Appendix C Two-Bin Kanban Systems

Two-bin kanban systems are a good tool to simplify material control. They make it possible to issue small items to the shop floor and basically "ignore" them until the pull signal (an empty bin) returns. This technique is especially useful in operations with a large number of parts. With a two-bin system you can place the small, inexpensive components into a two-bin kanban system. You can then focus your attention on managing the more expensive components (it is not unusual to find that 10 percent of your parts make up over 90 percent of your inventory dollars).

The first step to implementing an effective two-bin kanban system is to sort your raw materials by cost. A simple way to do this is to multiply the cost of each item by your average daily or weekly usage. Table C-1 shows a fictional product's parts list sorted in descending order by weekly usage in dollars.

The next step is to calculate the percentage of inventory value represented by each item, as shown in Table C-2. Once this is done, it is easy to identify which parts are valuable enough to merit significant management attention, and which are candidates for a two-bin system. In our example, the top fourteen items represent over 94 percent of the entire inventory cost. Our decision to take the top fourteen items was based on a simple visual analysis of the data ”there is no need to develop complex rules for this type of analysis. A similar analysis of any data will present similar obvious cut-off points.

Description	Weekly usage	Unit cost ($)	Weekly $
Drive	200	$300.00	$60,000
Motor	15	$2,500.00	$37,500
Harness	100	$140.00	$14,000
Fixture	45	$300.00	$13,500
Valve	130	$100.00	$13,000
Gage	12	$500.00	$6,000
Hose	100	$45.00	$4,500
Drive	12	$250.00	$3,000
Coupling	15	$150.00	$2,250
Belt	85	$25.00	$2,125
Fitting	40	$50.00	$2,000
Motor	5	$400.00	$2,000
Drive	5	$400.00	$2,000
Screw	2400	$0.50	$1,200
Belt	30	$35.00	$1,050
Coupling	150	$5.00	$750
Fitting	40	$15.00	$600
Belt	6	$80.00	$480
Adapter	3	$125.00	$375
Drive	5	$75.00	$375
Motor	70	$5.00	$350
Coupling	70	$5.00	$350
Drive	32	$10.00	$320
Charger	6	$50.00	$300
Belt	30	$10.00	$300
Fitting	5	$60.00	$300
Gizmo	50	$5.00	$250
Adapter	10	$25.00	$250
Charger	5	$40.00	$200
Belt	40	$5.00	$200
Charger	20	$10.00	$200
Belt	250	$0.50	$125
Motor	20	$5.00	$100
Gizmo	20	$5.00	$100
Adapter	20	$5.00	$100
Washer	20	$5.00	$100
Assembly	2	$50.00	$100
Gizmo	5	$20.00	$100
Seal	40	$2.00	$80
Tube	20	$4.00	$80
Pipie	160	$0.50	$80
Adapter	40	$2.00	$80
Screw	150	$0.50	$75
Clamp	300	$0.25	$75
Nut	300	$0.25	$75
Hose	5	$15.00	$75
Nozzle	5	$15.00	$75
Washer	30	$2.00	$60
Screw	30	$2.00	$60
Seal	20	$3.00	$60
Adapter	10	$6.00	$60
Nozzle	5	$10.00	$50
Belt	5	$10.00	$50
Screw	10	$4.00	$40
Seal	10	$4.00	$40
Belt	10	$4.00	$40
Adapter	40	$1.00	$40
Charger	40	$1.00	$40
Belt	40	$1.00	$40
Screw	10	$4.00	$40
Assembly	150	$0.25	$38
Adapter	140	$0.25	$35
Clamp	140	$0.25	$35
Gizmo	3	$10.00	$30
Charger	15	$2.00	$30
Washer	10	$3.00	$30
Pipie	10	$3.00	$30
Gizmo	440	$0.05	$22
Nut	40	$0.50	$20
Tube	400	$0.05	$20
Hose	20	$1.00	$20
Motor	40	$0.50	$20
Seal	5	$2.00	$10
Adapter	100	$0.05	$5
Gizmo	10	$0.40	$4
Charger	10	$0.25	$3
Gizmo	10	$0.25	$3
Adapter	10	$0.25	$3
Belt	160	$0.01	$2
Gizmo	40	$0.05	$2
Adapter	40	$0.05	$2
Charger	130	$0.01	$1
Tube	25	$0.05	$1
Screw	20	$0.05	$1
Charger	25	$0.04	$1
Belt	40	$0.02	$1
Clamp	160	$0.01	$1
Belt	75	$0.01	$1
Assembly	60	$0.01	$1
Assembly	10	$0.05	$1
Washer	10	$0.05	$1
Adapter	75	$0.01	$0

