When to use Kanban over a Reorder Level
Very often I see material planners using a reorder level procedure when Kanban could be a much better choice. Why? Because they think Kanban is difficult to set up and manage (or their advisors do not know about Kanban).
In any case; both are consumption based strategies, meaning that the replenishment is driven by its consumption history. The history determines the inventory level for the replenishment signal – in the reorder level procedure it’s the reorder point and in Kanban it’s the container quantity.
Therefore both procedures are much alike. However there are some very important differences.
Kanban in SAP does not require the MRP run to generate a replenishment order. In reorder planning the MRP run gets a signal after the reorder point is broken. But there passes some time before MRP runs and then all it does is creating a proposal. Kanban generates the replenishment right at the time when the bin is reported ’empty’. And it can create a fixed replenishment (e.g. a production order) right away; and release it too; and print the papers at the work station! All without the MRP run.
Also, in reorder planning you only have one replenishment order at any given time wheras in Kanban you can have many containers and every time a container is empty, an order is created to fill it back up.
Maybe the most important advantage of Kanban is that the replenishment quantity can be calculated using future demand. A reorder level procedure can only look into the past for the setting of the reorder point (considering external requirements with a V1 only increases the current lot size but does not allow for planning with future demand – as the Kanban quantity calculation does).
Setting up Kanban is easy. You create a control cycle in which you identify the number of containers and the quantity each holds, a supply area and a replenishment strategy that determines what replenishment element is generated when a container is reported ’empty’.
And here is a bit of confusion. How do you let SAP know that the container is empty? I have seen programs that use inventory management transactions to set the container empty. That is not how Kanban works! Kanban is a visual system. When a container is empty it should be set to ’empty’ right away. And not after the goods issue is posted.
Use a monitor with the Kanban board or a barcode reader to set the bin to empty. In that case you start the replenishment when you need it and you bring in nothing if nothing goes out. It’s as simple and effective as that.
I can't believe I am the first to comment and the second to like; a reflection on how such concepts have failed to make an impression on consultants!
Very valid inputs. Generally Kanban is considered a visual tool and Re Order Point Planning is a system tool. ROP depends upon the system being updated on time for transactions. People should have discipline to do transactions in SAP as soon as it is physically done. In reality, this is not the case in many companies. That is the reason, there will be a huge difference in each physical inventory counts. In these situations, Kanban is the best as it depends on visual cue rather than system. In recent times, due to the extensive use of mobile applications, Kanban has become much simpler. This Kanban Blog explains how Electronic Kanban system works