Kanban and ERP

It is a common misconception in manufacturing that Kanban methodology is at odds with ERP. After all, Kanban is a ‘pull’ system that pulls inventory through production as it is needed. In contrast, traditional ERP is a PUSH system that pushes inventory into a warehouse for stock. But, today’s modern ERP solutions are far more nimble and work in harmony with lean manufacturing principles like Kanban to reduce inventory, generate real-time data, and streamline processes. How can Kanban and ERP work together? Let’s examine these concepts.

Kanban and Traditional ERP

The Japanese word “Kanban” means “signal card.” In its simplest form, Kanban is a card-based production system used to track inventory and control output. When assembly or stock items run low, reorder cards are used to signal the need for replenishment. The new supplies arrive and production continues uninterrupted.

Kanban is a lean manufacturing method that pulls production through the system based almost entirely on demand. This greatly reduces waste because items are produced on an “as needed” basis, eliminating large inventory reserves that can be costly. The use of cards and signboards allows production personnel to clearly see how many orders have been placed and when orders have been filled. Processes are streamlined and problems are resolved quickly.

In contrast, traditional ERP solution is often based on forecasts, not customer orders. In these situations, production is pushed along by the forecasts to create inventory that is warehoused. When orders are placed, the inventory is used to fill them. This traditional approach to ERP doesn’t work well with Kanban because it is not based on customer orders and doesn’t drive production in real time.

Kanban and Modern ERP

Today’s modern ERP systems operate in real time, driving production and streamlining processes through data integration. When a customer order is placed, demand is created in the system. Production planning then responds to the demand by creating and scheduling jobs. Because the ERP system supplies accurate information, Production can easily determine if materials are available. If supplies are needed, Purchasing communicates with suppliers via the Electronic Data Interchange (EDI) feature of the ERP system. This results in accurate purchasing plans and delivery schedules. The ERP system also records production as it happens, creating and tracking Work in Process (WIP), while depleting the inventory of supplies in real time. Finished goods are then labeled and shipped to the customer.

In these modern ERP systems, the physical cards and signboards of Kanban are simply replaced with electronic versions. These electronic visual signals indicate when it is time to bring in more materials for production or distribution, similar to the signals used in traditional Kanban. Today’s ERP systems use bar codes and databases to track production and inventory, allowing employees to track production from any location where computer access is available.

These features allow modern ERP and Kanban principles to co-exist, delivering the benefits of both to a manufacturing facility. Production is streamlined, inventory costs are kept in check and the facility increases profit.

Revolution Group has been helping manufacturers streamline their operations for more than 20 years. If you would like to learn how we can help you reach your goals, give us a call at 614-212-1111. We would love to change the way you think about ERP.