Figure C-1

Description	Weekly usage	Unit cost ($)	Weekly $	% of total
Drive	200	$300.00	$60,000	34.86%
Motor	15	$2,500.00	$37,500	21.79%
Harness	100	$140.00	$14,000	8.13%
Fixture	45	$300.00	$13,500	7.84%
Valve	130	$100.00	$13,000	7.55%
Gage	12	$500.00	$6,000	3.49%
Hose	100	$45.00	$4,500	2.61%
Drive	12	$250.00	$3,000	1.74%
Coupling	15	$150.00	$2,250	1.31%
Belt	85	$25.00	$2,125	1.23%
Fitting	40	$50.00	$2,000	1.16%
Motor	5	$400.00	$2,000	1.16%
Drive	5	$400.00	$2,000	1.16%
Screw	2400	$0.50	$1,200	0.70%
Belt	30	$35.00	$1,050	0.61%
Coupling	150	$5.00	$750	0.44%
Fitting	40	$15.00	$600	0.35%
Belt	6	$80.00	$480	0.28%
Adapter	3	$125.00	$375	0.22%
Hose	5	$75.00	$375	0.22%
Motor	70	$5.00	$350	0.20%
Coupling	70	$5.00	$350	0.20%
Adapter	32	$10.00	$320	0.19%
Charger	6	$50.00	$300	0.17%
Belt	30	$10.00	$300	0.17%
Fitting	5	$60.00	$300	0.17%
Gizmo	50	$5.00	$250	0.15%
Adapter	10	$25.00	$250	0.15%
Charger	5	$40.00	$200	0.12%
Belt	40	$5.00	$200	0.12%
Charger	20	$10.00	$200	0.12%
Belt	250	$0.50	$125	0.07%
Motor	20	$5.00	$100	0.06%
Gizmo	20	$5.00	$100	0.06%
Adapter	20	$5.00	$100	0.06%
Washer	20	$5.00	$100	0.06%
Assembly	2	$50.00	$100	0.06%
Gizmo	5	$20.00	$100	0.06%
Seal	40	$2.00	$80	0.05%
Tube	20	$4.00	$80	0.05%
Pipie	150	$0.50	$80	0.05%
Adapter	40	$2.00	$80	0.05%
Screw	150	$0.50	$75	0.04%
Clamp	300	$0.25	$75	0.04%
Nut	300	$0.25	$75	0.04%
Hose	5	$15.00	$75	0.04%
Nozzle	5	$15.00	$75	0.04%
Washer	30	$2.00	$60	0.03%
Screw	30	$2.00	$60	0.03%
Seal	20	$3.00	$60	0.03%
Adapter	10	$6.00	$60	0.03%
Nozzle	5	$10.00	$50	0.03%
Belt	5	$10.00	$50	0.03%
Screw	10	$4.00	$40	0.02%
Seal	10	$4.00	$40	0.02%
Belt	10	$4.00	$40	0.02%
Adapter	40	$1.00	$40	0.02%
Charger	40	$1.00	$40	0.02%
Belt	40	$1.00	$40	0.02%
Screw	10	$4.00	$40	0.02%
Assembly	150	$0.25	$38	0.02%
Adapter	140	$0.25	$35	0.02%
Clamp	140	$0.25	$35	0.02%
Gizmo	3	$10.00	$30	0.02%
Charger	15	$2.00	$30	0.02%
Washer	10	$3.00	$30	0.02%
Pipie	10	$3.00	$30	0.02%
Gizmo	440	$0.05	$22	0.01%
Nut	40	$0.50	$20	0.01%
Tube	400	$0.05	$20	0.01%
Hose	20	$1.00	$20	0.01%
Motor	40	$0.50	$20	0.01%
Seal	5	$2.00	$10	0.01%
Adapter	100	$0.05	$5	0.00%
Gizmo	10	$0.40	$4	0.00%
Charger	10	$0.25	$3	0.00%
Gizmo	10	$0.25	$3	0.00%
Adapter	10	$0.25	$3	0.00%
Belt	160	$0.01	$2	0.00%
Gizmo	40	$0.05	$2	0.00%
Adapter	40	$0.05	$2	0.00%
Charger	130	$0.01	$1	0.00%
Tube	25	$0.05	$1	0.00%
Screw	20	$0.05	$1	0.00%
Charger	25	$0.04	$1	0.00%
Belt	40	$0.02	$1	0.00%
Clamp	160	$0.01	$1	0.00%
Belt	75	$0.01	$1	0.00%
Assembly	60	$0.01	$1	0.00%
Assembly	10	$0.05	$1	0.00%
Washer	10	$0.05	$1	0.00%
Adapter	75	$0.01	$0	0.00%
Total $	$172,136

