SAE TECHNICAL

PAPER SERIES

2003-01-3525

Injection Buffer Kanban Management trough

Economic Batch Size Calculation
Edgard Landwehrkamp
Visteon Corporation

12 Congresso e Exposio Internacionais

de Tecnologia da Mobilidade
So Paulo, Brasil
18 a 20 de novembro de 2003

AV. PAULISTA, 2073 - HORSA II - CJ. 2001 - CEP 01311-940 - SO PAULO SP

2003-01-3525

Injection Buffer Kanban Management

through Economic Batch Size Calculation
Edgard Landwehrkamp
Visteon Corporation

Copyright 2003 Society of Automotive Engineers, Inc

These two IMMs currently handle 8 molds that

produce parts varying from 1 to 6 Kg. As the IMMs aren't
dedicated for a single mold, the injected parts are stored in
racks and these racks are transferred to the injection buffer
area (work in process inventory). The assembly cells pull
the racks from the buffer area to continue the manufacturing
process at the required rate.

ABSTRACT
South American automotive market pushes tier 1
supplier companies, as Visteon Corporation Guarulhos,
Brazil, to work in an environment of high complexity mix
of products together with low volume operations.
As a ring of the above supply chain, the Injection Area
is a key internal supplier for the Plant, providing skins
(cockpit plastic covers), consoles and other interior and
exterior plastic parts to the manufacturing assembly cells.

Each mold has a quantity of dedicated racks for the

respective injected part. See pictures 1,2 and 3.
The objective was to tune the Kanban system that was
being used between the assembly cells and the injection
area, at the same time that the IMMs setup costs and
inventory holding costs were considered. The setup here is
the process of changing from one mold to another one, so to
change the part being injected (mold changeover). The
inventory holding costs are those related mainly with
opportunity costs (for example, the cost of keeping money
as inventory and not in the bank). For a discussion about
opportunity costs, see [1].

For a long time Kanban system has been used inside

the Injection Area to minimize inventory through a pull
system and to gain production flexibility.
This paper explores the link between the Kanban
system and the Economic Batch Size (EBS) calculation.
The EBS is the production administration approach of
optimizing the replenishment costs (mold changeover costs)
and inventory holding costs (injection buffer).
This paper will discuss the benefits of the proposed
methodology above, based on a case inside the mentioned
Injection Area.

APPROACH
The approach used was to build a spreadsheet model
for the EBS economic batch size, also know as economic
order quantity (EOQ) or economic lot size (ELS), and then
analyze the allocated number of racks and their situation as
red, yellow and green inside the Kanban system.

INTRODUCTION
The Injection Area at the Plant has 19 Injection Mold
Machines (I.M.M.s). The analysis of the proposed
methodology was done in a case study based on 2 of the 19
IMMs. The chosen IMMs were 2,500 ton size, that mainly
inject plastic skins for cockpits (the skin is the plastic cover
of the cockpit module that is fixed to the cross car/ truck
beam).

KANBAN BASICS The Kanban board utilized at

the Injection Area has cards, each card represents a rack of
parts. Each rack can store a number of injected parts. A
number of cards (racks) are allocated as red, yellow and
green. The red means that the assembly cell is using the
safety stock, the yellow means that the mold should be

between re-layouts of the injection buffer area. For

example, if the organization plans to review the injection
buffer layout every 6 months, a good production volume
estimate to be used would be the next 6 months volume
average (you should then double the number as the model
uses an annual volume).

programmed for injection at the next available time slot and

the green cards are the remaining ones. See picture 4.
SCHEDULER - The Injection Area also has a mold
changeover scheduler (setup scheduler). This person is
currently responsible for resolving Kanban conflicts as for
example, parts that reach the red portion at the same time,
just one of them can be programmed for injection in the
same IMM. The Scheduler is also responsible for
optimizing the mold change, for example, a color change
from a dark to a white color usually generates more scrap
material when the IMM is purged.

The setup costs calculation portion divides the

Customer requirement (annual volume) per the injection
batch size (Q), giving the number of setups that will be
necessary. The batch size is the number of injected parts at
once. Every batch has an associated setup. The batch size is
also directly linked to the number of turns of the injection
buffer.

