Blue Wave Enterprises is a Canadian manufacturer of party products.
A new line of birthday candles is selling successfully but not profitable.
The production process is fairly simple but takes 4 days, and candles have to retail at a very low price to be competitive.
The owner of the company feels that the greatest cost is in keeping 50,000 packages of candles in inventory.
She wants to implement a Kanban system to reduce inventory storage costs.
The operations manager provides the owner with the following information:
Daily demand: 3000 packages of candles per day
Lead time: 4 days
Safety stock: 1 day (3000 candles)
Container size: 250 packages (3000 packages needed / 250 packages per container = 12 containers per day)
How many Kanbans will be required and what does this mean?
What Are Kanbans?
Kanbans are a Janpanese concept, just as kanban is a Japanese word, that is difficult to grasp because it is an operational part of an innovative inventory system and because it is a foreign word that has no familiar language connection to a previous concept.
In truth, though, the kanban is simply a sign, a card, placed near or at the end of a supply (in a container or on a shelf) of a given inventory item, production part or product and it signals the immediate need to replenish that inventory item, production part or product.
Since the kanban logistic control system--functioning within the JIT inventory control system--can be used at both the manufacturing and retail levels, it is possible that consumers might see cards on shop shelves, for example, book store shelves, that are kanbans triggering resupply of shelved product that has run out.
What Do Kanbans Control?
Kanbans control the logistic chain of production within the JIT, or "just in time," inventory system. JIT was first implemented by Japan's Toyota Corporation in 1953 to reduce costs while increasing profits. JIT began to be adopted in the US during the 1970s. JIT operation depends upon knowing what the demand is and when demand items are about to be used up or are used up. Kanbans control this critical moment through a visual signal triggering an alert to the replenishment system to resupply the item signaled by the kanban. Kanbans are traditionally cards although electronic kanbans, or eKanbans, have been innovated and are also in use.
Formula for How Many Kanbans Are Needed
Determining how many kanbans are required and where the kanbans are needed is integral to the operation of the kanbans logistic control system.
The formula for working out how many kanbans are needed arises from the logical operation of determining where kanbans are needed. For your example, kanbans are needed at the end of a day's demand quantity for the duration of the determined lead time (examples of which range widely and may be, for instance, half a day, 10 days, or, as in your example, 4 days) and for the expanse of the safety stock, in your example, one day's worth of demand.
The formula for this is:
daily unit demand (DDm) during lead time (LT) + safety stock (SS) / container size (CS: units per container) = # of Kanbans needed
In your example, DDm is 3000 packages. LT is 4 days. DDm for 4 days is 3000 x 4, which equals 12000 packages for 4 days.
In your example, SS is 1 day's worth of demand, or 3000 packages. Therefore (3000 x 4) + 3000 is 15000 packages for DDm during 4 days LT + SS.
In your example, (DDm x LT) + SS is divided by the CS of 250 packages per container. That yields:
- (3000 DDm + 12000 SS) / 250 CS =
- 15000 DDm+SS / 250 CS = 60 kanbans needed
Confirming Calculation of How Many Kanbans Are Needed
We can confirm this formulaic calculation by tracing the logic behind the placement of the kanbans, which, once again, are cards or e-cards that provide a visual or electronic signal triggering replenishment. To confirm:
For kanbans need during the 4 day lead time:
- 1 kanban is needed near or at the end of each container to trigger a resupply of merchandize; therefore 12 daily kanbans are needed to trigger resupply of merchandise in 12 containers: 3000 packages DDm / 250 packages per container CS = 12 containers per day and 12 kanbans per day.
- total kanbans to trigger the end of each day's stock for the 4 day lead time = 4 days kanbans x 12 daily kanbans = 48 kanbans for 4 days
For kanbans needed during the 4 day LT and the 1 day safety stock SS time:
- a day's worth of kanbans for the 1 day safety stock time = 12 kanbans
The total number of kanbans needed is the sum of the total daily kanbans (48) plus the total number of safety stock kanbans (12): 48 + 12 = 60 kanbans needed in total.
We've thus logically confirmed the formulaic calculation of 60 kanbans total through this logical analysis.
While logical analysis and calculation is possible on this small scale, on larger scale projects the formulaic calculation will be necessary and easier.