Appendix D Organizational Changes Required for Kanban

Overview

In order to fully realize the benefits of kanban, some decision making needs to be decentralized. To successfully implement kanban, the materials department must evolve from its traditional role of controlling production. This task can be tougher than it sounds, because some functions are difficult to decentralize. Typically, all material functions are coordinated by a materials department that:

• Generates the production and shipping schedules
• Coordinates raw material purchases and deliveries
• Controls material handling and storage systems

Since these activities occur in all parts of the plant, it is difficult for these activities to take place at the work cell level. It is critical for the success of Lean manufacturing, however, that control of these vital functions to be turned over to the work cell.

The solution lies in dividing the tasks between a centralized materials department and a series of empowered work cells . However, certain key tasks, such as vendor selection, price negotiations, and purchase order maintenance, need to be managed by trained materials professionals. With kanban scheduling, key tasks traditionally performed by the materials department, such as placing orders, warehouse layout, and vendor selection and evaluation, need to be transferred to the shop floor (see Figure D-1).

Materials Department	Shop Floor
Generate Production Schedule Order Raw Materials Issue Purchase Orders Select Vendors Evaluate Vendor Performance Maintain Materials System (BOM, Routers, etc.) Generate Ship Schedules Control Freight Control Inventory Levels	Schedule Attainment Production/Scrap Reporting

Figure D-1

Functions of the Materials Department after Decentralization

One of the primary functions that must remain in the materials department to be handled by trained materials professionals is the coordination of vendor selection. The materials department needs to research potential vendors, qualify them, and present this information to the associates in the work cell . This activity must remain in the materials department for several reasons. For one, only materials professionals will have the knowledge necessary to locate, research, and qualify new vendors . For another, there are legal and ethical issues related to vendor selection that require training to be understood . Finally, by the materials department managing the vendor selection process, you prevent an uncontrolled proliferation of vendors that can dilute your pricing and negotiating leverage. This also allows the materials department to build long- term relationships with key vendors. Once a list of qualified vendors has been selected, it is up to the work cell to interview the potential vendors and make a selection.

It is critical that the work cell makes the final vendor decision, and that vendors understand that the work cell is the final decision maker. If this is not the case, the work cell will not expend any energy in building a relationship with the vendor. And the vendor, for his part, will not value feedback from the shop floor. The vendor will concentrate their attention on pleasing the materials department, whose critical issues may not coincide with those of the business unit.

A prime example of this conflict is a materials department switching to a lower cost supplier. Often, the opinions of the production department are not given enough weight. Consequently, a poor decision may be made because all of the relevant (non-price-related) costs are not considered .

Price negotiation and delivery arrangements are areas where the expertise of a materials professional is also necessary. Once the team has selected a vendor, the materials department needs to work with the selected vendor to arrive at pricing and delivery terms. The materials department can then issue a blanket purchase order, good for a specific time period, to the vendor. This purchase order can contain any legal terms or disclaimers deemed necessary. It can also be limited to a specific total quantity, to help minimize the risk of a work cell authorizing a vendor to overproduce material. The materials department can also set up shipping arrangements that are spelled out on the purchase order. The blanket purchase order allows the team to then release orders as required to support their production plans, without getting involved in the pricing and legal issues of purchasing.

The materials department should also be responsible for giving direction to all material activities in the plant. For example, the materials department should set targets for inventory levels. The targets are required to prevent individual departments from increasing inventory levels beyond those that are in the plant's operating budget. The materials department should also plan the training needed by the material coordinators in the work cells .

The final key function of the materials department in a decentralized system is maintaining the materials system. Any system, whether it is a simple pull system or a complex MRP system, needs to be maintained and developed by trained professionals. Maintenance of the routers, bill-of-materials, and invoicing /payment information all need to be kept up-to-date. The cost of training employees from each work cell to learn these functions is cost-prohibitive and could lead to a decline in the quality of the information.

Functions of the Work Cell

The key materials function of the work cell is production scheduling. The production schedule drives all other schedules (raw materials, subcomponents, staffing, etc.), so control of it is essential if the work cell is to truly manage itself. Making production scheduling a task of the team also helps create schedule buy-in. It also allows the team to tailor the production schedule to their unique requirements. The team also recognizes that the scheduling task is greatly simplified by transitioning to a kanban system.

If MRP is used to generate forecast and capacity information, then someone from the work cell needs to be trained on this system. Ideally, this person will be a full-time materials coordinator , who works as a member of the work cell team. This person is responsible for all of the materials functions that affect the work cell. Appointing one person to this task allows the company to limit the number of people that require training and creates a conduit for information flow between the work cell and the materials department

Two related functions of the work cell are controlling inventory levels and sending releases (orders) to the suppliers. Utilizing a visual kanban system facilitates this process. Floor space needs to be marked off to hold specific quantities of material. Ideally, two days or less of material should be held within the work cell. This will enable the employees of the team to quickly evaluate their inventory status while leaving them time to react if levels fall below the preset minimum. If higher inventory levels are required, the material should be held in a defined inventory area located away from the work cell. (Note that sometimes "larger-than-ideal" quantities of materials need to be ordered to minimize freight costs.)

The work cell should also be involved in vendor selection, as noted previously. The materials department should present the team with a list of qualified potential vendors, and the team should make the vendor selection. As part of the vendor selection process, the team should also develop a written list of supplier expectations to be given to each vendor prior to issuing a purchase order. The team needs to evaluate vendor performance, determining which vendors get future business and which do not. The evaluation process must be heavily weighted toward the experience of the employees on the floor. If they are not happy with the performance of the vendor, then action needs to be taken regardless of how well the materials department rates the vendor's performance. Figure D-2 details the materials department's responsibilities after decentralization.

Materials Department	Shop Floor
Maintain Materials System Train SBU Materials Coordinators Issue Blanket Purchase Orders Qualify New Vendors Control Freight-out Generate Ship Schedules	Generate Production Schedules Order Raw Materials Select Vendors Evaluate Vendor Performance Coordinate Freight-in Control Inventory Levels

Figure D-2

Materials Organization after Decentralization

By separating the tasks between the materials department and the shop floor, the benefits of decentralizing the materials function can be realized, while still operating in an efficient and professional manner. The net result will be a considerably smaller materials department, supplemented by a series of empowered work cells. The work cells will also assume responsibility for controling their own material supplies , which eliminates a layer of bureaucracy between them and their suppliers.