Case StudyBenefits of Transitioning from Manual Kanban to eKanban

Major Medical Device Manufacturer

July 2011

Building the Business Case for Change – How They Did It

Manual Kanban vs. eKanban Process Assessment

1. Created a flowchart (process map) of current state manual kanban processes.

2. Conducted interviews with process subject matter experts (SME’s) and staff to validate the current-state process map and gather estimates of current performance characteristics.

3. Analyzed the quantitative process performance metrics (i.e. Time, Cost, Resource Utilization, Service Level, etc.) required to support the manual kanban process

4. Identified, categorized and prioritized process/systems improvement opportunities enabled by transition to eKanban.

5. Designed the future-state eKanban process and performed comparative analysis to current state.

6. Established business case, presented findings and recommendations to management, gained buy-in and support, implemented eKanban, audited new current-state and adjusted to achieve optimal performance.

1. DrawFlowchart

2. Interview SMEs & Capture Metrics

3. Analyze Performance

4. Capture Improvement Opportunities

5. Design Future-state & Compare

6. Build Business Case, Obtain Buy-in, Transition

RapidProcess

Assessment

Summarization of Benefits –Directly attributable to transition from manual kanban to eKanban

People Process System

Resource time reduced by 92% Process time reduced by 92% Implementation of closed-loop, electronic pull-based replenishment system

Resource cost reduced by 93% Queue Time Eliminated Extensive use of barcodetechnology

Headcount reduced by 50% -reassigned to other areas

Service level increased by 57% Business rules and automated alerts linked to specific workflows

Significant improvement in buyer and supplier collaboration

Process simplified and automated. Went from 24 steps to 13 steps.

Real-time updates on all material replenishment transactions

Transition from reactive to proactive management

Transition from open to closed-loop material replenishment processes

Complete audit trails on all material replenishment transactions

Single version of the truth on all material replenishment transactions

Stock-outs eliminated Rapid deployment (90 days w/ERP Integration) and sub one year ROI

100% adoption by end-users & suppliers

Inventory trending down - $1M+ reduction in first six months

Low TCO

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4

Manual Kanban

Process Analysis

• Staffing Assumptions– 12 FTE Buyers, Burden Rate $28.00/Hr.

– 6 FTE Material Handlers, Burden Rate $15.00/Hr.

• Process Observations– Average Manual Kanban Releases = ~400/Week

– Kanban releases are 100% manual

– Email, fax & phone are the primary means of communication with suppliers

– Kanban card prep./management is labor intensive

– Manual kanban process is open-loop

– Limited capability to collaborate with suppliers

– Multiple failure modes throughout process

– Limited to no capability to track, measure and report on supplier performance

– Reactive vs. proactive management system

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Manual Kanban Process Observations

Manual Kanban Process Flow – Complex and Error Prone!

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Complex Process Steps

1. Process Trigger: KRS Set-up & Management

2. Buyer establishes part classification „K‟, „R‟, „D‟

3. Buyer calculates bin size

4. Buyer creates Kanban Release Sheet „KRS‟

5. Buyer forwards „KRS‟ to WH Material Handler

6. Material Handler sets up bin “consumption and

signal”

7. Material Handler pull parts from consumption bin

8. Decision: Bin Empty

9. Material Handler Switches Consumption and Signal

bin

10. Decision: 2 Bin or ROP

11. Material Handler Faxes to Buyer

12. Material Handler Places original „KRS‟ in Pending

Confirmation Bin

13. Material Handler checks for received confirmation fax

14. Supplier Reply in 24 Hrs.?

15. Check due date & qty.

16. Material Handler attaches copy to „KRS‟ and places

in Buyer alert bin

17. Material Handler files faxed copy in date slot of date

sorter and „KRS‟ in consumption bin

18. Material Handler monitors date sorter

19. Decision: Part arrives on due date?

20. Decision: Parts critical for line?

21. Decision: Parts Qty. and Dock date correct?

22. Material Handler transfers actual qty. and dock date

to „KRS‟

23. Material Handler sends all completed fax copies to

Purchasing Support for entry into Supplier

performance database

24. Process End

Manual Kanban Process KPIs –Per Manual Kanban Transaction

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Key Performance Metrics

Process Time per Execution 18.39

Duration 49.36

Service Level 43%

Takt 5.63

Arrival Rate Per Minute 0.2

Arrival Rate per Wk 400.00

Resource Cost 7.25$

Hours Per Work Period 7.5

Work Periods Per Day 1

Days Per Week 5

Time Units Minutes

Time / Cost Per Manual Kanban Execution

- Releases / Week

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Manual Kanban Resource Time & Cost Analysis –Per Manual Kanban Transaction

