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Inventory Management through Kanban

Sanat Sankrityayan 2015-03-06

Clients have become more demanding from the Consultants. All Lean Calculations have to be very precise as well as dynamic. It must be uniform too, so that whoever is at the desk can do the review and keep the Kanban Quantities in a dynamic rollover, adjusted to the seasonal and systemic variations within a quarter. Kanban Computations are to be understood in entirety, because it involves market variations, supplier and demand variations are also built in. However, when we googled a research on the ways Kanban Computation is done, it threw up a huge list that took me a while to correlate.

Here are some of the approaches. We think all are correct but which way to go now. There is a mindset change required before we look at the Formula.

1. No. of Kanban = (DD*LT+SS*SQRT(LT/TB))/KB+(DD*EPEI)/KB

  • Where: DD = Daily demand (units)
  • LT = Replenishment leadtime (days)
  • SS = Statistically calculated safety stock (units)
  • SQRT = Square root
  • TB = Time bucket of the safety stock data points (days)
  • KB = Quantity per kanban (units)
  • EPEI = Supplier’s replenishment interval (days)

2. No. of Kanban = (DD*(LT+SS))/KBS +1

  • #KB = Number of Kanbans
  • DD = Daily Demand
  • LT = Lead Time
  • SS = Safety Stock
  • KBS = Kanban Size

3. Total Required Inventory = (Average period demand * Replenishment time) + 1 or 2 Sigma + safety stock

4. Total Required Inventory = (Average period demand * Replenishment time) * 1.X {where X= 20-40%} and the # of bins = TRI / container or bin size

5. No. of Kanban = ((AD * RT) + (SF * SD))/SCQ

  • AD = average period demand
  • RT = replenishment time (in the same time bucket as AD)
  • SF = the Z factor, typically 1.645 for 95%
  • SD = demand standard deviation
  • SCQ = the standard container quantity
  • 6. # Kanban = (average demand during lead time + safety stock) / container quantity

7. N = (dL + S)/C

  • N = number of kanban
  • d = average demand per hour
  • L = lead time in hrs
  • S = safety
  • C = container quantity

8. K = ((RT * AC)/Cont) * (SF + C)

  • K = number of kanban
  • Cont = contents per kanban
  • RT = replenishment lead time per kanban
  • AC = average consumption per time period
  • SF = safety factor
  • C = constant, default = 1

We use only one of these, and never all. When we delved deeper into the sea of the formula, we were able to segregate them on the basis of Industry and Sector they are relevant to. The relevance depends on the supplier strength, process flexibility, product type, product life cycle and demand rate of the Industry.

Current Implementation of Kanban is giving me new lessons for understanding the Customer requirements first. Few Techniques and Analysis are ABC/FMS/VSM analysis, Demand Segmentation & Linearity of Demand. It involves People for training on implementation. The People would also help us in Process Observation, Process Mapping, Layout of the Workplace, Time taken for a Model Changeover, Run size, OEE, and Process Linearity. The Kanban can be implemented in two Bins so we need two cards. Designing the cards is important as per the stages where it is to be used.

Materials handling, buffer stock location and the size of the organization are important factor. The Kanban Container has to be understood in terms of sizing, selection or overall design. Visual labels for the Kanban Container is a must-to-do thing. The Visuals would also act as Control system however we need to recalculate # of cards, and lookout for missing cards. Documentation of the process of Kanban can make the transfer of task easy.

Author Sanat Sankrityayan is a Principal Practitioner with Vedzen Institute for providing implementation and training and hand holding consulting assistance on Lean Kaizen and Six Sigma for Clients from Construction, Healthcare and Manufacturing.

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