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.
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 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 percent increase over the normal average.
Use the 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.