Using the following information, data, and article, how would one calculate the number of Kanbans required, and what are Kanbans: Blue Wave Enterprises is a Canadian manufacturer of party...

Using the following information, data, and article, how would one calculate the number of Kanbans required, and what are Kanbans:

Blue Wave Enterprises is a Canadian manufacturer of party products. A new line of birthday candles is selling successfully but not profitably. The production process is fair 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 storage costs. The operations manager provides the owner with the following information:

  • Daily demand: 3000 packages of candles
  • Lead time: 4 days
  • Safety stock: 1 day
  • Container size: 250 packages

How many Kanbans will be required?

Algonquin College, "Lesson 11: Just-In-Time Inventory and Lean Operations": http://ccol.algonquincollege.com/mgt2320/lesson-11/lesson-content/

Asked on by jayson94

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Tamara K. H. | Middle School Teacher | (Level 3) Educator Emeritus

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Kanban is a system of production scheduling in which we judge how much to produce and when based on what we assume customer orders will be. The purpose of using the Kanban system is to eliminate waste. Waste can be created by wasting time looking for tools needed to make a product and by using extra space to store excess inventory and materials needed to produce excess inventory, among many other factors. Hence, the Kanban system was designed, specifically by Toyota, as a means of gauging production. The result is that customer demand is used to "[pull] product through the system rather than [push] products through" because we manufacture products based on predictions of customer need rather than create products in hopes of customer demand ("Kanban"; "Lesson 11: Just-In-Time Inventory and Lean Operations").

To implement a Kanban system of production, products must be made more frequently and in smaller batches in order to better meet customer daily demand. As the article ""Lesson 11: Just-In-Time Inventory and Lean Operations"" phrases it, "The Kanban system produces products in lot sizes or containers." So, the key to implementing a Kanban system is determining exactly how many containers of product one will need to manufacture per day. The article further gives us the following equation:

  • #of Kanbans = (Demand during lead time + Safety stock)/Container size

Hence, to figure out the number of Kanbans needed, one must first figure out what the demand for the product is during lead time. The term lead time is defined as the measure of expired time "between when a process starts and when it is completed" ("Lead Time").

To calculate the demand of a product during lead time, one must multiply lead time by the daily demand of the product:

  • Demand during lead time = Lead time x daily demand.

Using a sample company, the article gives us the example of daily demand being 1200 units for that particular company and lead time being 1 day:

  • Demand during lead time = 1 day x 1200 = 1200 units

Using our own problem's data, we know that Blue Wave Enterprise's lean time for producing 3000 candles is 4 days. Hence, plugging in our own variables, we would arrive at the following:

  • Demand during lead time = 4 days x 3000= 12,000

Next, to calculate the number of Kanbans needed, we must calculate how much safety stock we need, meaning how much extra stock we ought to hold should our estimates for demand be off target. Safety stock ensures we have enough inventory on hand to offset emergencies. The article gives us the following equation for calculating needed safety stock:

  • Safety stock = # of days x demand during lead time.

In the article, the sample company needs a half day's worth of safety stock, so the company's calculation for safety stock is as follows:

  • Safety stock = 1/2day (1200 items) = 600 items

If we look at our own data, we see we need a day's worth of safety stock, so the following would be true for our own calculation of safety stock:

  • Safety stock = 1 day (12,000 packages of candles) = 12,000 packages of candles.

Finally, to be able to calculate the number of Kanbans needed, we also need to know how many units of product the company's container size will hold. In the article, the example company can hold 304 units of product in its containers. For our own company, we know we can hold 250 packages of candles in one container.

Now that we know the figures for the demand during lead time, the safety stock needed, and the amount of product that can fit in one container, we can now calculate the number of Kanbans needed:

  • #of Kanbans = (Demand during lead time + Safety stock)/Container size

In the article, the example data is as follows:

  • #of Kanbans = (1200 + 600)/304 = 1800/304 = 5.92 or approximately 6 Kanbans.

Using our own data, the following is true:

  • #of Kanbans = (12,000 + 3,000)/250packages = 15,000/250=60 Kanbans

Therefore, we know that Blue Wave Enterprises needs 96 Kanbans. Also, since one system of Kanban authorizes workers at a work station to produce a certain number of goods, knowing that Blue Wave Enterprises needs 96 Kanbans means that the company needs to produce 96 containers of candles per day ("Kanban: Types of Kanban System").

Sources:

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