Implications of Scrap, Unplanned Downtime, and Changeover Times on Replenishment Intervals

Implications of Scrap, Unplanned Downtime, and Changeover Times on Replenishment Intervals

If you remember, we started out this chapter by saying:

  • Size your kanbans based on the current state of your production process.

This advice was based on our desire to help you avoid the agony of undersizing your kanban quantities , which can:

  1. Cause you to continually operate at danger (or red) levels

  2. Ultimately lead to your pronouncement of kanban as worthless and a waste of time

After seeing the calculation method, hopefully you see how scrap, unplanned downtime, and changeover times will drive the interval up or down. To illustrate this point, we varied scrap, downtime, and changeover time for the Figure 4-10 (or ten-part number) example. The graphs in Figures 4-14 to 4-17 show how the replenishment interval varies with the scrap, downtime, and changeover time changes.

Note that Figure 4-17 shows the benefits of an aggressive continuous improvement program that drives all of these values down. Because of the impact of these improvements, we have dedicated Chapter 9 to discussing improvements.

Calculating the Buffer

The last step in the process of sizing the kanban is to calculate your buffers. The buffers will provide you with the necessary lead time to produce the replenishment interval part quantities without stocking out your process or customer. The buffers also provide the necessary time required for process activities to occur. Buffer items that should be considered include:

  • Customer delivery requirements (and your promised service)

  • Internal lead times

  • Supplier lead times

  • Comfort level

Buffers should be considered in terms of how much inventory is needed to prevent the item from impacting the customer deliveries. The secret is to hold enough inventory to protect the customer without holding too much inventory.

Customer Delivery Requirements (and Your Promised Service)

The starting point for determining the buffer is the customer delivery requirements. Keeping the customer supplied should be the overriding driver in setting up the buffers. Therefore, the buffer must support the promised customer deliveries. So, when sizing the buffers for finished goods kanbans, make sure that you can deliver on the customer requirements (or your promises) in order to maintain customer satisfaction.

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Figure 4-14: Impact of Scrap on Replenishment Intervals.

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Figure 4-15: Impact of Scrap Unplanned Downtime on Replenishment Intervals.

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Figure 4-16: Impact of Changeover Times on Replenishment Intervals.

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Figure 4-17: Impact of All Three Factors on Replenishment Intervals.

You can be aggressive with the internal and supplier buffers if you maintain a finished goods inventory buffer. The finished goods inventory can serve as the buffer for stock out of internal parts and supplier raw materials.

Internal Lead Times

Internal lead times refer to the process times to replenish parts. It also includes process constraints, such as chemical reaction times, cure or drying times, or inspections., Look at the process and size the buffer realistically to allow time for these activities to occur. Also, look at the lead times of your internal suppliers and factor in their lead times to resupply your process.

Supplier Lead Times

When looking at the lead times from the supplier, consider their production timeline as well as transportation time. Also, look at the supplier's reliability, quality, and delivery record when establishing their lead times. Don't pressure your suppliers into accepting unrealistic lead times. Don't put your production process in jeopardy (and ultimately customer service) by forcing fairytale commitments. To create a win-win environment, tell your supplier the target goals and let them accept the lead times.

When considering product transportation, also look at the transportation cost. You need to trade off the cost of holding inventory versus having more frequent deliveries. This analysis needs to consider the impact of partial shipments on your transportation budget and the space requirements to hold the larger quantity of material. (We will discuss options for minimizing freight costs due to partial shipments in Chapter 9.)

Comfort Level

Finally, determine your own desired inventory comfort level. Essentially, how much inventory do you need to sleep soundly at night? Here is where you need to be very careful that you don't let your desire for comfort make you into an inventory glutton.

When determining your inventory comfort level, use the previously collected data to challenge your beliefs about the necessary buffers. Is there fat in the process that causes you to overcompensate? What about any "hidden factory inventory" ”such as multiple containers of material being staged at a downstream operation while still maintaining a control point?

Once again, look at how large of buffer the current operation uses. If you're not carrying extra material now, then why will you need it in kanban scheduling? The buffer requirements will be an excellent discussion topic for the team.

Determining the Final Buffer Size

When you have addressed these items, determine a final number for your buffer. Realistically look at the various items and determine if the events will occur in series or randomly to determine the final number. Essentially, will the buffers be additive or will one quantity be sufficient.