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Statistical Kanban™ - A better way to size inventory
In traditional lean, practitioners assume that kanban shipments of new
material should be sized according
to average consumption over time, as if demand were steady and did not
fluctuate according to seasonal or
customer order patterns and assumes a steady state of supply. Thus, if
a company produces 10,000 units a
year, it would size its kanban as though it were producing 2,500 units
per quarter, and so on down to a daily
or even hourly rate of production. The quantity of material replenished
then becomes a simple calculation
with only three variables: the lead time required to source material and
produce product, average daily
consumption, and frequency of delivery. If the company consumes 100 units
per day and wants to be
replenished on a daily basis, then order quantity will be 100. But, in
the real world, demand is never
constant for very long and supplier lead times vary. Consumption may vary
widely over time depending on
a host of factors. Fortunately, variation in demand can be mathematically
calculated with great precision.
FlowVision uses an adapted method of Kanban that we call Statistical
Kanban™. In Statistical Kanban, one analyzes historical production
and consumption data and conducts a mathematical analysis to determine
the fluctuation in usage over time within supplier lead times. Next, one
calculates the lead time required to produce a finished product and the
supply of material and sizing of inventory needed at every stage to meet
the service levels required by end customers. These calculations result
in a reorder size that ensures there will be enough material on-hand and
on-order to meet any specified service level.
Of course, the higher the service level, the more inventory that will
be required to meet it. Statistical Kanban
is so precise that it enables OEMs to guarantee specific service levels
and know the exact cost of providing
them. Since there is a consistent method of calculating and maintaining
inventory through each tier of the
supply chain, on and off balance sheet liability is always known. There
are no surprises.
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FlowVision eliminates excess inventory throughout the supply chain by
using
mathematical calculations to determine the optimal amount of material
needed to meet a guaranteed service level. This new methodology is known
as Statistical Kanban.
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