A regional manufacturer of table lamps plans on using a manual kanban informa- t

Question

A regional manufacturer of table lamps plans on using a manual kanban informa- tion system. On average the firm produces 1.200 lamps monthly. Production lead time is 18 days, and the firm plans to have 15 percent buffer stock. Assume 20 work- ing days per month. a. If each container holds 15 lamps, what will be the total number of kanban tickets required? (Use the formula given in this section.) b. What is the maximum WIP inventory the company can expect to have using this system? c. Suppose that each lamp costs the firm $30 to produce. If carrying costs are based on a 20 percent annual interest rate, what annual carrying cost for WIP inventory is the company incurring? (You may wish to review the discussion of holding costs in Chapter 4.)

Explanation / Answer

a) Total number of kanban tickets required = Demand rate * Production lead time * ( 1 + Safety buffer) / container size

= 1200 * (18/20) * (1 + 15%) / 15

= 82.8 ~ 83

b) Maximum WIP = Container size * Number of Kanban tickets = 15*83 = 1245

c) Annual carrying cost = Average WIP * Unit cost * carrying cost rate

= (1245/2)*30*20%

= $ 3735

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