Kanban and the Operations Management Triangle

We are pleased to bring you this article by Evan Durant on Kanban and its application in a real-world environment within the constraints of Inventory, Capacity, and Information – the triumvirate he calls the Operations Management Triangle. He explains the transition from a traditiona MRP environment to a more consumption-based Kanban system and the challenges found therein.

Enjoy this article and learn more about Evan after the jump.

It can be a daunting challenge to set up and manage a kanban system in any manufacturing environment. This is especially true if you are converting from a traditional MRP-driven system to the more consumption-based kanban. Depending on the nature of your operation you may be dealing with highly variable demand for your product, unpredictable supplier delivery performance, variable lead times, high part number counts, material shelf life, or any of a variety of other complicating factors. The truth is that in a complex and variable operation setting up and managing inventory kanban is tricky. Many fail. Others simply give up.

But take heart. It is possible to reap the benefits that a material pull system has to offer, even in such environments. The key lies in understanding how all of the various factors affect the system and in coming up with ways to mitigate them. One useful tool that the science of Operations Management (OM) gives us is the OM Triangle. I will not attempt to explain its history and development in detail. For that, please see this article. Instead, let’s examine its application to kanban.

The triangle shows the interaction, and specifically the substitutability, of 3 key elements of any operation: inventory, information, and capacity. The basic theory is that a deficiency in any one element can be compensated for by increasing one or both of the other two.
Let’s say, for example, that you’re producing widgets. You can ensure that you always meet your customers’ demand for widgets by (1) keeping a lot of finished goods inventory on hand, (2) always knowing exactly which and how many widgets your customers will order well in advance, or (3) having the capacity to immediately respond to new and/or modified widget orders. In reality none of those conditions is both possible and desirable, so you use the other two to compensate.

Here are the implications for kanban:

• Inventory: The expectation (if not the stated goal) of using kanban is to keep inventory low, thereby increasing working capital turnover. But simply lowering inventory levels when information and capacity are lacking can be disastrous.
• Information: There are 2 components to this: information about your demand (how well you can forecast) and information about your supply chain (how well they can deliver). Often it seems that a lack of good information is simply accepted as a given. The link between strong communication among customers and suppliers and reduction of inventory is often not made. The stronger the information systems become the more stable and effective the kanban can be. Also, unpredictable material consumption is often internally driven. Taking the time up front to stabilize operations as much as possible will allow kanban to pay greater dividends later.
• Capacity: The relevant capacity here is that of the supplier. The faster a supplier can respond to a material request the more you can tolerate lower inventories and/or information gaps. Effective communication with suppliers is key to success, as is the recognition of chronic supply issues that must be clearly communicated (information) and buffered against (inventory).

The expectations for each of these 3 elements must be clearly defined, often on a part-by-part basis. Not all suppliers and not all parts are the same. In some cases temporary increases in inventory levels have to be made to compensate for a lack of good forecasting or poor supplier performance. Conversely, supplier improvement efforts and stabilization of operations should be looked upon as vital to inventory reduction.

The important point is that managing a kanban requires a deep understanding of all 3 points of the OM Triangle and where your specific operation fits in to it.

About Evan Durant

I am a continuous improvement zealot currently helping to create, manage, and improve lean value streams in production as well as business processes. I am a student of lean thinking and Six Sigma with a Master Black Belt in Standard Work and 5S as well as a Six Sigma Black Belt. I enjoy being part of the global conversation on lean thinking and leadership.

To learn more about Evan Durant, connect with him on LinkedIn