Kanban is a Japanese word meaning signal, cue, card and/or board. Kanbans are typically used in a pull system where additional material is pulled from the supplier based on consumption. Kanbans for inventory purposes create a visual cue to let workers know that more material is needed.
Kanbans are typically designed to hold a specific amount of material and include information pertaining to part number, quantity, storage location and vendor. Although Kanbans are primarily used in manufacturing, the concepts can translate to many industries.
To determine Kanban quantity, assume the following: an item has constant usage throughout the year, the supplier will deliver to the point of use (POU) area and minimal space requirements are met.
Kanban calculation formula for quantity = (A) x (B) x (C) x (D)
- A = weekly usage
- B = lead time
- C = Kanban locations needed (During the start up phase it is recommended the customer and the supplier start with one full container, thus C would be two.)
- D = Smoothing factor (if there is level usage throughout the year then the smoothing factor is simply one).
The smoothing factor depends primarily on your supplier's involvement and flexibility as well as the duration of spikes in demand that may occur during the year. For example, part number XYZ has a weekly average of 100 pieces and during the summer, it jumps to 150 pieces. The smoothing factor would be 1.5 (150 / 100). This variation of the demand should last longer than a month and represent at least a 25% increase over the normal average.
Use the Kanban size formula (A) x (B) x (C) x (D) and assume that part number ABC has an annual usage of 3,900 widgets.
Compute the weekly usage = 3900 / 52 weeks = 75 widgets per week.
Value A = 75
Determine the supplier lead time; in this example, assume it is two weeks.
Value B = 2
Start with one full Kanban on-site and one ready to be shipped from the supplier.
Value C = 2
Determine the smoothing factor based on usage. For this example, part ABC has minimal variation in usage throughout the year; therefore the smoothing factor is one.
Value D = 1
Therefore, the final calculation for the Kanban quantity is: (75) x (2) x (2) x (1) = 300 pieces in each Kanban.
There are many factors in computing your Kanban size. Some things to consider are:
- Do we have a supplier that will agree on a Kanban stocking program?
- Will the supplier deliver directly to POU area?
- How much space does the product require for storage?
- What’s the gross margin of sales on the product?
- What are the material handling requirements?
- Is the product an item with level usage throughout the year?
Another important consideration is how many times the company wants to turn its inventory; knowing this will also help determine your Kanban size.
The above example involves direct vendor support; however, if your suppliers are not ready to adopt this method, do not be deterred. Looking at standard packaging and comparing it to your annual usage can help develop your own methods for setting up Kanbans internally. For example, knowing that your vendor can supply you with 12 or 288 cans of widgets a week and that 12 cans are in a case is certainly a starting point for implementing a Kanban system for your organization.