Resources

Resource

Process

Time

Resource

Time

Resource

Cost

Buyer 12.25 12.25 5.72$

Material Handler 6.14 6.14 1.53$

Total 18.39 7.25$

Time Units are in Minutes

Probability-Weighted Statistics

Resource Time & Cost

Per Manual Kanban Transaction

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Planning Period 250.00 Days

Time in Planning Period 112,500.00 Mins

Demand Node Number of Items

KRS Set-up & Management 20,000.00

Resource Productivity Factor Available FTE's Available Time Required Time Cost

Buyer 0.75 12.00 1,350,000.00 Mins 237,777.78 Mins 110,962.96$

Material Handler 0.75 6.00 675,000.00 Mins 163,651.11 Mins 40,912.78$

Total 2,025,000.00 Mins 401,428.89 Mins 151,875.74$

KRS Process - Pre Ultriva Annual Resource Time & Cost Analysis

Annual Resource Time & Cost

Analysis to Support Manual Kanban

Manual Kanban Resource Time & Cost Analysis –Annualized (250 Production Days / 20,000 Manual Kanban Releases

Manual Kanban VA/NVA Analysis

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Process Key:White = VA TasksRed = NVA TasksYellow = Failure Modes & Proposed Solutions

Manual Kanban Failure Modes & eKanban Solutions

KRS Failure Modes eKanban Solutions

~1 – 3% of the time the Material Handler would forget to fax kanban release to Supplier. This routinely resulted in stock-outs situations.

Ultriva’s Collaborative Electronic Kanban (CEK) solution supports a closed-loop, pull-based material replenishment process. Electronic material replenishment signals are automatically sent to supplier on scan of empty bin.

~3% of the time the Material Handler would forget to fax ROP sheet to Buyer. Routinely resulted in stock-outs.

CEK handles both blanket and discrete POs. For blanket POs, electronic material replenishment signals are automatically sent to suppliers on scan of empty bin. For discrete POs, Buyers are automatically notified to release a manual PO on scan of empty bin.

• Material Handler did not check to ensure due date and qty. were correct on kanban card.• Material Handler did not update supplier confirmation info to on kanban release sheet.

Supplier specific ‘Business Rules’ w/ automated Buyer & Supplier alerts established for each material replenishment loop. Order qty./due date/receive qty./etc. confirmed on scan of barcode label. Supplier performance metrics updated with each scan.

Material Handler did not notify Buyer of need to create new PO for discrete orders.

Automated notification to Buyer whenever an Item reaches its ROP to release discrete PO.

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KRS Failure Modes eKanban Solution

Suppliers claimed they did not receive the kanban release fax.

Automatic alerting to both Buyer & Supplier when Supplier does not acknowledge and satisfy each electronic replenishment signal within pre-determined time frames.

Material Handler did not update kanban release sheet with actual qty./dock date impacting KPI tracking/reporting on supplier performance.

Automated updates to CEK when receiving scans barcode label. Associated supplier KPIs automatically updated.

Unable to determine if part qty./dock date correct.

Order qty., due date, actual received qty. and receive date automatically validated upon scan of barcode label. Associated supplier KPIs automatically updated.

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Manual Kanban Failure Modes & eKanban Solutions

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Collaborative Electronic Kanban

Process Analysis

• Staffing Assumptions– 12 FTE Buyers, Burden Rate $28.00/Hr.

– 6 FTE Material Handlers, Burden Rate $15.00/Hr.

• Process Observations– Average Manual Kanban Releases = ~400/Week

– Kanban releases are 100% electronic

– Electronic signals are the primary means of communicating demand to suppliers

– One-time set-up of electronic kanban loops. System monitors and suggests resizing based on actual consumption patterns

– All material replenishment processes are closed-loop

– Real-time updates on material status based on barcode scans

– Significant reduction in overhead support requirements

– Actionable business intelligence on supplier performance

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Collaborative Electronic Kanban Process Highlights

Collaborative Electronic Kanban Process Flow –Simplified & Automated

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Simplified & Automated Process

1. Process Trigger: Release Electronic

Kanban Signal

2. Material Handler Scans Kanban Card

3. Email automatically sent to

Supplier/Buyer

4. Decision: P.O. Needed?

5. Decision: Supplier accepts within 24

hrs?

6. Order in Process at Supplier

7. Supplier Prints Kanban Label(s) &

Ships Part(s)

8. Decision: Goods Ship On-Time?

9. Decision: Goods In-Transit?

10. Receiving Scans Barcode Label to

Receive Goods

11. Decision: Are Goods Dock to Stock?

12. PointMan Automatically Updated to

Show Goods On-Hand

13. Process End

Key Performance Metrics

Process Time per Execution 1.50

Duration 1.75

Highest Utilization 2%

Service Level 100%

Takt 6.92

Arrival Rate 0.1

Arrival Rate per Wk 325.00

Resource Cost Per Execution 0.53$

Yield 100%

Hours Per Work Period 7.5

Work Periods Per Day 1

Days Per Week 5

Time Units Minutes

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Time / Cost Per KRS Execution

