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How to set up two-bin "Purchasing Kanban" system in Microsoft Dynamics 365 Supply Chain Management

by Evert Bos
Solution Architect, Sikich

Before the mothership, Dynamics AX 2012, was enriched with the Lean module, we had the lean module from the company eBECS that contained Purchase Kanban functionality.

The Purchase Kanban card would circulate between my company and the supplier and when a Kanban gets “completed”, which is the moment my supplier delivered my Kanban quantity, the system would create a received Purchase order instantly. This could only work if the Supplier could actually receive electronic Kanban cards and treat them as Purchase orders. In eBECS ‘Lean manufacturing III” you could use “lean alerting” where the supplier received an email and a purchase schedule. So there was some unique functionality for purchasing in the eBECS lean functionality.

When the AX 2012 lean module was announced in 2011 in Redmond WA, we heard that there was no Purchasing Kanban. We had manufacturing and withdrawal Kanban's only. This was a surprise. How could that purchasing Kanban be left out? But then we were told not to worry, we did not need special Kanban’s for Purchasing. Just use a withdrawal Kanban to trigger the creation of a regular PO.

I have remembered this statement for 10 years and recently it became necessary to actually try this out because a customer was asking for it! How do we set this up? To create a PO we would need MRP with auto-firming, that part I knew. But for the rest I had no idea.

I started with a withdrawal Kanban between two locations in the same warehouse, trying to avoid the introduction of a virtual warehouse. That did not work. We need a second warehouse from which we withdraw the Kanban quantity, “pulling” it to our normal warehouse where we consume it.

Setup details

Kanban is about visual replenishment. I agreed with Microsoft during that presentation in 2011 that a pull signal to a supplier is really a Purchase order. I don’t need to email the supplier a Kanban card.

Let’s think through the situation: in my main warehouse, that is of course “nettable” for MRP, I do my transactions. I consume my purchased Kanban items in Production orders like every other part number. At some point I want a replenishment, but that replenishment is not coming from MRP but instead from a user who looks at an empty bin and scans the Kanban card number to trigger a replenishment, in this case a PO. How to make that work? I should not use MRP but I need MRP to create my planned PO and auto-firm it. Hold on, the secret will be revealed soon. The key is Item coverage by warehouse.

1.The purchased item is set up as a normal standard cost item and the minimum order quantity = Kanban bin quantity

No other cost types are allowed. MRP needs to be told to order the exact quantity that is in the Kanban bin

2.Create a virtual warehouse called “Kanban” or similar.

Do NOT put a vendor id in the vendor field. This will cause big problems when creating the lean production flow as the system thinks we are going to do subcontracting.

3.The item coverage will have two lines.

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About Evert Bos

I am Evert J Bos, ERP consultant since 1986. I started in Europe with IMS7 (A Honeywell Bull Mainframe ERP system) and the BaaN ERP system. Since 1995 I have worked in the USA and since 2004 I have been working with Dynamics AX.  I work for Sikich and focus mostly on manufacturing companies that make complex, engineered products.

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