Managing inventory can be one of the highest costs in a business if not done properly. Either you have too much, which takes up real estate and sucks up costs. The inventory only creates income when it is sold. On the other hand, if you have too little of inventory, you will be scrambling to make up for it with customers and spending more to reach the levels necessary. There are two ways to relieve an inventory situation like this: Kanban and ERP.
What is Kanban? Kanban is a Japanese method of managing inventory developed by Toyota in 1953. The system involves tickets that travel through a supply chain system. There are typically three bins, one for the warehouse that sends to customers, one in a control point and one at the supplier. As the bin at the warehouse gets low because the product has been sent to the customer, the ticket is sent back to the control point which ships more product the warehouse. As the bin at the control gets low, a ticket is sent to the supplier which ships more product to the control point. The point of Kanban is to keep inventory as low as possible so that there is no over- or under-production. Usually when a company implements Kanban, they see that they were producing much more than necessary and relieved bottlenecks.
The Problem with Kanban Although Kanban presents some really great opportunities to relieve inventory stress and cut costs, there are some downsides to the program. Kanban is a lot easier to implement when you are a big company that has constant demand and products that won’t change. Since the bins are automatically refilled every time they run low, you are assuming that there is no slow season, no change in demand. There is no demand forecasts or projections built into the Kanban system.
How ERP Helps Using Kanban and ERP together can eliminate the weak points of the Kanban system. ERP serves the supply chain best by forecasting and predicting demand based on historical and current data. If you’re a hats and mittens manufacturer, then ERP can predict what size of inventory you will need during the winter months. When you use ERP’s strong predictive analytics tools, you can use those forecasts to estimate and adjust your Kanban.
If you’re looking to change your inventory methods and want to create a leaner process, Kanban is a popular option among manufacturers. However, the system itself excels in a certain type of environment. Combining Kanban and ERP makes the most efficient system of controlling inventory, while projecting where the demand will be.
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