Kanban quantity calculations and circulating kanbans
Kanban quantity calculation policies
In Supply Chain Management, a kanban quantity calculation policy is used to define the parameters for the kanban quantity calculation and group the kanban rules that are usually calculated in the same regularity with the same parameters.
The kanban quantity calculation policy is then associated with the kanban rules and used to perform the kanban calculation.
Go to Production control > Periodic tasks > Kanban quantity calculation > Kanban quantity calculation policies to create a new policy.
Name - Identification of the kanban quantity calculation policy.
Master plan - Actual demand is determined from the result of a master plan. Assign the master plan or forecast plan to be used when you are calculating kanban quantities for this policy.
Minimum kanban quantity - The additional number of kanbans that are added in the kanban quantity calculation.
Safety factor - Safety factor is used in the calculation of the fixed kanban quantity, for example if 0.1 is used, 10 percent is added to the calculated demand.
Include safety stock - When this option is not selected, the demand during lead time is considered constant so the calculation of safety stock is not included in the calculation. In this case, the formula is as follows:
Kanban quantity = (Average demand * Lead time * (Safety factor +1)) ÷ (Product quantity per handling unit) + 1
When Include safety stock is selected, the variation in demand during lead time should be included by calculating and adding safety stock.
Kanban quantity = (Average demand * Lead time * (Safety factor +1) + Safety stock) ÷ (Product quantity per handling unit) + 1
Safety stock is calculated in consideration of the demand, variance, and service level.
Service level - If Include safety stock is selected, a service level must be defined. For example, if the value of 90 is used, the fixed kanban quantity is calculated from an assumption that the probability of not experiencing stock out is 90 percent.
Period - Defines the period code for the calculation of demand. If the field is selected, the related fields of Days ahead and Days behind are enabled to define the period for the calculation.
Days behind - Looks at inventory transactions or kanban jobs in case the kanban is not updating inventory. For example, if a sales order has been shipped and invoiced 20 days before the calculation date and the demand period is 30, the already fulfilled demand from the sales order will be included.
Days ahead - Days ahead from the calculation date that demand will be included in the calculation of the fixed kanban quantity. The result is dependent on the plan that has been used. For example, if a sales order has a requested ship date 20 days from the calculation date and the demand period is 30, the demand and derived demands from the sales order will be included.
Season - Defines the period code for the calculation of demand. If the field is selected, the related fields of Start day and month and End day and month are enabled.
Start day and month - Specifies the start day of the season. This day will be the starting day for calculating fulfilled demand from the present year and demand from the next year.
End day and month - Specifies the end day of the season. This day will be the ending day for calculating fulfilled demand from the present year and demand from the next year.
Kanban quantity simple formula
The parameters that are configured in the kanban quantity calculation policy build the formula to use when you are calculating the kanban quantities. An example of a simple formula only includes the average daily demand and does not include safety factor or safety stock. This approach would be useful in scenarios where average daily demand during the lead time is considered constant.
Kanban quantity = (Average daily demand * Replenishment lead time of kanban rule) ÷ (Product quantity per handling unit or a Minimum Kanban Quantity)
Kanban quantity including safety stock
Where demand during the lead time has a greater variation, including the safety stock and a service level in the calculation of the kanban quantity is recommended. This formula includes the safety stock in the kanban quantity calculation.
Kanban quantity = (Average daily demand * Lead time of Kanban rule + Safety stock) ÷ (Product quantity per handling unit or a Minimum Kanban Quantity) + 1
Kanban quantity including safety factor and safety stock
A safety factor can be applied to both types of equations. It can also be used as an alternative to safety stock in the calculation. The safety factor is configured in the kanban quantity calculation policy and adds a certain percentage to the calculated demand.