Figure C-2

Using the top fourteen items as a break point, we can now devise a strategy to manage our two types of inventory. The bottom eighty-six items make up only 6 percent of our weekly inventory dollars. Generally speaking, these items will also tend to be small in size (being made up of items such as screws , bolts, washers , hoses, clamps, etc.). Obviously, we need to focus most of our management attention on the fourteen items that make up 94 percent of our inventory cost. Excessive levels of inventory on our top fourteen items would tie up large amounts of capital, while high levels of stock on the lower value items would have little effect on inventory dollars or floor space. A two-bin system will allow us to utilize this information to design a system that will prevent stock outs while managing our total inventory dollars.

For the expensive items, we would need to explore a variety of options to tightly control our inventory dollars and floor space utilization. Various forms of kanban, vendor-managed, and consigned inventory arrangements need to be considered . Again, we are going to implement a simple two-bin system for the balance of the raw materials, so that management attention can be devoted to these high dollar items.

The low value items (in our example, the bottom eighty-six) are good candidates for a two-bin system. As the name implies, this involves setting up two bins : one for use on the shop floor, and one in the storage area.

The container on the shop floor needs to be sized appropriately. The container needs to be small enough to fit at point-of-use , but big enough to minimize the frequency of replenishment. For example, if an item is purchased in minimum quantities of 50,000 items, it may not be appropriate to size the shop-floor container to hold that many parts. Maybe a container of 1,000 items would fit well in the work cell , and the remaining 49,000 parts would be stored in the warehouse. Since these items are of little value, they should be expensed as they are issued from the warehouse. Expensing these items keeps you from wasting time counting and tracking them.

The bin in the storage area needs to hold enough parts to cover the replacement time (order time plus transit time) of the part. Per our example above, it may need to be much larger than this. Again, if a particular part (say a custom bracket ) only comes in quantities of 50,000, and this equates to ten weeks worth of usage, then that is how big the bin will need to be. When the bin from the shop floor is returned empty, it is filled from the warehouse stock and sent back to production. When the warehouse stock reaches the predetermined reorder point, a replenishment signal is sent to the supplier.

A two-bin system can also be utilized between a plant and its suppliers. For example, if you are purchasing chemicals or lubricants in large containers, you can set up a two-bin system between yourself and the supplier. When the empty bin is returned from production, the full one is sent to production and the empty one returned to the supplier. The supplier then ships you a full bin and begins production to refill the empty one he just received. (In this system, there would actually be three bins in the loop, one in the production cell, one in the warehouse, and one at the supplier plant.)