Overview

A kanban model can sometimes lead you to a solution that requires an unrealistic number of changeovers. Since kanban formulation logic only considers time and does not consider the cost of changeovers, the final calculation can result in a solution that minimizes run size and inventory levels but schedules a large number of changeovers. An EOQ model can be utilized to give you a different solution that can be used as a sanity check on the kanban solution. EOQ models seek to find an optimum solution by determining the mathematical minimum total cost, taking into account holding cost and changeover costs. Although some companies apply the EOQ model directly, its logic is also used in some MRP/ERP systems. There are significant differences in the solutions generated by each method (EOQ versus kanban).

Kanban seeks to minimize inventory by minimizing the replenishment interval, which essentially drives you toward increasingly small lot sizes. This means that as you improve efficiency (for example, through reduced changeover times or decreased downtime), the kanban model will utilize this extra time to reduce the replenishment interval (and thus increase the number of changeovers.)

The EOQ model, however, seeks only to minimize cost. It will use any improvement in efficiency to reduce total system costs. Thus, as you increase efficiency, the optimal solutions given by the two models will change.

EOQ Model

The goal of the EOQ model is to determine the optimum procedure for producing a given quantity of product that minimizes holding and set-up...