In Kanban, the assembly worker uses the parts to build higher assemblies. When the worker uses the last part, he or she requests more from the source by simply returning the empty container or the attached card to the source. This "empty Kanban" is the physical signal to the supply source to make more (Figure 1).

Figure 1

Basic Kanban process

Although Kanban has worked well for many companies for many years without software, it works better with SAP R/3! SAP's electronic Kanban offers advantages such as:

• Integration in cost accounting as if normal SAP logistics transactions were done manually
  
  
• Integration in engineering change and part discontinuation
  
  
• Automated Kanban calculations (quantity or number of Kanbans in a control cycle)
  
  
• Integration with output control (purchase orders [POs] are sent to vendors in the normal way — by fax, EDI, etc.)
  
  
• Performance monitoring and reporting on the Kanban replenishment process
  
  
• Integrated error correction
  
  
• Integration with or without running MRP
  
  
• Support for just-in-time (JIT) scheduling agreements
  
  
• Internet-based Kanban

In addition, SAP offers many configuration options that allow you to customize the integration and execution of Kanban for your company.

Only a fraction of companies using R/3 Production Planning (PP) or Materials Management (MM) use SAP Kanban to supplement these modules. At least part of the operations at most of these companies is perfect for Kanban. I will show you how SAP's Kanban functionality, part of the R/3 PP module, can simultaneously reduce inventory and simplify your material movements and production planning. I will also show companies that are currently using manual Kanban the advantages of electronic Kanban within R/3. To specifically support these goals, I'll explain how to set up Kanban in SAP using a simple example. If you are new to Kanban, you might want to read the sidebar, "Kanban Basics," below.

Electronic Kanban with SAP

Question: How does a production manger identify a problem such as a shortage or broken machine at a work center in a manufacturing plant using Kanban? Does he or she walk to a magnetic board?

Question: How does a worker tell a vendor that more material is needed on the assembly line? Send the empty container back via UPS?

R/3's Kanban functionality can solve these and other manufacturing problems. It integrates physical Kanban filling and emptying with behind-the-scenes R/3 logistics transactions. SAP R/3 offers two basic techniques to integrate the Kanban into the logistics execution process: Kanban without MRP and Kanban with MRP. Although the fill and empty process can trigger R/3 transactions in both cases, Kanban without MRP is much more reliant on them than Kanban with MRP.

The interface associated with Kanban with MRP is a little more complicated, as MRP needs to be executed and Kanban only supports the actual execution of the MRP plan. Kanban with MRP is necessary at higher levels in the bill of materials (BOM) when some of the components and subassemblies are controlled by MRP in the normal way and others use Kanban replenishment. Kanban with MRP allows requirements to flow down to lower BOM levels. For the purposes of this article, I will focus on the more straightforward Kanban without MRP.

Figure 2 shows the basics of Kanban without MRP. In this situation, MRP creates no planned orders or purchase requisitions. Only the action of setting a Kanban to empty creates the appropriate replenishment element in R/3 for the manufacture/purchase of the required part.

Figure 2

SAP R/3 Kanban without MRP

To formalize Kanban with a software system, you need to formally define some terms and objects within SAP. R/3 Kanban requires the following terms/objects:

Supply source — a producer of the parts being conveyed in a Kanban. A supply source may take the form of a vendor, work center, another plant, or an inventory warehouse.

Demand source — the consumer of the parts from the Kanban container. In most cases, the demand source is a work center or an assembly line, but it could be initiated by the customer as it consumes finished goods.

Supply area — the location in the factory where filled Kanbans are staged to support the demand source. A supply area is normally identified physically on the factory floor.

Kanban — the physical signal used to indicate that replenishment is necessary. These signals sometimes take the form of the containers themselves. Other times, a card permanently or temporarily attached to a container can be used. The Kanban is typically labeled with the following information:

• The part number
  
  
• The name of the part
  
  
• The number of parts in the Kanban when it is full
  
  
• How it is supplied (the name and details necessary for the supply source)
  
  
• The supply area to which the filled Kanban should be delivered
  
  
• An identifying number — for example, "2 of 4," meaning this is the second of four Kanbans available to supply this part to the supply area
  
  
• A bar code (very important in the SAP world) that contains a unique identifying serial number for the Kanban and an additional digit for the system to set the status

Preparation for Kanban

You need to do some configuration and create master data objects before executing SAP's electronic Kanban with or without MRP. Since Kanban is on top of R/3, you can assume that the basic logistics master data has already been created. The preliminary tasks unique to Kanban involve the creation of supply areas and control cycles.

Supply area master data in SAP: The SAP supply area master data object central to the Kanban execution. It ties the Kanban system to the standard R/3 Inventory Management (IM) system. A secondary reason is to assign a responsible person (MRP controller configuration) to receive reports and use the electronic Kanban board (discussed later) for the Kanbans in his or her supply area. Supply areas are created using the menu path Production>Kanban>Supply Area> Maintain (transaction PK05) as shown in Figure 3.

Figure 3

Supply area creation

Supply area master data in SAP: The second element of Kanban master data is the control cycle, which defines the relationship between a supply source and the supply area for a given part number. It defines the following critical components of SAP electronic Kanban:

• The number of Kanbans
  
  
• The quantity of components in a filled Kanban
  
  
• The ID/description of the Kanban container if necessary
  
  
• The printing information for Kanban card creation and replacement
  
  
• The replenishment strategy and the related specific information on how replenishment is to occur
  
  
• Advanced settings to control the flow of replenishment process
  
  
• Advance settings to assist the calculation of the number of Kanbans or quantity in each

The menu path to create a control cycle is Logistics>Production> Kanban>Control cycle>Create (transaction PK01) as shown in Figure 4.

Figure 4

Maintain control cycle transaction

The control cycle is the core of SAP Kanban. The logical link between the replenishment method and inventory is established through the control cycle and its connection to the supply area's inventory location. The information in the control cycle about the replenishment strategy (Figure 4) allows the SAP Kanban system to automate the underlying transactions necessary to generate the related replenishment elements (in this case, production orders). Different strategies defined in the control cycle could instead cause the emptying process to generate transfer orders, reservations, POs, and more. The inventory location of the supply area allows SAP Kanban to automate the goods receipt transaction.

Kanban Setup: A Purchasing Example

Now let me walk you through a step-by-step example using the procurement of a purchased component, PP1, directly to the factory floor where it is needed. The setup steps, which are for Kanban without MRP for the purchasing example, are as follows:

Exclude from MRP. If you are using Kanban without MRP, you do not want the MRP system to generate replenishment elements. Otherwise, you could get replenishment elements twice, once "on empty" via SAP Kanban and once by MRP. Excluding a material from MRP is the most difficult configuration you have, and covering all the possibilities is beyond the scope of this article. The configuration has two basic parts:

• On the material master for part PP1, MRP 4 view, identify a storage location KB1 and then enter the setting 1 for the SLoc MRP indicator field to exclude it from MRP processing (Figure 5).
  
  
• Ensure that MRP places the dependent demand for PP1 on storage location KB1. This is a complex setting controlled by the BOM of the parent good or the MRP group. For my example, you drive the demand for PP1 to location KB1 when you manufacture the assembly FG1 by a callout on FG1's BOM (Figure 6).

Figure 5

MRP 4 view of the material, MRP excluded for storage location KB1

Figure 6

Demand for PP1 driven to location KB1

With these two settings, the MRP system will not generate purchase requisitions for PP1 when it is a component of FG1:

• Set up Supply Area SA1 tied to inventory location KB1. Identify this supply area within the physical factory area (Figure 7).
  
  
• Set up a control cycle with Supply Area SA1 via a PO replenishment strategy from Vendor 2. Use 4 Kanbans and 20 pieces per Kanban (Figure 8).

Figure 7

Supply Area SA1

Figure 8

Control cycle for PP1 to SA1

Kanban Control

Kanban control is the term for actually using the Empty signals to generate replenishment elements (orders/transfer requests) and the Full signals to do the goods receipts. For assembly FG1, remember, MRP will no longer generate replenishment elements (this time, POs, PP1s). The steps to execute SAP Kanban control follow:

Step 1. "Release" the Kanbans. As soon as the control cycle is created, the Kanbans are put into a wait status. To start the process, you must set your Kanbans to empty for the first time. The easiest way to do this is via the electronic Kanban board (Figure 9). To access the electronic Kanban board, follow the path Logistics> Production>Kanban>Control> Kanban Board>"Demand Source" view, and then enter the supply area SA1. Select the four purple "wait" Kanbans in your supply area and then select the To Empty button.

Figure 9

The Kanban board uses red, green, and other colors to indicate the status of the Kanbans

Step 2. Place the PO. Setting the Kanbans to empty triggers the generation of four POs to vendor 2 according to the control cycle settings. The Stock Requirements List (Figure 10) shows the situation after four Kanbans are emptied and one is received.

Figure 10

Stock/Requirements List for PP1 at location KB1

Step 3. Receive the PO and fill the Kanban. You have three ways to simultaneously set the Kanban to full and send the goods receipt to location KB1:

• Have the vendor ship to the supply area on the factory floor, physically fill the Kanban with the PP1 components, and scan the bar code.
  
  
• Use the electronic Kanban board's Set to full button.
  
  
• Execute a normal goods receipt, which automatically sets the Kanban to green (full).

Step 4. Use the PP1s to build FG1s and then set the Kanban to empty. After the PP1s are consumed in the manufacture of FG1s, you can request another PO by simply setting the Kanban to empty via the electronic Kanban board or by scanning a bar code.

Now that you know the basics of one simple control cycle for a purchased part, envision an entire company running Kanban for all or most of its materials, as Figure 11 shows. In this situation, some supply sources making higher-level components are themselves suppliers to even higher-level assemblies. These assembly points also get their parts replenished via Kanban. In addition to work centers within the factory, some supply sources are vendors outside the control of the company or even the central warehouse. In this way, you can make a "Kanban factory."

Figure 11

A Kanban factory

In Figure 11, line Z gets Kanbans of components X and Y from stock and vendor ABC, respectively. This assembly line makes assembly Z only when empty Kanbans of Z cycle to it from finished parts line FP. In addition to Z Kanbans, line FP uses Kanbans of part A, also replenished from stock. Finally, FP parts are supported by Kanban (without MRP) to the customer.

As you can see from this scenario, there is much more to know about SAP Kanban. You can find more information on Kanban at the Educational Society for Resource Management Web site at www.apics.org; search for "Kanban." For SAP-specific information, access Help.SAP.com and find the Kanban help under the Production Planning folder. One final option is to attend SAP's Kanban class, SCM350-Kanban. It covers more complex issues and options as well as Kanban with MRP.

Kanban Basics

Kanban was invented at Toyota Motor Corp. in 1953 by Taiichi Ohno. The industry as a whole was quietly improving itself with the implementation of what Toyota called the "Toyota Production System." This simple system was based on a physical signal. When workers took the last part from a bin, they made a signal. Other workers saw the signal and made more of the required parts and delivered them to the assembly line. Since that time many companies in many industries have used simple Kanban techniques to drastically improve their manufacture execution speed with reduced inventory and minimal planning.

What about MRP? In most manufacturing companies, MRP tells the supply source what to make and when to make it. This involves having a bill of materials (BOM), complex lead times, and float factors. MRP explodes the BOM and, with lot-sizing rules, generates planned orders and purchase requisitions. These replenishment proposal documents must often be converted into purchase and production orders after human review. The table compares MRP and Kanban replenishment.

When done correctly, Kanban reduces inventory and simultaneously reduces lead time in many companies. However, Kanban is not perfect for every situation at every company. Some of the manufacturing requirements for your company to properly use Kanban are:

• Consistent demand
  
  
• Short supply/setup times
  
  
• Consistent availability of raw materials/components
  
  
• An environment where responsibility of production is given to production personnel

The above requirements support the goal of having the smallest number of containers and the smallest number of pieces per container. If the opposite of these characteristics of a good Kanban environment exist, you will see an increase in inventory.

For example, assume that you have two supply sources, one with a long setup time and one with a short setup time. To make things worse, assume that the machine with a long setup time breaks down a lot. If setup time is long, you cannot efficiently manufacture a small number of parts. If it is inconsistent as well, you might need extra Kanbans to cushion inventory and avoid outages. Both factors may increase inventory. In the example shown in the figure, a long setup time makes it uneconomical to make fewer than 50 pieces at a time in one case, while five can can be made per setup in a more efficient case. Assume that 10 pieces a week are needed, but this could happen during the same day. Compare inventory levels in both cases.

In case 1, it might be better to use MRP to plan and push the inventory to the line than use Kanban. Remember, even though your whole factory is not appropriate for Kanban, MRP and Kanban can coexist, especially in an SAP Kanban/MRP environment.

Figure 1

Efficient vs. inefficient setup time

MRP Kanban Long- and short-term planning tool Demand-based/short-term replenishment tool Driven by BOMs, dates, lead times, and floats Signal-based replenishment Central control (planners and MRP run) Decentralized control — fill empty Kanbans Lot size determines quantity produced Kanban quantity determines quantity produced Complex organization (planners and master schedulers) Simple organization — supervisors and workers control production Inventory is normally centralized Inventory is normally on the factory floor (in Kanbans) Push principle Pull principle — usage drives more production

MRP vs. Kanban

Ned Falk

Ned Falk is a senior education consultant at SAP. In prior positions, he implemented many ERP solutions, including SAP R/3. While at SAP, he initially focused on logistics. Now he focuses on SAP HANA, SAP BW (formerly SAP NetWeaver BW), SAP CRM, and the integration of SAP BW and SAP BusinessObjects tools. You can meet him in person when he teaches SAP HANA, SAP BW, or SAP CRM classes from the Atlanta SAP office, or in a virtual training class over the web. If you need an SAP education plan for SAP HANA, SAP BW, BusinessObjects, or SAP CRM, you may contact Ned via email.

You may contact the author at ned.falk@sap.com.

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