Last month I discussed supply chain management (SCM) and vendor lead times in rather simple terms and how important this management matter is to the overall performance and profitability of your company. We also looked at Ajax Fine Cabinetry — a fictitious name for an actual company — and how it developed a relationship with a supplier of lumber that was a good example of SCM. The lumber company agreed to add value to its services by placing six species of kiln-dried lumber at Ajax on consignment.

Whenever Ajax had a custom order for cabinets from cherry, oak, maple, ash or other species, its employees did not have to worry about the lead time for the lumber. They simply used materials from the vendors inventory and the lumber supplier replenished that inventory weekly and then billed them for it.

Mini-Mart Inventory Control

There is a story I have read from several sources that must have some truth to it. It is supposedly how one of the production managers at Toyota came up with the concept of JIT manufacturing in Japan in the late ‘60s. The concept of JIT was not unique or new 50 years ago, however its unique application to manufacturing at that time had a profound impact on how we look at production today and is the foundation of some of the lean manufacturing principals we have discussed on these pages many times before.

It seems that the Japanese production guru was in a mini-mart during a visit to this country. He noticed that a large number of people were coming in and purchasing a variety of products. For example, someone came in and got a quart of milk and a loaf of bread. Another came in and got a soda and potato chips. After observing this for a while, he was confounded because the inventory or stock of the items was very small compared to the rate of sales.

He noticed that the space for the bread would hold only about ten loaves and that there was space for only a dozen or so bottles of milk. In fact, the entire store seemed too small. Being a production specialist, he quickly calculated that the store would be out of many items within a day or two. He had to find out how the store manager handled this.

He asked the store manager how he could run his store since it looked as if he would be out of stock in just a matter of a day or two. The manager explained that if he returned the next morning at approximately 5 a.m., he would see the milk truck pull up and re-stock the cooler. Similarly, the bread truck and potato chip vendor would pull up and re-stock their products, pulling the oldest up to the front of the shelf and placing the new in the rear of the display — thus assuring a turnover of older products first. The clerk then explained that those drivers would continue on to their next stop and do the same at another store.

Upon further investigation of the process, the production manager found that the bread company and other vendors had inventories at their warehouses and that when that stock got to a certain level, it triggered action to bring that level back up to a pre-determined amount sufficient for the truck drivers to meet the needs of the mini-marts on their route.

The production manager saw the wisdom in this and saw an application in supplying the components for manufacturing automobiles. It became a cornerstone of the Toyota Production System that launched a manufacturing revolution in Japan. Unfortunately, it took many years for United States car manufacturers to catch on to the benefits of JIT supply chain management and JIT production scheduling.

To this day, this production system is often referred to as the supermarket production system. Ajax was using this with their lumber stocking plan we mentioned last month. I want to look at applications for your company this month and next, and I hope that you will take the time to consider how you can apply these concepts in your shop or plant.

Pull Systems for Inventory Control

Another way to describe the supermarket system is that it is a pull system — and the mini-mart analogy is a very good way to define such a system. The bread truck driver delivered what was needed to replenish only what the customers bought. He did not force the mini-mart to take a case of 25 or 50 loaves. Instead, he replaced the stock to a pre-determined amount that the store manager had specified. This amount was calculated from the sales records and the adjusted seasonal demand by their customers — or the amount pulled from the shelf by the customers.

Some types of pull systems have a place in every plant. The use depends on the complexity of the products and their manufacturing processes, the mix being manufactured and other variables. Pull systems can be used for inventory control and have been around for a long time. One of the simplest ways to avoid a build-up of excess inventory that may become obsolete is to use one of these systems that is often called the “two-bin system”.

Every manufacturer uses a variety of parts and supplies that it purchases for use in the manufacturing process. Some examples may be screws, glue, plywood, hardware, etc. The common way to keep the inventory is on paper or computer, and then to re-order when the level reaches a pre-determined point. This works if inventory counting and withdrawal accounting is accurate, timely and is turned in correctly to purchasing. The parts are usually in a storage room with limited access to provide controls for this process.

The two-bin system starts with two batches of products in stock. Each batch represents the amount of the item you will use during the replacement lead time of your vendor. For example, you use one box of sandpaper per week and it takes three weeks from time of order to delivery of your order from your sandpaper vendor. You would have two “bins” or marked areas where you would have three boxes in each. When the last of the three boxes was pulled from bin #1, you would place an order for three new boxes. You now have the second bin with a three-week supply of sandpaper, plus what is on the factory floor, while your re-order is in process.

If usage increases, you may have to increase each bin to four boxes or five. However, the nice thing about a pull system is that you will not risk a build-up of inventory. This system is not for every item in your plant, but it can help eliminate the cost of inventory and the cost of outages.

If you add a simple card that has all reorder information on it to this system, and this card is sent to purchasing as soon as the last box is pulled from bin #1, you have a KanBan system.
Next month, I want to show you how you can build on this idea and use KanBans to schedule parts of your plant and eliminate bottlenecks.

Tom Dossenbach is the managing partner of Dossenbach Associates LLC, a Sanford, NC-based international consulting and research firm. Contact him at (919) 775-5017 or e-mail [email protected]. Visit his Web site at www.dossenbach.com. Past Management Matters columns are archived on www.iswonline.com.

By Tom Dossenbach