Don’t Over Complicate the Formula

People are enamored with kanban systems.  This can be a good thing, but all too often they don’t understand kanban systems are there to help highlight make problems visual.

The first thing almost everyone jumps to is the calculation for the minimum and maximum levels for the kanban.  I have seen some formulas that would make a mathematician with 3 PhDs blush.  I don’t understand the need to have a complex formula.  For years now, I have used what I see as a basic quick and easy formula to calculate the min and the max.

Min = Lead Time + Safety Stock

Max = Min + (Min/2)

Lead time is the time it takes from the moment the component is ordered until it is received and ready to be used.

Safety Stock is the amount of stock to hold because of something that could occur to delay the lead time.  Base this on where you are getting the parts from, how often does something go wrong, etc…  For example you might hold a little more safety stock for something you purchase from a company 300 miles away versus a component that is made in-house.

If the process is working smoothly, you will receive the component you ordered right as you get into the safety stock.  When the minimum level is set properly, you will feel freaked out because you believe you will run out and right about that time the components will arrive.  It is a weird feeling that you will adjust to, but makes you heartbeat fast the first few times until you get used to it and trust the process.

The maximum is something a friend and I completely made up several years ago.  There is no reason it has to be this.  I continue to use it because so far it has worked well for me over the last decade.  I always round up to the nearest full day.

Example:

Min = 2 day lead time + 1 day of safety stock = 3 days

Max = 3 + (3/2) = 4.5 round up to 5 days

The only other number that is needed is the quantity of the product used per day.  This is used to translate the number of days to a quantity of the component.

1 day usage equal 500 parts

Min = 3 days x 500 parts = 1500 part

Max = 5 days x 500 parts = 2500 parts

The point of the kanban min/max levels are to get you in the ballpark.  It shouldn’t be an exact science because you will probably round to nearest full carton or order quantity anyway.  Plus, min/max levels should NEVER stay static.  They are dynamic and change.

I wold recommend on having what you might think is a little too much inventory to start.  You can always adjust your kanban min/max levels down as you understand your process.  If you start with too little of inventory, you will run out of parts and people will not have faith in the new process and give up early on before it has a chance to work.

Get rid of the waste in your kanban calculation and go and see your process to understand if your kanban min/max are appropriate.

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Posted on October 12, 2011, in Manufacturing, Tools and tagged , , , , , , . Bookmark the permalink. 2 Comments.

  1. We fully agree that the formula has to be simple!

    We normally use this one.

    Number of Kanban = Daily Demand * Lead Time * (1 + Safety Stock) / Container Quantity

    You can find some solved exercise on Kanban Calculation here
    http://www.leanlab.name/kanban-calculation-a4-solved-exercises

  2. One area at the other end of the scale… where there doesn’t appear to be any formula.
    We stock a variety of different replacement parts… often just a qty of 1.
    These are parts for large manufacturing equipment that rarely fail. Whole production lines go down until they get the replacements.
    To back up the guarantee of service parts… which has always been a big selling point for this type of capital equipment.

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