Kanban quantity = (Average daily demand * Lead time of Kanban rule * (Safety factor + 1) + Safety stock) ÷ (Product quantity per handling unit or a Minimum Kanban Quantity) + 1
Associating kanban policy to kanban rule
The kanban quantity calculation policy is associated with the kanban rule to define which parameters to use when you are calculating the kanban quantity. This process is done on the Kanban quantity calculation policies FastTab on the Kanban rule page in Product information management > Lean manufacturing > Kanban rules
Kanban quantity calculation policies scenario
USMF has been struggling with defining the right kanban quantity for the kanban work cells. This struggle has led to stock outs in the work cells or an unnecessary buildup of kanban inventory. They have decided to calculate the kanban quantity in a systematic way and to categorize the kanban rules in different kanban calculation policies.
A huge variation occurs in the demand for Contoso's products between the first and second half of the year. In the first six months of the year, the demand is stable. In the second half of the year, the demand is unstable and stock outs in the kanban work cells are experienced.
It is Pierre's goal to define kanban quantity calculation policies for the first and second half of the year with two determining parameters for calculating the right kanban quantities. In this scenario, Pierre takes the following steps:
Creates a Kanban quantity calculation policy for the first half of the year. Pierre sets up a period from January 1 to June 30. Because demand is stable in the first half of the year, Pierre does not select to include the calculation of safety stock in the policy.
Creates a kanban quantity calculation policy for the second half of the year. Pierre sets up a period from July 1 to December 31. Because demand is unstable in the second half of the year, Pierre selects to include the calculation of safety stock in the policy.
Associates the kanban quantity calculation policies to the kanban rules.
Calculating kanban quantities
To calculate the kanban quantities for kanban rules, a kanban quantity calculation is created and associated with the kanban quantity calculation policy. The process of running the calculation includes generating the list of kanban rules that are associated with the kanban quantity calculation policy, calculating the kanban rules, and then updating the kanban rules.
When a kanban quantity calculation is created, a kanban quantity calculation policy is associated with the calculation. The periods of the kanban quantity calculation are preset based on the kanban quantity calculation policy and can be overwritten manually before you calculate. To create a new kanban quantity calculation, go to Production control > Periodic tasks > Kanban quantity calculation and then select New.
Name - Identification of the kanban calculation.
Policy - This field has reference to the kanban calculation policies. The kanban quantity will be calculated based on the determining parameters that are set up on the chosen policy. Only fixed quantity kanban rules that are associated with the chosen policy will be included in the calculation. The field should be mandatory.
Status - The kanban quantity calculation can be in the following three states:
Created - The initial status, when lines have been created.
Calculated - When the user calculates the lines for the first time.
Updated - When the user chooses to replace kanban rules that are generated from the kanban status from Calculated to Updated.
Rule effective date - When the user chooses to replace kanban rules that are generated from the kanban calculation, the new rules will be active on the specified Rule effective date.
Rule active as of date - Determines which fixed kanban rules are going to be selected when kanban calculation lines are generated. Only rules that are active on the selection date will be generated. This date is defaulted by the Rule effective date.
Fulfilled demand period start date - Determines the date from when transactions, representing fulfilled demand, should be included in the calculation of the fixed kanban quantity.
Fulfilled demand period end date - Determines the date until when transactions, representing fulfilled demand, should be included in the calculation of the fixed kanban quantity.
Demand period start date - Determines the date from when transactions, representing demand, should be included in the calculation of the fixed kanban quantity.
Demand period end date - Determines the date until when transactions, representing demand, should be included in the calculation of the fixed quantity kanban.
Calculation of kanban quantity proposals
After the list of kanban rules has been generated, you can use the Calculate button to perform the kanban quantity calculation. The results update the kanban quantity proposals of the kanban rules. When the kanban calculation lines are calculated for the first time, the status of the kanban calculation changes from Created to Calculated. The calculation can also be configured to perform in a batch job.
Demand - Is defined as the customer's "demand" for product or services from a manufacturer. The calculated average future demand in the defined period for demand on the kanban calculation.
