How to Calculate Kanban Bin Size for Efficient Inventory Management

Mark Draper

·October 22, 2023

·6 min read

How to Calculate Kanban Bin Size for Efficient Inventory Management — Image Source: pexels

Introduction

Efficient inventory management is crucial for businesses of all sizes. It ensures that the right amount of stock is available at the right time, minimizing stockouts and excess inventory. One key aspect of efficient inventory management is calculating the kanban bin size. The kanban bin size refers to the quantity of items that should be kept in each bin or container to support smooth production flow and minimize waste.

The Average Daily Demand method is a recommended approach for determining the optimal bin size. This method takes into account the average daily demand for an item, allowing inventory managers to strike a balance between having enough stock on hand and avoiding overstocking. By following this method, businesses can optimize their inventory levels, reduce carrying costs, and improve overall supply chain efficiency. In the following sections, we will explore how to calculate the kanban bin size using the Average Daily Demand method step by step.

Determining the Average Daily Demand

To calculate the kanban bin size, we first need to determine the average daily demand for the item. This will give us a baseline understanding of how much stock is typically consumed on a daily basis. Here are the steps to follow:

Step 1: Gather Data

The first step is to collect historical sales data for the item. This data should include information on the quantity of items sold each day over a specific time period. It's important to choose a time period that accurately represents the demand patterns for the item. For example, if there are seasonal fluctuations in demand, it may be necessary to analyze data from multiple years to get a comprehensive view.

Step 2: Calculate Average Daily Demand

Once you have gathered the sales data, you can calculate the average daily demand by summing up the total demand for the item over the chosen time period and dividing it by the number of days in that period. For example, if you analyzed one year of sales data and found that a total of 10,000 units were sold during that time, and there are 365 days in a year, then the average daily demand would be 10,000 units divided by 365 days, which equals approximately 27 units per day.

By determining the average daily demand, you gain insights into how much stock is typically consumed on a daily basis. This information will be crucial in calculating an optimal bin size that aligns with your inventory management goals. In the next section, we will explore how to use this average daily demand to determine the desired number of days' worth of inventory to keep on hand.

Calculating the Desired Number of Days' Worth of Inventory

Once you have determined the average daily demand for the item, the next step is to calculate the desired number of days' worth of inventory that should be kept on hand. This will help ensure that you have enough stock to meet customer demand while also considering factors such as lead time, supplier reliability, and production capacity. Here's how to do it:

Step 3: Determine the Desired Number of Days' Worth of Inventory

To determine the desired number of days' worth of inventory, you need to take into account various factors that impact your supply chain. These factors include:

Lead Time: The time it takes for an item to be replenished once an order is placed. If the lead time is longer, you may need to keep a larger amount of inventory on hand.
Supplier Reliability: The reliability and consistency of your suppliers in delivering goods on time. If there are frequent delays or issues with your suppliers, it may be necessary to hold more inventory as a buffer.
Production Capacity: The capacity of your production line to manufacture or assemble items. If your production capacity is limited or fluctuates, you may need to adjust your desired number of days' worth of inventory accordingly.

By considering these factors and analyzing your specific business needs, you can decide on the number of days' worth of inventory that should be kept on hand. This will help strike a balance between having enough stock available and minimizing excess inventory costs. In the next section, we will discuss how to calculate the kanban bin size using this desired number of days' worth of inventory and the average daily demand.

Dividing the Desired Number of Days' Worth of Inventory by the Average Daily Demand

Now that you have determined the desired number of days' worth of inventory and calculated the average daily demand, it's time to calculate the kanban bin size. This step will help you determine the optimal quantity of items to be kept in each bin or container for efficient inventory management. Here's how to do it:

Step 4: Calculate the Kanban Bin Size

To calculate the kanban bin size, simply divide the desired number of days' worth of inventory by the average daily demand. The formula is as follows:

Kanban Bin Size = Desired Number of Days' Worth of Inventory / Average Daily Demand

For example, if you have determined that you want to keep 10 days' worth of inventory on hand and your average daily demand is 50 units, then the kanban bin size would be:

Kanban Bin Size = 10 days / 50 units per day = 0.2 units per day

In this case, you would round up to ensure that each bin contains at least one unit. Therefore, the optimal kanban bin size would be 1 unit.

By calculating the kanban bin size using this method, you can ensure that you have enough stock on hand to support production flow while minimizing waste and excess inventory. In the next section, we will summarize how calculating the kanban bin size contributes to efficient inventory management and overall supply chain optimization.

Conclusion

In conclusion, calculating the kanban bin size using the Average Daily Demand method is a crucial step towards achieving efficient inventory management. By following this method, inventory managers and supply chain professionals can determine the optimal bin size for each item, ensuring that the right amount of stock is available at all times.

Efficient inventory management not only leads to streamlined operations but also results in cost savings. By having the right amount of stock on hand, businesses can avoid stockouts and excess inventory, reducing carrying costs and improving overall supply chain efficiency.

By implementing the steps outlined in this guide, you can calculate the kanban bin size effectively and optimize your inventory levels. This will help you achieve efficient inventory management and contribute to the success of your business.