Kanban System

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Case Study - Can Information Systems Help Danaher Work Leaner? Danaher Corporation designs, manufactures, and markets industrial instruments for measurement, display, and control. Danaher divides its $6 billion business into three segments: Professional Instrumentation, Industrial Technologies, and Tools & Components. One of the three focused niche businesses in the Industrial Technologies segment is Danaher Sensors and Controls, a leading manufacturer of process/environmental controls and tools and components. Danaher is a believer in lean manufacturing, which focuses on continuous improvement of the manufacturing process and elimination of nonproductive time. Lean manufacturers use waste reduction and improved processes to keep inventory levels low, reduce working capital, and fulfill orders faster. Tom Mathis, vice president of supply chain management for Danaher Sensors and Controls, is in charge of keeping his division lean. Danaher employs the Japanese kanban method of supply chain management instead of relying on a manufacturing resource planning (MRP) system. An MRP reorders parts based on projections of need from the factory floor. The kanban method uses actual need, as observed on the factory floor, to replenish parts just before they run out. Kanban is the Japanese word for “sign” or “signboard.” Manufacturers who use a kanban system for material or parts replenishment affix kanban cards to the fronts of the their storage bins. When a storage bin is low in supply, a worker transports the card to the appropriate storage area to signal the need for more parts. At Danaher, the worker who collects kanban cards from bins is called a pacer. The pacer hand delivers stacks of cards to the factory’s buyers, who in turn initiate orders based on the supplier, part number, and quantity information printed on the cards. Each factory in Danaher’s Sensors and Controls division requires between 30,000 and 40,000 parts, so the process is taxing. Still, this traditional execution of the kanban system is suitable for operations that are confined to a factory. However, cards often disappear, by accident or through carelessness. One study of major auto suppliers found that 1 percent of kanban cards was lost every day. As a result, 1 percent of inventory replenishment orders do not go through and the inventory for those supplies runs dry. Production suffers, and both the buyers and the purchasers have to make up for the lost transactions. Before Mathis joined Danaher in 2002, the company’s kanban system was heavily manual. The controls division did maintain a Mapics MRP system solely to track inventory and orders. Other than that use, Danaher purposely avoided any significant applications of information technology to its lean efforts. Over the years, the corporation had acquired a number of smaller companies and succeeded at reducing their inventory levels and increasing their production rates using a relatively pure form of kanban. Danaher effectively

scrutinized and improved the flow of materials and parts through its factories without committing large expenditures to technology. Despite the efficacy of the systems in place, Mathis had to find a way to make his division’s operations even leaner. One of his goals was to lower costs by purchasing more supplies from overseas vendors. Mathis knew that this strategy would increase shipping and lead times for parts and that his buyers would have to devote time to researching and procuring new vendors overseas. Therefore, the purchasing process would have to become even more efficient. Mathis saw this as an opportunity to switch from a card-based kanban system into an electronic kanban system. His main argument was that the flaws of the manual system diverted the attention of key employees away from tasks that were of greater value to the operation. For example, rather than chasing down transaction errors that had been caused by lost cards, materials buyers could be developing supplier...
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