I am a trainer and consultant in lean manufacturing, Six Sigma, quality management, and business management.
How to Make Your Kanban Calculation
Your Kanban Calculation is important to get correct If you wish to use Kanban to drive your Just in Time (JIT) process as part of your lean manufacturing initiative. To ensure that you do not suffer from stock-outs or overproduction you need to understand how to calculate your JIT bin quantities. There are several different formulas for Kanban Calculation available through which you can calculate your Kanban bin size, the most simple of which is below:
Kanban Quantity =Daily Demand x Lead time(in days) x Safety factor
There are a number of other Kanban calculations with additional factors involved such as the variation of daily demand and lead times statistically, however, in my mind, these merely tend to over complicate the matter and make it look as though you need a mathematical genius to run the system. The reality is very simple and you really do not have to overcomplicate issues.
Reducing Kanban Quantities
The whole point of the safety factor in the Kanban calculation is to give you a starting point from which to make improvements, you start with a “comfortable” safety factor then reduce this in planned steps and tackle problems, either those that you can predict that will arise and those that occur. The excessive amounts of inventory within a traditional manufacturing system tend to hide many problems, the lowering of this inventory will begin to uncover these problems.
The following sections will cover how you get the information for the individual parts of the calculation then some suggestions as to how you go about continually improving the system.
Calculate Daily Demand for Kanban
As in any other important calculation within your business, get the facts, don’t just guess as to what the figures are. Most companies will have historical data regarding the demand for each of their components or will be able to calculate it from sales figures of completed items.
The demand will obviously vary over time, maybe even change seasonally, so what do we take? Average? Maximum? Or something else? Well, this depends on how safe you want to be and how much variation there is in daily demand. On the whole, we try to take a figure that covers 90%-95% of all daily demand, this means that our Kanban calculation will be robust for most situations (don’t forget the safety factor).
Obviously the more variation there is in demand the less reliable your Kanban system will be once we calculate Kanban quantities for the component, if it is too great then maybe a different approach to a simple bin or card system is required. The more variation we have in demand the higher the safety factor we should use, but this will increase inventory levels.
Calculate Lead Time for Kanban
As for your daily demand, get the true facts; what are your actual lead times to produce the required component. How much do they vary over time? The more reliable the data the better, as with your daily demand, take a figure that covers 90%-95% of your lead times. If these vary a huge amount then you have problems with regards to your process reliability or lack standard operating processes. The more variation you have the less reliable your Kanban calculation will be and the more likely that you will suffer with stock outs.
Kanban Safety Factor Calculation
Your safety factor in your Kanban Calculation should reflect your confidence in your system, if you have total confidence and there is little variation in lead times and daily demand then you may set this factor at 1, if however you suffer with highly fluctuation demand and unreliable lead times then you need to increase this factor to the point that you are confident that you will not suffer with stock outs.
When you calculate your Kanban the things to consider are how reliable are your processes, how good is your quality performance, are your customers liable to make sudden high demands, are your processes repeatable, do you have standard operating processes, and so on. The further you are from the ideal for operating Kanban the greater your safety factor should be.
Use Kanban for Inventory Reduction to drive Improvement
One of the main aims of implementing Just in Time (JIT) as part of lean manufacturing is to reduce inventory. However, we use inventory to buffer us against many different problems in our processes, such as poorly defined processes, unreliable equipment, long change over times, poorly trained operators and a host of other issues. As discussed above the more of these issues we have the greater the safety factor that needs to be used when calculating Kanban quantities, if we have to many potential problems then the inventory levels will be very high.
Therefore we have to look at why we are increasing these levels and try to predict the effects of reducing the amount of inventory in the system. At the start of this process, we will have a good idea of what the problems within the system are and we will be able to tackle them one by one, this will enable us to reduce our levels of inventory and the Kanban quantities.
Ways to Reduce Kanban Quantities
Typically the problems we will encounter will be regarding defining standard operations to reduce variations in time and quality. Reducing setups by using Single Minute Exchange of Die (SMED) techniques to reduce both variation in time taken as well as the overall time. Implementing Total Productive Maintenance (TPM) to improve the reliability of processes and reduce further variation. After this we can look at Kaizen and a host of other tools to continue to reduce variation, delays and other issues.
Pull System Using Kanban Video
Reducing Kanban Safety Factors in Your Calculations
As we make each improvement we can reduce our safety factor and thus the amount of inventory in the system, at the start we will do this in a predictive manner, being able to anticipate and tackle obvious problems before they become a problem then dropping the inventory levels.
As the obvious problems are removed we reduce our safety factor for our Kanban bin quantities calculation and reduce the Kanban sizes.
Once the obvious problems are tackled we should continue to drop inventory in a controlled manner to highlight the other issues in the system that will be uncovered like rocks hiding at the bottom of our sea of inventory. By continually dropping the inventory we will continually highlight these issues and drive improvement.
Kanban / Takt Time Calculations
Additional Resources for Kanban Calculations, JIT and Lean manufacturing
The following are useful links for business support and lean manufacturing resources.
Manufacturing Improvements Institute for Manufacturing within the engineering department of Cambridge University is a great resource for help with Kanban or any other Lean manufacturing or business improvement tool.
Quality Institute Chartered Quality Institute in the UK is another source of business advice and support. They can offer you much advice through their events, publications and through their many members.
American Quality Society American Society of Quality can offer support with implementing business improvement ideas like kanban in much the same manner as the UK equivalent.
Business Innovation and Skills Improvement UK Department for Business Innovation and Skills can provide help and support and occasionally access to government or European money for funding for training for skills such as Kanban.
Business Improvements UK Business Link can help you with regarding finding help to implement kanban and possibly find funding to pay for training or consultancy.
Motor Manufacturers and Traders; Society of Motor Manufacturers and Traders have many resources and publications that can benefit you for Lean and Kanban implementation.
Automotive Industry Action Group Automotive Industry Action Group will help you in much the same way as the SMMT, the automotive industry is where much of lean manufacturing has been developed and practiced so much of the resource is available here.
These Links will help you to find more information regarding Lean Manufacturing, Just in Time and Kanban to help you to improve your business. I hope you get your Kanban Calculation correct and remember to keep adjusting your safety factor to reduce your stock levels.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Alia Alturk on July 12, 2011:
am a masters' student and working on supply chain integration between MTO & MTS using Kanban, i have a problem with the implementation, i could not start with it; dont know what data i have to collect. my objective is customer satisfaction and inventory redustion. can anyone help me in that.
i appreciate that.
my email is (firstname.lastname@example.org)
thank u in advance
XB on December 08, 2010:
is not so easy... I mean that if the demand is no regular your inventory level can be increased more than before the implementation of the kanban, be careful with that!!
Another issue is the minimum quantity manufactured by your supplier. What happens if your card kanban requires 500u and your supplier can only provides you 2000u?? has it ever happened to you? What did you do?
My personal mail is email@example.com
I look forward your comments
Tony (author) from At the Gemba on August 01, 2010:
The Kanban Calculation is very simple in reality but many people still struggle with it and some consultants like to make it as complicated as possible to justify their existence whilst some academics try to over complicate it also by putting in place additional variables etc..
At the end of the day the safety factor takes all of this into account and a phased reduction in kanban size will force you to face all of the issues in your system.
leansimulations on July 28, 2010:
Kanban is a great way to improve scheduling and reduce inventories. I agree that you can make it extremely complicated to calculate the number of kanban cards required, but basically all you need to know is the lead time and the demand. The rest you can play around with in the safety factor. And that is the ultimate goal. Once the system is running, it requires someone to look for ways to improve it, reduce the inventory levels and take out cards.