Inventory management using Kanban

If you want to read about Kanban history you can find it here.

Kanban is a fantastic WIP and inventory management coming from the Lean world.

Kanban is a fantastic WIP and inventory management tool from the Lean world.

It is similar to the classic saw teeth model, though with some important changes:

1. It works in places that don’t have computers and devices.
2. Your inventory management software doesn’t have to hold an accurate number of items at each location—or even any number at all. It can manage itself without inventory records in any database.
3. It is managed automatically! After the first setup, no one does the planning. You can manage several items with almost no inventory planners. It happens just like magic 🙂

The idea behind Kanban

• We produce or transport material only when we get a signal to do so (Kanban=signal).
• A signal is generated only when someone uses the materials, in the next step, and when it is time to replenish.
• The following are predefined:
  • The amount to produce/transport
  • From where we will take the material and where we will put it
  • The size of the buffer that must be consumed before we use the signal

 

Simple example:

My kid ate cornflakes. He finished the box

• My kid took another box from the shelf and told me, “Dad we need more cornflakes”.
• I will not be able to buy more cornflakes for another 2 weeks.
• On Thursday, I will go to the store and buy groceries, including 2 boxes of cornflakes.
• At the store, I took the last packages from the shelf, so the store owner had to go to the small warehouse at the end of the store and bring back 10 more boxes.
• When he took the 10 boxes, he realized that the last pallet was about to be finished. Therefore, he needs to order more boxes of cornflakes from the wholesaler. He orders a pallet with 50 boxes like he always does.
• The wholesaler sees that he is getting short on cornflakes pallets and orders 10 more pallets straight from the factory.

The story above describes a method of managing inventory without anyone having a computer or inventory management software. All the people above get a signal (red text) when their inventory unit (pink text) is about to be empty. They all order the same predefined amount to replenish (green text).

Note, that no one will have more or less inventory than planned.

• What will happen if the demand changes?
• What if my kid started eating cocoa puffs for breakfast instead of cornflakes?
• What parameters should we change in this supply chain?
• The answer is NOTHING. We don’t do anything when we use Kanban and the demand changes. The only time we intervene is when there is a major change in demand that might result in a shortage. The changes that we will make are changes to the predefined parameters of the item (the order amount).

How does it work? Learn by example

Suppose we have a factory that produces headphones.

To produce headphones, we need to:

• Produce plastic parts using injection molding machines.
• Assemble the speakers in a special product line that looks like a lab.
• Use external components that we buy from our external suppliers.
• Acquire metal parts that we produce using our CNC tool.
• Get many small parts that we buy cheaply in large quantities.

After doing all of the above, we assemble the product, then pack and ship it.

Now, let’s assume we get a lot of orders for 20 different types of headphones each day. Every product has a different BOM (bill of materials). Some parts are the same between products and some are not.

How do we integrate it all to arrive at the same time as the assembly line? 

Let’s continue with the above example:

A 5,000-unit order might be delayed if we do not have:

• A special screw. This screw is bought from an external supplier. We buy a batch of 13,000 screws each time. The screws are used for many different products.
• A plastic part made in a batch of 10,000 pieces (because of long setup time on the machine).
• A metal part that we produce using a CNC tool. Parts of the CNC are produced for many different products. The order of production is FIFO.

If we want to use planners to plan the production and movement of hundreds of parts, then we will have dozens of planners that will try to manage the production plan using buffer queues and Gantt charts. DON’T DO THIS! You will always face a surprise and you will have to plan the production plans over and over.

What a Kanban assembly line will look like:

At the assembly line, we will have all the parts needed to create the product. (They can be in boxes, drawers, carts, shelves, or any other containers that fit the assembly line.) From every part that we need for the assembly, we will hold two containers. The assembler will take the parts from only one container. When the container is empty, he will take parts from the second container. While moving to the second container, he will find a Kanban card on the bottom of the first container. He will put the Kanban card in a special place (“mailbox”) where a stockkeeper will pick it up.

The stockkeeper reaches the “mailbox” from time to time. He takes the cards and restocks the first container according to the quantity written on the card. The card contains the following information:

1. Part number
2. Description
3. Quantity (the exact amount that the stockkeeper should bring)
4. The location from where to take the product
5. Station name and location (so, he will know where to put the inventory)

 

The stockkeeper will bring the material to the relevant station and put the Kanban card on the bottom of the container (or on the side, wherever you like).

