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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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Learnings from a Kanban Implementation

A few years back I had the pleasure of setting up my first kanban system.  At least one that I was consciously setting up, unlike the one I blogged about in the pastJoe Wilson, my recent guest blogger, and I were tasked with developing a kanban system, train 550 people across 3 shifts using a simulation we develop, and implement all within 8 weeks.

(click on image to see larger version)

This was no small task as you can imagine.  The facility had 4 main process: injection molding, painting, electroplating, and assembly.  The processes were spread out over 450,000 square feet.  We also thought the only way anyone would have a chance to retain how to use the kanban system was to have all 550 people touch/participate in the simulation.

We designed the simulation using the actual kanban cards that would be used out on the floor so people would be used to seeing them.  The simulation also only used 6 people at time.  We weren’t dummies.  We knew how many sessions that meant and we were going to do it in one week.  We decided to train 6 people from HR on the process and the simulation.  They knew as much as we did at the time so why not.  We went over it with them several times until they understood it.

We were the only facility in the company that hit the mandated deadline for this task.  Yes.  It is one to this day that I am proud of.  Now that doesn’t mean the system worked all that smoothly.  It did allow us to jump into the learning cycle much faster than everyone else and start making improvements.  It was an AMAZING learning experience.

I did all this set up so I could share some learnings……OK and maybe toot Joe and I’s horn a bit for meeting the deadline 🙂

  • Small kanban cards (3×3) on big portable racks didn’t work too well – Our solution was to permanently mount the cards to the racks that were specifically designed for the parts.  We scanned the card when full and then when empty.  Another possibility is to make the kanban cards big (8×4) so a card can’t be stuck in a pocket easily or is easy to see if missing.
  • Transporting the cards large distances to put in the “Return To Supplier” bin did not work – Taking the cards across the department allowed people to stick them in pockets until they walked over there and also gave them more opportunity to drop cards on their way to the bin.  The permanently mounted cards helped with this because we went visually off the empty bins.  This forced us to create a visual management system to see them easily.  Another solution is have a “Return to Supplier” bin no further than 12 inches from where the card is removed.
  • Start with too much inventory instead of too little – When parts ran out because we sized the kanban too small people wanted to blame the new process and not bad math on our part.  In most cases, we sized properly or too large.  When someone argued the process was to blame we showed how it was working for the other parts and we just needed to add more kanban cards to the system.
  • The final one was timing of launch – We were an automotive supplier and we went go live with the process in the middle of June.  In automotive, almost all manufacturers shutdown for a week around July 4th to retool for the new model lines.  The suppliers do to.  So we were live for one week and then told everyone to violate the kanban because we had to build a bank of parts for the few customers that didn’t shutdown.  Whoops!  That was a hard pill to swallow but we did and we put a process in place of using non-replenishment kanbans (my next post will talk more about this) for building a bank of parts.

The list could go on forever on what we learned from this experience.  These were the highlights that spurred other learnings.  In the end, the system worked very well but it took us some time to get there.  I hope others can take from out learning and not have to make some of the same mistakes we did.