are highlighted by measuring lead time and cycle time of the full process and process steps. One of the main benefits of kanban is to establish an upper limit to the WIP (Work-in-process) inventory, avoiding overloading of the manufacturing system.
Toyota started studying supermarkets about 70 years’ ago, with the idea of applying shelf-stocking techniques to the factory floor. In a supermarket, customers usually retrieve what they need at a certain time. In addition, the supermarket stocks only what it expects to sell in a given time, and customers take only what they need, because future supply is always assured. The last observation led Toyota to view a process as being a customer of one or more preceding processes, and to view the preceding processes as a kind of store.
Kanban also aligns inventory levels with actual consumption. A signal tells a supplier to produce and deliver a new shipment when material is consumed and demanded by customers.
Kanban is part of an approach where the “pull” comes from demand. Supply or production is determined according to the customer orders. In companies where supply time is long and demand is difficult to forecast, the best that can be done is to respond quickly to observed demand. This situation is what a kanban system accomplishes, in that it is used as a demand signal that immediately travels through the supply chain. Ensures that intermediate stock built within the supply chain is better managed and smaller. Where the supply response is not quick enough to meet demand fluctuations, and causing potential lost sales, stock building may be more appropriate, and is achieved by introducing more kanban in the system.
Taiichi Ohno stated the following six rules that, to be effective, kanban must follow:
- Later process picks up the number of items indicated by the kanban at the earlier process.
- Earlier process produces items in the quantity and sequence indicated by the kanban.
- No items are made or transported without a kanban.
- Always attach a kanban to the goods.
- Defective products are not sent on to the subsequent process. The result is 100% defect-free goods.
- Reducing the number of kanban increases the sensitivity.
Kanban cards are a key component of kanban and they indicate the need to move materials within a production facility or to move materials from a supplier to the production facility. The kanban card is a message that indicates the depletion of a product, parts, or inventory. When received, the kanban triggers replenishment of that product, part, or inventory. Consumption, therefore, drives demand for more production, and the kanban card signals demand for more product. Kanban cards help create a demand-driven system.
As a conclusion, the ideal system in where you only produce what demand requests is very difficult to achieve as there are many external factors which you cannot control and which may oblige a company to build a small stock in order to cope with customer orders. An example of these external factors may be:
- Machines breakdown.
- Workforce absenteeism.
- Non-predictable demand fluctuation.
Services or manufacturing companies should balance their implementation of a 100 % PULL system by taking into account the externalities which cannot be controlled and lowering their inventories as much as it it possible by assuring quality, quantity, delivery and happiness to their clients.