Oracle Applications

Inventory Management – the Kanban way

Inventory hides problems

What’s on mind ?

Reduce inventory levels to increase inventory turns

Inventory Costs = Raw Material + Raw material in-process + Work-in-Process + Finished goods

Inventory turns = Annual Requirements / Current Inventory level

When we define standard cost for items, we also define the material overheads. Hence, when we work on reducing the inventory level; the material overheads also need to be seen going down

To reduce inventory levels, concepts of EOQ, MRP, JIT, Supply Chain Planning and Constraint based Planning were applied. Each method has its own set of advantages. However, except JIT to some extent a common disadvantage is found among rest, which is a communication gap between the planning (supplying) team and production (consuming) team. On the other hand, communication is in-built in the Kanban philosophy

What is Kanban ?

● When the inventory is moved only when needed, it is referred as ‘pull’ system

● Kanban is an Just-in-Time inventory replenishment method that was conceptualized in Japan. Kanban is a Japanese word that suggests visual ‘sign’ or ‘signal’

● Pull based on actual usage and not forecast

● Can be used in both manufacturing and non-manufacturing organizations

● Best suited for items with frequent usage, short lead-times and willing supplying sources

● If a Kanban is too small, you might run out of material before it is replenished. If its too big, you carry excess inventory

Kanban in a typical Manufacturing flow

Work cell

Raw Material Supplier

Kanban

Purchased Parts

Supplier

Sub-assembly

Ship

Kanban

Kanban

Kanban

Kanban

Finished goods

Customer order

Final assembly

Kanban

Items are marked as Kanban controlled using the item attribute ‘Release time fence’ as below

Item setup for Kanban

For every Kanban planned item, a pull sequence must be defined which is a series of Kanban locations that model the replenishment network. Kanban location can be a subinventory or locator

Pull sequence

Kanban sources types in Oracle

● Intra-Org

Triggers a subinventory transfer to source material from a different subinventory within the same inventory organization

● Inter-Org

Triggers an internal requisition to source material across inventory organizations

● Production

Triggers a discrete job in a release status so that the material is produced

● Supplier

Triggers a purchase requisition to source material from supplier

Kanban Planning

Check if Kanban is for planning only

If you would enter Kanban size and number of cards, then select ‘Do not calculate’‘Kanban size’ – User needs to be specify the number of cards and Planning process calculates the size‘Number of cards’ – User specifies the size and planning calculates the number of Kanbans

Quantity of units in each Kanban

Number of Kanbans to be included in the item’s cycle

System will hold Kanban cards in wait status until the minimum order quantity has been met by aggregation of cards

* Algorithms used in Kanban planning to be discussed in a separate document

Replenishment Flow

EmptyNew Wait Inprocess

Full

● New card is added based on need

● Empty card sends a replenishment signal to the source

● Wait status until minimum order quantity is reached

● Inprocess status indicates that a job, PO or move order is created

● Full status indicates that Kanban is received

Quick notes

● When items are needed, Kanban cards change their supply status to Empty

● Kanban replenishment request is generated automatically

● If the item is internally or supplier sourced, then requisition is created and inserted into the interface tables. Requisition Import creates the Purchase Requisition or Internal Requisition in approved status based on whether the item is internally sourced or supplier sourced

● If the item is supplier sourced, Purchasing creates a Blanket Release (if a blanket PO exists) or a standard PO. Kanban card status is changed to Inprocess

● Using the standard receipts form, the items are received for the blanket release/standard PO/ Internal Requisition (if internally sourced) and the Kanban card status is changed to Full

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About the AuthorSAM has been working on ERP solutions such as Oracle Applications & Microsoft Dynamics in Implementation & support for past 13 years. Worked with clients in various industry verticals such as manufacturing, distribution, education, construction, professional services, hospitality and aviation across geographies

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