At the warehouse, we work the same way. We will have at least two pallets (or another container) from each part. At the last—or before the last—container, we will have a Kanban card that will tell us where and how to replenish.

• If we buy the material from an external supplier, then we will give the Kanban card to Procurement so they can order more (the amount to order is on the card).
• If we produce the part inhouse, then the card will go to the relevant department (Injection, CNC, etc.).

If this is a production part:

The department that gets the card will put it in its buffer queue. They can produce the materials as a FIFO priority or any other priority (this is also predefined). At the end of the production, they will have the amount that is stated on the card. They will attach the card to the product and the stockkeeper will send it to the warehouse.

If this is a part that we order from an external supplier:

The Kanban card will reach the buyers that order the part. Then they will put the card in the “done mailbox”. The stockkeeper will retrieve the card from there and take it to the warehouse, where it will wait for the material to come in an “incoming mailbox”. When the material enters the warehouse, it will get the Kanban card as an attachment.

Kanban summary:

When a worker finishes a container that has a Kanban card in it, he puts it in a “mailbox” and when the stockkeeper brings the material, he attaches the Kanban card to the material container.

This also happens in the warehouse and production units.

What is left to do?

1. Determine the quantity that is written on the card.
2. Determine on which container we should see the Kanban card.
3. Update the quantities when needed.

1. Calculate the quantity on the card

The quantity on the card should be as high as possible to avoid unnecessary transportation. However, we are limited by our storage capacity. Therefore, we will put the highest number that our storage place allows us. For example: In our assembly station, we have a place for 10 packages that contain 100 units each. That is enough inventory for two weeks. We put the Kanban card on the last box. So, when the stockkeeper comes and gets the card, one package will be left in the station. Thus, the stockkeeper can bring only nine boxes. In a formula, it will look like this:

P = The number of boxes we can put in the station

K = The number of boxes left in the station when the Kanban card is picked up. If we put the Kanban on the last box this value will be 1.

M = The quantity on the Kanban card

M = P – K

In this example: P=10, K=1, M=9

The location of the Kanban card (K)

The tricky part is to decide on which box we should put the Kanban card (K in the above formula).

If we put the card on the last box, we might finish all the material before the stockkeeper replenishes it. In that case, the station will be idle, which we don’t want. If we put it on the fifth box, then we might have a lot of transportation to do all the time. So, where to put the card?

Let’s calculate:

X= The average daily consumption of the station

T =  The number of days between each time the stockkeeper visits the station

S = Safety stock. Number of extra days we want in stock so the station will not be idle

We will need to take 2T as the longest time it takes for the stockkeeper to visit the station, take the card and return after T days with the material.

Example:

Let’s assume the station uses 2 boxes of material each day. The stockkeeper comes every day, takes the Kanban cards, and brings the previous day’s material. Because we want to ensure that the station is not idle, we will make sure that we always have an extra day of inventory.

B = The box that the Kanban card should be on

B  = X * (2T+s)

B= 2*(2+1)=6

So, we will put the Kanban card on the 6th box from the end. If we have 20 boxes in the station, we will put the card on the 14th box that we will use.

By the way, in most cases, you put the card on the last box because the stockkeeper comes more than once a day.

3. When we update the quantities on the card

If the stockkeeper does a lot of transports for a specific material, we can decide to change the quantity on the Kanban card. That usually means that if we put more stock from one material, then some other material will be consumed much less. Usually, we will correct not just one material quantity but at least two cards, as one is getting more demand while the other is getting less demand.

How to spot a material that needs correction? Once a month/quarter/year, go over all the parts that are issued from the warehouse and deal with the materials that have the most transport orders.

This is a real example from “FASTCAP”: 

 

Summary

The Kanban system allows us to magically run several inventory parts without having to plan everything. This system is extremely useful for complex factories that use more than one step of production.

Who shouldn’t use Kanban? 

If your demand changes a lot and you don’t have enough storage capacity near your station or a place for buffers then this system is not for you.

I personally really like this method and recommend trying it.

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For any questions, you can email me at:

Gal Merom at:

theplanningmaster@gmail.com