Top 9 Benefits of Supplier Kanban
While manual shop floor kanban systems are common practice within manufacturing plants,manual supplier kanban systems are much rarer. One of the primary reasons for this is the difficulty faced when trying to scale a manual visual kanban system beyond the four walls of the plant. However, the operational and financial benefits of supplier kanban are so great that manufacturing firms are now looking to electronic supplier kanban systems (a.k.a. supplier ekanban) as the answer to their supplier kanban needs. The following list was compiled from feedback by Ultriva customers over the past 12 years of implementing successful supplier ekanban programs.
Top 9 Benefits of Supplier eKanban
- Elimination of excess inventory in the supply chain - Perhaps the largest documented benefit of implementing a supplier ekanban is elimination of excess inventory. Organizations that transitioned from push or forecast-based material replenishment to pull-based material replenishment supported by supplier ekanban systems routinely realize inventory reductions of 20-75%.
- Building trust in supply chain through collaboration - The best way to build trust with suppliers is to improve communication and collaboration. Traditional methods of communicating with supply chain partners such as email, phone, and fax fall into the category of open-loop processes. Supplier eKanban systems use a closed-loop process where every material replenishment transaction is tracked in real-time from the time the signal is released to a supplier until the time the materials are received. The resulting benefits include improved visibility, better collaboration, improved order fill rates, better on-time delivery performance, and lower overhead costs.
- Improving material availability - Stockouts are the #1 cause of expediting and premium freight charges. Supplier ekanban systems improve material availability by proactively monitoring on-hand inventory and alerting the buyers/planners on potential stock out risks. Simply put, if there are no shortages then there is no reason to expedite. Companies that deploy supplier ekanban report 90% less time expediting and reduced administrative costs by 50%.
Additionally, premium freight can increase logistics costs by 50-150% or more. Since supplier ekanban prevents the root causes of material availability issues, the result is less money spent on premium freight. “No one ever calls for an ambulance and asks, “How much?” When a shipment needs to be expedited, this same principle seemingly holds true,” says Greg Aimi of AMR Research. “Urgency becomes the ultimate priority, with the cost factors and other transportation metrics apparently going out the window.”
- Improving visibility of orders, shipments and on-hand inventory - In traditional supply chains suppliers have limited (if any) visibility into orders, shipments, and on-hand inventory. They rely on weekly or monthly MRP forecasts which are, more often than not, inaccurate. Supplier ekanban systems drive dramatic improvements in supplier responsiveness by providing real-time visibility of actual consumption through a supplier portal. The supplier portal provides an early-warning system with automated alerts about exceptions in supply chain processes.
- Standardizing supply chain processes - One of the requirements to implementing a supplier ekanban system is to adopt standard supply chain processes. This includes using standard lot sizes, standard lead times, replenishment signals based on consumption which collectively drive variability out of the replenishment process while facilitating proper kanban sizing . Also, the standard lot/container size improves the ability for all trading partners to adhere to 5S principles in material storage locations. The increasing popularity of PFEP (Plan For Every Part) , which is enhanced by supplier ekanban, further supports the benefits of standard lot/container sizing.
- Dedicated inventory locations - Dedicated inventory locations, while not required, are much easier to establish and maintain when a part is on supplier ekanban for two reasons. First, with supplier ekanban the supplier is required to ship materials in standard lot and container sizes which often dictate the type of storage. Secondly, maximum inventory levels are more predictable with ekanban allowing you to plan dedicated storage space for each item. Maximum inventory for an ekanban item = (Total # of kanbans in loop) x (standard kanban lot size).
- Lot tracking, inspection and integrating quality in to supply chain - The risk of encountering a quality issue is significantly higher when making advanced purchases of material based solely on special price offers instead of buying what is needed just in time. Supplier ekanban allows suppliers to input lot number, charge number or any other traceability value at the time of shipment. This number could be easily tracked all the way through to finished goods production. By doing so the system integrates quality into the supply chain instead of making it a side process.
- Improving purchasing and receiving productivity - Supplier ekanban systems can improve productivity of purchasing and receiving processes. Receiving processes are streamlined by using a single barcode (or RFID) scan and automating the PO receipt with the respective ERP system. When buyer productivity improves it frees up time for them to act as strategic sourcing agents and focus on continuous improvement projects with supply chain partners. A common theme for strategic improvement projects include supplier lead time reduction and inventory velocity improvement.
- Building a demand driven supply chain - One of the biggest challenges to building a demand driven supply chain is deciding where and how to get started. We have all heard about corporate edicts to conduct supplier kaizen events to help suppliers implement lean principles and practices. Smart companies have recognized that a properly deployed supplier ekanban system becomes a catalyst for building a demand driven supply chain by providing a tool set that systematizes lean best practices; a benefit to both the manufacturing firm and to their supply chain partners.
These are great benefits, but where do you start? A good place to start is with a free inventory optimization assessment to identify candidate items/SKUs to transition from push or MRP forecast-based material replenishment methodologies to pull-based replenishment supported by a supplier ekanban system. Register for a FREE assessment today and we will help you identify which suppliers and parts are the best candidates to start your supplier ekanban program. The assessment also helps you determine the potential financial impact of deploying supplier ekanban. (See benefit #1 above!)