Collaborative Electronic Kanban Process KPIs –Per Manual Kanban Transaction

Resources

Resource

Process

Time

Resource

Time

Resource

Cost

Material Handler 0.25 0.25 0.06$

Material Handler Scans Kanban Card0.25 0.25 0.06$

Buyer 1.00 1.00 0.47$

Buyer Adds P.O. 1.00 1.00 0.47$

Receiving Clerk 0.25 0.25 -$

Receiving Scans Barcode Label to Receive Goods0.25 0.25 -$

Total 1.50 0.53$

Time Units are in Minutes

Probability-Weighted Statistics

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Collaborative Electronic Kanban –Process & Resource Time & Cost Analysis Per eKanban Transaction

Resource Time & Cost

Per eKanban Transaction

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Collaborative Electronic Kanban –Annualized (250 Production Days / 20,000 eKanban Releases)

Planning Period 250.00 Days

Time in Planning Period 112,500.00 Mins

Demand Node Number of Items

Release Electronic Kanban Singal 16,250.00

Resource Productivity Factor Available FTE's Available Time Required Time Cost

Material Handler 0.75 6.00 675,000.00 Mins 5,416.67 Mins 1,354.17$

Buyer 0.75 12.00 1,350,000.00 Mins 21,666.67 Mins 10,111.11$

Receiving Clerk 1.00 1.00 112,500.00 Mins 4,021.88 Mins -$

Total 2,137,500.00 Mins 31,105.21 Mins 11,465.28$

Electronic Kanban - Post Ultriva Annual Resource Time & Cost Analysis

Annual Resource Time & Cost

Analysis to Support eKanban

Manual Kanban vs. Collaboratively Electronic Kanban –Process KPI Comparison Report

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KRS Pre Ultriva vs. Electronic Kanban Post Ultriva Process KPI Comparison Report

Profile Current State Future State

Map Type Transactional Transactional

Bottleneck

Buyer creates

Kanban

Release

Sheet ‘KRS’

Buyer Adds

P.O.

Arrival Rates Differ 0.18 0.14

Hours Per Work Period 7.5 7.5

Work Periods Per Day 1 1

Days Per Week 5 5

Activity Nodes 34.00 13.00

Start Nodes 1.00 1.00

End Nodes 4.00 2.00

Paths 34.00 4.00

Performance Current State Future State Difference % Difference

Process Time 18.39 1.50 (16.89) -92%

Required Resource Time 18.39 1.50 (16.89) -92%

Total Queue Time 24.81 0.00 (24.81) -100%

Cycle Time 43.19 1.50 (41.70) -97%

Duration 49.36 1.75 (47.61) -96%

Utilization 89% 2% -87% -87%

Service Level 43% 100% 57% 57%

Minimum WIP 7.68 0.22 (7.46) -97%

Cost -$ -$ -$ -

Resource Costs 7.25$ 0.53$ (6.72)$ -93%

User Property Costs -$ -$ -$ -

Total of All Costs 7.25$ 0.53$ (6.72)$ -93%

Rolled Throughput Yield 100% 100% 0% 0%

Time Units are in Minutes

Improvement

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Planning Period 250.00 Days

Time in Planning Period 112,500.00 Mins

Demand Node Number of Items

KRS Set-up & Management 20,000.00

Resource Productivity Factor Available FTE's Available Time Required Time Cost

Buyer 0.75 12.00 1,350,000.00 Mins 237,777.78 Mins 110,962.96$

Material Handler 0.75 6.00 675,000.00 Mins 163,651.11 Mins 40,912.78$

Total 2,025,000.00 Mins 401,428.89 Mins 151,875.74$

KRS Process - Pre Ultriva Annual Resource Time & Cost Analysis

Planning Period 250.00 Days

Time in Planning Period 112,500.00 Mins

Demand Node Number of Items

Release Electronic Kanban Singal 16,250.00

Resource Productivity Factor Available FTE's Available Time Required Time Cost

Material Handler 0.75 6.00 675,000.00 Mins 5,416.67 Mins 1,354.17$

Buyer 0.75 12.00 1,350,000.00 Mins 21,666.67 Mins 10,111.11$

Receiving Clerk 1.00 1.00 112,500.00 Mins 4,021.88 Mins -$

Total 2,137,500.00 Mins 31,105.21 Mins 11,465.28$

Electronic Kanban - Post Ultriva Annual Resource Time & Cost Analysis

Manual Kanban vs. Collaborative Electronic Kanban –Annualized Time & Cost Comparison Report

• $140K in labor savings• Three FTE resources freed-up

• Eliminated stock-outs• Improved OTD

• Reduced inventory

Key Contact Information

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Frank Kapper

Director of Sales

Ultriva Inc.

1601 South De Anza Blvd, Ste. 260

Cupertino, CA 95014

Ph: (408) 828-8454

Email: frankk@ultriva.com

Web: www.ultriva.com