How to Increase Cash Flow without Laying Off Employees Part 4

In the previous blog, I talked about setting up our pull chains for the parts that support the top 80% of the products you sell to customers.  We calculated the quantities we need to keep at each location within the pull chain.  In this blog, let’s talk about how we will signal when we are out of parts in one of our bins and what happens next.  We will do that using pull cards.

The whole purpose of a pull system is to react to what is happening on the shop floor based upon consumption.  MRP systems operate by looking at future orders, calculating when you need to start those orders to meet a delivery date, then providing suggested start dates and purchase suggestions.  This is awesome if your customers never change their minds.  What happens when your customer pulls in delivery dates or worse pushes out delivery dates?  Your purchasing group now spends a lot of time expediting or de-expediting material.  MRP was never designed to be a shop floor inventory control system.

Pull systems react to signals based upon the actual consumption of the material during the production process.  If your customers push out delivery dates, you won’t consume material and won’t receive a signal to order or make more.  The same thing happens if they pull in orders.  Your material bins will turn more quickly than designed and you will receive signals to replenish material more often than designed.  Either way, we want to use pull cards to signal when to do something.  A pull card looks like this:


Pull cards have a minimum of five pieces of information on them:

  1. Part number
  2. Part Description
  3. Quantity
  4. Where the part is used (consumed)
  5. Where the part is replenished (where we get more)

You can put company logos on them, bar-code them, even RFID chip them but at a minimum, you need these five pieces of information.  A usual deployment of pull cards is to place them on each bin of material that we have in the pull system.  When the bin goes empty, and only when it is empty, that is our signal to take the bin or pull the card and go get more at the re-supply location.

While that bin is gone are you out of parts?  No!  You have a second container worth of material.  If you have constant demand, about the time the second container is going empty the first container will return.  On average there is about one container’s worth of material in the system.

A key thing to keep in mind is that once you deploy pull cards, you will have to periodically audit them.  They can fall off containers, people stick them in their pockets and take them home.  All kinds of things happen and if they disappear you won’t get a signal that you are out of material when a bin goes empty.

You often learn that you are missing a card if you keep receiving purchase suggestions from your ERP system but you haven’t seen a card in a while for that part.  This is a sign that you should investigate to see if a card is missing.

Again I am sharing the article from 1998 where a small family-owned company used this entire process to reduce inventories and free cash.  This article proves that pull systems are powerful and can help you improve your overall inventory turns and free up cash for your business.  I am a huge fan!


As always, it is an honor to serve you and I hope that you and your company are getting better every day!

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