Implementing lean manufacturing and kanbans in a world of high demand volatility

[Randy Littleson]

How many times have we heard that we can’t implement Lean manufacturing, specifically kanbans, because our demand is not constant and kanbans work best with steady, stable demand. That is truly unfortunate because steady, stable demand is exceedingly rare in today’s environment. But before we give up on managing inventory using kanban, let’s look a bit deeper.


A kanban is a device that limits inventory. It can be a card, a space on the floor, a tote able to carry a fixed amount of parts or even an electronic signal that authorizes movement. In order for inventory to exist, it must have a kanban to authorize it.


When setting up a lean system, you will at some point need to calculate the number of kanbans, or in other words, the inventory authorized in the system. In its simplest form, this level of inventory can calculated based on replenishment cycle times and demand levels for the parts in the system. The number of cards is based on the inventory level and the container size. Other items that need to be considered include supply variability, demand variability, resupply costs and available space.


Let’s think about how demand variations impact your lean system. To do this, its easiest to picture yours supply chain as a hose. The diameter of the hose is the allowable level of inventory. The allowable level of inventory is based on the number of kanbans in the system as described above. When the allowable level of inventory is greater than needed to satisfy demand and buffer against supply and demand variation, we tend to end up with excess inventory. Drive the inventory too low to account for normal variation and you’ll end up with stock outs.


The water in the hose is the inventory moving through your supply chain. When I have lots of inventory, (picture a fire hose) with normal demand, water (inventory) trickles through the hose. If my demand increases, the volume of water in the hose increases and the trickle becomes a stream. No problem. The diameter of the hose (inventory) is hiding many of the problems in my supply chain such as quality problems however this extra inventory adds inventory costs. Now let’s imagine that we’ve been actively eliminating waste and lowering the levels of inventory in our supply chain and reducing our cycle times. Now, instead of a fire hose, picture a garden hose. The authorized level of inventory (the hose diameter) has been reduced and inventory moves through the system much faster.
Now let’s assume that demand being satisfied by the garden hose has increased. The volume of inventory moving through your garden hose sized supply chain will increase – to a point. At some point your supply chain (the hose) can’t keep up with the demand and the system fails. This failure occurs because we can’t move the inventory fast enough and stock outs occur. To prevent stock outs from occurring, we need to authorize more inventory. For short term demand spikes, some companies use special kanbans to authorize short term inventory to cover the spike. If your demand change is longer term, and you can’t accommodate the higher levels of demand through process improvements in your supply chain, you will need to recalculate your kanban levels (make the hose larger). In other words, re-apply the kanban calculation formula.


For companies that manually manage kanbans, this can be a big job (not impossible, but challenging). Best in class companies, however, are letting their systems manage the kanban calculations automatically. Because we want some stability in our kanban levels, we don’t want the kanban level to vary continuously as demand changes from month to month. Instead, we want the system to only authorize a change in kanban levels when we’ve exceeded a certain tolerance over time. This can raise problems of course when we have a short term spike. We don’t want to change our current kanban level, but we need to manage this spike. For this purpose, an automated system must recognize that the current kanban levels will result in a stock out as a result of this spike and recommend a temporary special use kanban (I’ve heard them called Single Use Kanban, Silver Bullets, etc). This special kanban temporarily allows extra inventory to cover the spike. In most cases, these special kanbans must be authorized, but that depends on the processes in your company.
There are still going to be some situations where kanban will be difficult to manage normally, like parts with sporadic demand for example. However, for most companies, the majority of their products can be managed automated kanban calculations. So why haven’t you started to implement lean?


John Westerveld is a Product Manager for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities.