The term kanban is a Japanese word meaning “card.” The term is used to describe a system in which inventory replenishment is triggered by a card that is removed from inventory as it is used. Each card represents one standard container of product or, for large products, the standard unit of measure of material (see the following image). A supplier kanban basically replaces the traditional purchase order.
The formula to calculate the number of supplier kanbans in a system uses three critical elements in addition to demand, safety stock, and quantity per kanban. The formula incorporates the time required for communicating the kanban to the supplier and the time for delivering the replenished kanban back to the buyer. As expressed in the image below, the transit delay pick up (TD1) indicates how many days it takes to communicate the kanban to the supplier. Transit delay delivery (TD2) indicates how many days it takes for the supplier to return the kanban to the buyer. The third critical element in the supplier kanban formula is the number of deliveries (DD) that are scheduled each day. This value is added to the container quantity.
Purchasing Supplier Kanban
The formula to calculate the number of supplier kanbans is as follows:
Number of kanbans (containers) = ((demand × (transit delay pickup + transit delay delivery)) × safety stock (expressed as percent of demand) / (deliveries per day × item quantity per kanban (container)).The formula example illustrates a sample purchasing kanban calculation. The biggest benefit of a kanban system is that it should function with the minimum of planning and paperwork on the part of the buyer and supplier.
The following elements must be in place to successfully use a purchasing kanban system:
- 1The entire purchasing system has to be as error proof as possible.
- 2Products must possess superior quality.
- 3Lead times for production and delivery must be very stable.
- 4Contracts must be well-defined, covering such issues as pricing, handling, delivery, and more.
- 5Procedures should be detailed, describing how the kanban will be used.
- 6Suppliers must contribute strong support and willingness to manage their side of the system.
