Distributors should look to digital Kanban

By Thomas Cutler -- Industrial Distribution, 7/9/2007

Distributors must continually innovate to maximize productivity and reduce total costs. Initiatives of process improvement and waste reduction can result in cost-saving efficiency.

Productivity is output, efficiency and production. Waste is identified in many ways, yet ultimately it is any activity that requires allocated resources but adds no value from the customer’s perspective.

Some activities, while not directly adding value to a product or process (such as time spent on equipment maintenance or an accounting function) are necessary and must be perpetuated. But non-value-added activities must be constantly reevaluated and, if necessary, identified as waste and eliminated.

For example, many distributors still maintain inventories of a million plus items. Even with extensive networks of distribution centers to ensure prompt and reliable deliveries to their customers, their success is still not guaranteed. Despite long-standing relationships with thousands of manufacturers, many distributors lack an integrated approach. This costs customers time and money.

Purchasing organizations wrongly assume that “just-in-case” inventories are less costly than the cost of downtime or lost production. Preparing for an emergency or downtime situation usually creates inventories of items never used. Your lean procurement activities must be directly related to production, otherwise they become waste themselves. Many organizations implement lean strategic sourcing initiatives, yet still find that nearly half their purchases are spot buys or unplanned.

A key component to a lean initiative is the use of Kanban, the “pull” method of keeping production lines suitably stocked with inventory that’s available when needed and in the correct quantity. Kanban is the signal needed for inventory replenishment, and as a product is consumed, an order for the utilized inventory is automatically placed. Digital kanban is the leanest methodology for a demand-driven supply chain.

Supplier consolidation can lower costs and improve productivity, but only if there is a complete understanding of the customers’ needs and goods. According to Stephen Parker, CEO of North Carolina-based Datacraft Solutions, “The reduction of waste associated with rarely used items in inventory allows distributors to focus on core competencies. No time should be wasted sourcing and procuring infrequently used items. Digital Kanban re-orders, based only on actual consumption, are electronically communicated during each phase of replenishment.”

Daily Demand Import Interface (DDII) provides alternative sources for inputs necessary to derive optimal inventory levels for large numbers of parts or card sets within the existing product base. Using a DDII tool allows distributors to quickly and easily upload average daily demand data and reset the calculation.

DDII Web applications have three major components: Import Demand, Calculation Reports and Print Cards.

• Import Demand: Allows distributors to modify and upload new card set information into a pull-based Kanban solution. Users must be able to download current card set information and make changes (such as minimum reorder quantities and delivery schedules).

• Calculation Reports: The “calculation reports” interface must provide users with the ability to see all uploaded and processed demand data. The data is then processed and validated; valid data is accepted and any errors are flagged for users to review, correct and resubmit.

• Print Cards: The “print cards” component enables users to print new cards for any card-sets modified during a DDII session.

“In many organizations the groundwork for what needs to be built, in what quantities and by when, has already been analyzed,” says Parker. “This new approach…provides the ability to upload/import data…to accommodate defined or changing schedules.”

Demand-driven replenishment creates a tier of distribution and supplier networks. While forecasts may prove helpful in predicting “big-picture” demand, more often than not they are poor indicators of the precise products that will be needed.

Lean procurement today requires digital Kanban because it is ultimately a demand-driven, lean optimization tool that allows for both flexibility and responsiveness, thereby eliminating waste, increasing productivity, and holding to the cardinal rule of continued process improvement.

Thomas Cutler is the president & CEO of TR Cutler, Inc., a marketing firm based in Ft. Lauderdale, Fla. www.trcutler.com
He can be contacted at trcutler@trcutlerinc.com.