This is part 2 of a 2-part series on determining which items to exclude from a kanban inventory replenishment program.
- Exclude Groups of Items Based on Product Life-Cycle
Many items are going to be steadily needed and those should always be on kanban and replenished automatically. That’s not always the case, though. If an item possesses one of the following life-cycle conditions, you should consider excluding it from kanban programs.
- End of Life Items: Those items that will become obsolete or will be replaced or discontinued need to be worked out of or adjusted in your processes. Because of this, they are not good candidates for automatic replenishment.
- New Product Introduction: A component at the beginning of its life cycle is often too new to allow you to make an accurate forecast about demand. There is just no order history to refer back to. Because of this, products that are introduced shouldn’t be automatically replenished. There is an exception, however. If the new product is simply taking the place of another product that had the same part number, you CAN refer to the demand history of the previous product so that your automatic order will be justified.
- Exclude Groups of Items with Seasonal Variation
Automatic orders are a vital part of kanban, but automatic orders are not appropriate all year round for some items, like those that only a have high demand during certain parts of the year. When these items are experiencing periods of low demand, they should be removed from kanban. Automatic replenishment, of course, is best during the times of high demand. It might even be appropriate to leave these items on kanban as they start to decrease in demand. For this to work though, the order quantity should be reduced.
Once it’s been decided which groups of parts should be excluded from kanban, you can then look closer at the groups that you have, indeed, decided to include. Within these groups there are specific items that you should exclude:
- Exclude Specific Items with Low Daily Demand
Again, one of the aspects of kanban that makes it so useful is the automatic ordering method. Now, it only makes sense to make an automatic order of an item if you know that you will need more of it in the future. If you’re not sure that you will consume the item at the same rate that it would be set to be replenished, it’s best to not have the item on kanban.Inventory managers should set a threshold for consumption that can be used to determine if an item should be put on kanban. Depending on the nature of the business and the scale of the processes, that threshold could be a daily minimum demand of 1 (which would work out to about 250 for the year). In this instance, you exclude any item from kanban that was not used at a rate of about one per day. Each business is unique, though. Other managers might require a daily minimum demand of 4 (where they would exclude any item that was not used at a rate of about 1000 for the year).You can conduct an analysis of your annual parts spend goal to help you determine what the appropriate threshold should be. Decide how much of your budget should go to items that are on kanban and then compare how much you would actually spend if you excluded items at that pre-determined threshold. You should find that what you’re spending on kanban items meets the goal that you set. If you’re not spending enough on kanban items, your threshold might be set too high. If you’re spending too much on kanban items, your threshold is could probably stand to be increased. Simply raise or lower your threshold for minimum daily demand until your ratios are where you want them.
- Exclude Specific Items with High Minimum Order Quantity (MOQ)
When suppliers require a minimum order quantity (MOQ) it can sabotage inventory management initiatives. Items that have a high MOQ compared to their daily demands should be excluded from kanban because automatic replenishment could flood you with unnecessary inventory. Remember, though, that some high volume class-c components require high MOQs, but they also have a high daily demand. In this case, high MOQs are not an issue and should be on kanban when otherwise appropriate.Items with high MOQs are problematic in a couple of ways. First, you’ll have the issue of ordering (and then storing) more items than you actually need simply because you had to make the order. Additionally, holding more inventory than is actually needed puts you at future risk of holding obsolete inventory.In cases where you feel an item with a high minimum order quantity would be well served on kanban, consider kanban cards that are not scanned but given to the buyer or planner to review. Using the human review method, however, can become wasteful if over-utilized.
Plan for Every Part Not on Kanban
After you have excluded items from kanban, you can’t just forget about them. Never forget! Always ensure that you have a plan-for-every-part (PFEP). You should still implement a robust replenishment process like MRP or Vendor Managed Inventory (VMI). Remember, too, that you should have systems in place that account for on-time replenishment, daily demand, and MOQs.
Consider adding a column in your database that identifies whether or not an item is on kanban. This can be as simple as flagging each item with a “yes” or “no” as appropriate. By adding this column, you gain a number of power benefits:
- You empower your kanban calculator to determine whether or not to include those numbers in calculations.
- Anyone who uses the calculator can easily see which items are excluded.
- The calculator only needs to analyze one column.
- The total number of items on kanban can quickly and easily be queried.
That does it for part-2 of this on the kanban item exclusion process. If you’d like to learn more about best practices concerning inventory management, and kanban deployment, check out our growing library of resources in Falcon’s Lean Knowledge Center.