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Sometimes, the kanban location is part of regular inventory. Often, however, kanban implementations use sub-inventory locations for kanban items, so that each work center has a small stock of the parts it needs. In these implementations, the sub-inventory location is the kanban location.

In defining a pull sequence for a kanban item in Oracle Inventory, you specify the supplier and supplier site for a kanban item at a specific location. You also specify what you want the kanban calculation program to calculate, the lead time for obtaining the kanban item, the allocation percentage, and order modifiers that you want to affect the calculation program.

We provide a package that you can use to customize the calculation. See the *Oracle Manufacturing, Distribution, Sales and Service Open Interfaces Manual.*

By default, the standard calculation is:

(C - 1) * S = D * L

where:

- C is the number of kanban cards

- S is the kanban size

- D is the average daily demand

- L is the lead time (in days) to replenish one kanban

In addition to this basic formula, when the calculation program calculates kanban size, it takes into account the values for the following order modifiers (specified in the pull sequence), in the following order:

For example, suppose you've specified the Minimum Order Quantity for a particular item to be 50. You want the formula to calculate the kanban size (S), so you enter values for S, D, and L. Even though--strictly based on the values you enter for C, D, and L--the formula should yield 40, the actual kanban size will be 50 because of your order modifier--assuming the Lot Multiplier is a factor of 50.

Note:The program uses order modifiers only when calculating the kanban size. If you specify the kanban size and want the program to calculate the number of kanban cards, the program does not use order modifiers.

The program calculates the average daily demand by following these steps:

- It identifies all the kanban items that you want to include in your kanban calculation, using the parameters you enter when you launch a kanban calculation.

- It finds location information for each kanban item.

- For each kanban item, it identifies every BOM in which the item appears so that it can explode the demand from the assemblies down to the kanban item.

- Using the MDS, MPS, or forecast you specify in the Kanban Names window, it identifies all the demand entries for each kanban item for which the demand is independent. For example, suppose that from the forecast you specified in Kanban Names, the program finds independent demand for 600 of kanban item A.

- It uses the Allocation Percentage specified in the pull sequence for each kanban item to determine how to distribute demand for the item among its different locations. For example, if the allocation percentage for item A at location L1 is 20%, then the program places demand of 120 (that is, 20% of 600) at location L1.

- Using the MDS, MPS, or forecast you specify in the Kanban Names window, it calculates demand for each kanban item for which demand is dependent on the demand for other items. It does so by using the following information:

- Quantity per Assembly. For example, if there are 2 of kanban item R per one assembly of item K, and the demand for K is 10, then the demand for R is 20.

- Component Yield. The program divides the demand for the child item by that item's component yield to determine the actual demand for the child item. For example, if the component yield for item R is 50%, the new demand for R is 40 (because 20 divided by 50% is 40).

- Reverse Cumulative Yield. The program further divides the demand for the child item by the Reverse Cumulative Yield (specified in the operation sequence of the flow routing for the parent item) to determine the actual demand for the child item. For example, if the reverse cumulative yield for K is 10%, the new demand for R is 400 (because 40 divided by 10% is 400).

- Net Planning Percentage. The program then multiplies the demand for the child item by the Net Planning Percentage (specified in the operation sequence of the flow routing for the parent item) to determine the actual demand for the child item. For example, if the net planning percentage for K is 80%, the new demand for R is 320 (because 400 multiplied by 80% is 320).

- Finally, the program sums up the demand entries that fall within the kanban planning horizon for each kanban item at each location and divides the demand for each item at each location by the number of work days. For example, if the number of work days on the planning horizon is 20, then the average daily demand for item A at location L1 is 6 (because the total demand for item A at location L1 for the planning horizon is 120). The program prorates the demand from periodic forecasts for those days between the Demand window specified for the calculation program.

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