Fulfilled demand - A manufacturing organization could "fulfill demand" by building products to specifications or purchasing from another manufacturer and then shipping it to the customer. The calculated average for daily fulfilled demand in the defined period for fulfilled demand is applied on the kanban calculation.
Safety stock - The calculated safety stock in the defined period. Safety stock is only calculated if this is configured in the policy of the kanban calculation. The defined period to calculate safety stock is from: Fulfilled and future demand in the period start date to the demand period end date.
Product quantity - The product quantity is defaulted to the kanban calculation from the relating kanban rule. It is possible to change the value on the line, and in that case, a new value for the kanban quantity is calculated. The value can only be edited if the status of the kanban calculation is Calculated.
Kanban quantity - The kanban quantity is calculated by the kanban calculation, but rounded up. It is possible to change the value of the kanban quantity, and in that case, a new value for the product quantity is calculated. The value can only be edited if the status of the kanban calculation is Calculated.
Unrounded - This field shows the unrounded calculated value of the kanban quantity.
The kanban quantity calculation proposals are generated under the Kanban quantity proposals FastTab of the Kanban quantity calculation page. To generate the list of all kanban rules that apply to the kanban quantity calculation policy, select the Generate button.
The generation will search the kanban rules against the subsequent policies and generate a list of kanban rules that apply in the kanban quantity calculation lines.
The kanban quantity calculation policy of the kanban calculation should match the kanban quantity calculation policy that is associated with the kanban rule.
Kanban rules must have an active date before or on the Rule active as of date field on the kanban quantity calculation. Only rules that are active on this date will be selected.
Additional kanban rules can be added to the kanban calculation by selecting the Add button. Kanban rules can be removed from the kanban calculation by selecting the Remove button.
Calculating safety stock
In the general formula for calculating safety stock, it is assumed that both lead time and material demands are not constant but vary over time and that the variation of these sizes will follow a normal distribution.
Within Supply Chain Management, it is assumed that lead time does not vary over time, thus the deviation over lead time will be zero.
The service factor is calculated from a chosen cycle service level that is designated on the kanban quantity calculation policy.
For example, a 90 percent service level results in a service factor (z) of 1.29. The higher that (z) is, the lower the risk of stocking out, but the higher the average inventory level is.
Calculating average daily demand
The average daily demand for the periods in the kanban calculation is calculated for both inventory-controlled and non-inventory controlled kanban rules. These rules consider both fulfilled demand and future demand.
Average daily demand = Σ Demand (period) / number of working days in the period
For inventory-controlled (last activity of the kanban rule updates inventory) kanban jobs:
Fulfilled demand is calculated from the inventory transaction table.
Demand is calculated from the required transactions according to the plan that is provided in the kanban quantity calculation policy. If no plan is given, the demand is determined from the inventory transaction table.
For non-inventory controlled kanban jobs:
Fulfilled demand is calculated from kanban jobs in the job status of Completed.
Demand is calculated from kanban jobs where the job status is less than Completed.
Updating kanban rules
To update the kanban rules, select the kanban rules to update and select the Update button. Kanban rules can only be updated when the calculation is in the Calculated status. When the rules are updated, the kanban calculation changes from the Calculated status to the Updated status. The update can also be configured to perform in a batch job.
Try reducing the kanban quantity or change the lead time on the kanban rule and recalculate to see different results.
Circulating and single use cards
For a circulating kanban card, the printed cards are reused and circle physically between the item origin and the point of consumption. After you define the kanban quantity, the needed cards are printed once. Fixed circulating cards can move between item origin and point of consumption multiple times a day.
This replenishment strategy is mostly applied between cells of one site that have physical proximity; an example would be replenishing a cell supermarket out of the main material warehouse.
Kanbans that are created for single use can be used to cover additional demand to level specific exceptional demand. Single use Kanbans are only (and always) based on fixed quantity rules and no specific rules need to be created for this pull type. Instead, the kanbans have a flag that marks them as single use. You can also use event kanbans for exceptional demand above a certain quantity to maintain the buffer stock of a fixed quantity kanban.