The proper management of inventory, typically calls for safety-stock to mitigate supply variation. Whether a supplier is an external company or an internal department, supply variation must be identified and properly addressed to prevent production downtime and minimize overstock. Supply-related safety-stock is abnormal. A reliable supplier should never require safety stock. After all, quantity, quality and lead-times should be accurate. Unfortunately, many inventory managers form the bad habit of seeing buffer inventory as a normal and necessary result of being adequately prepared.

The proper management of inventory, typically calls for safety-stock to mitigate supply variation. Whether a supplier is an external company or an internal department, supply variation must be identified and properly addressed to prevent production downtime and minimize overstock. Supply-related safety-stock is abnormal. A reliable supplier should never require safety stock. After all, quantity, quality and lead-times should be accurate. Unfortunately, many inventory managers form the bad habit of seeing buffer inventory as a normal and necessary result of being adequately prepared.

In the first two parts of this series we examined a step-by-step process for setting demand variation safety stock by item category. This method is preferred, because it is far more efficient than trying to manage unique safety stock for every unique SKU. However, sometimes it doesn’t always apply well to every item.

The goal of demand variation analysis is to determine the target safety-stock for every kanban item necessary to prevent a demand-related stockout while limiting on-hand inventory. After you have quantified demand variation, you must determine whether to define safety-stock for each unique item, or for categories of items with similar demand variation patterns.

The goal of demand variation analysis is to determine the target safety-stock for every kanban item necessary to prevent a demand-related stockout while limiting on-hand inventory. After you have quantified demand variation, you must determine whether to define safety-stock for each unique item, or for categories of items with similar demand variation patterns.

With kanban, lead-time defines the appropriate time period for analyzing an item’s demand variation. A major component of demand variation is time. Thus, time is key for kanban. It is vital that demand data is segregated into the proper time periods. So, how do we define “proper”?

When you lack sufficient demand data, you're forced to estimate demand variation. Estimation is a last resort. The goal is to calculate demand variation using the best data we have, even if that data is less than perfect...

Quantifying demand variation is definitely one of the more contentious topics among inventory managers and business analysts. It makes sense. After all, inaccurately measuring the variation of demand has real business consequences such as tied-up cash, delivery failure, or even both!

A vital parameter for developing ideal kanban solutions is Target Lead-Time (TLT). TLT can be thought of as “perfect” lead-time. TLT directly influences Target Minimum Order Quantity (TMQQ) and Target Standard Package Quantity (SPQ)...

A vital parameter for developing ideal kanban solutions is Target Lead-Time (TLT). TLT can be thought of as “perfect” lead-time. TLT directly influences Target Minimum Order Quantity (TMQQ) and Target Standard Package Quantity (SPQ)...