ECONOMIC BATCH SIZE (EBS) The Economic

Batch formula can be found across the literature, as for
example, [2] and [3]. The approach used here was not the
use of the formula, instead a numerical calculation
spreadsheet model was built, based on the concept of the
formula. See figure 1. The "left" portion of the model is the
calculation of the variable setup costs (direct setup costs),
the "right" portion of the model is the calculation of the
inventory (buffer) holding costs. See tables 1,2 and 3. The
spreadsheet model approach allowed an easy selection of
the variables to be placed in the model and a fast simulation
of various situations.

Then the necessary number of setups is multiplied by

the cost of one setup. So, you will have the total annual
setup cost associated with that batch size. Each batch size
generates a total annual setup cost and this is a row in the
spreadsheet model.
The cost of one setup should be the cost directly
associated with the event. The model is considering that at
every setup purge material will be lost and a number of
parts (first ones injected) will also be lost as scrap. The
model is additionally charging as setup cost, in average, the
cost of 1 operator that will "wait" for two hours the setup
process, while two specialized operators are changing the
2,500 tons IMM mold. Two hours is considered, in average,
the total setup time from the last part injected to the first
one of the next mold. So, the labor cost would be 2 hrs x $
cost operator/hour.

VARIABLES The recommendation is that the

chosen variables for building the model are the ones that are
directly related to the process in focus and that impact the
organization. This will drive the model to use direct costing
and not the full cost approach. As in the Theory of
Constrains, you should focus your actions in items that will
impact the organization. For example, it is not worth to gain
space floor if you already have it available (it will not
impact the organization in that point in time).

If the organization is running at full capacity, for

example, 3 shifts, you should start considering adding in the
model the cost of a stopped machine. You could think of
depreciation costs, lost of preventive maintenance time, etc
as a reference. You should take care, anyway, to not charge
fixed costs that are not impacting the organization.

For the setup variable costs the organization should

also check the variables that are impacting the organization
results (critical variables). For Visteon, Guarulhos, the
critical setup variables were: scrap (purge material from the
IMM), labor costs and losses of first injected parts. This
makes the "left" side of the model.

The inventory holding costs, are the ones that consider

the injected parts sitting inside the buffer area as an
investment (the inventory is considered an asset). To
measure the annual inventory holding costs, the investment
is multiplied by an interest rate. From [4], this interest is at
approximately at 20% per year for US companies.

For the inventory (injection buffer) holding costs the

chosen variables were: space floor utilization and raw
material investments. This makes the "right" portion of the
model.

The average inventory was considered as the batch

size divided by two (Q/2). See figure 2. Each row in the
model is the cost of holding the respective batch size.

EBS MODEL DEVELOPMENT

The Customer requirement (volume) is used in the
model as the reference for the setup cost calculations. The
Customer requirement is one of the main variables in the
model. Because of that, you may want to use an average
production volume in the model. At the Plant, we are able to
use a 3-month forecast average of the volume. A rule of
thumb for the average period can be approximately the time

The investment in inventory in the model is

considering raw material (in the form of injected parts) and
allocated space floor. This last factor was considered as
impacting the company.

It is also interesting to notice that the allocated space

floor is directly related to the batch size (Q) and not to the
half of the batch (Q/2).

Each organization should specify a minimum value to

take actions, as for example, buying more racks and
allocating more space floor for the buffer.

If, for example, space floor is available at your

organization, you should not consider as a variable in the
model. Also, if you are quoting a new product, you then
should charge the investment in racks.

The Kanban system utilized in the injection area

assumes that the mold will be scheduled for production at
the yellow portion and will be ready for injection at the red
portion. Because of that, in the example above, the safety
stock was taken out of the available racks for injection.

The total cost of the model is the sum between the

annual setup costs ("left" side) and the annual inventory
holding costs ("right" side). The optimal point to operate is
the minimum of the sum. This minimum cost point is called
the economic batch size.

RESULTS
Eight molds were evaluated using the model. One of
them was above the US$3,000 target of annual losses. The
part should have more available racks to resolve the issue.
In particular, the part was able to share the rack with
another part. The part in question was a light truck skin, one
Left Hand Side and the other a Right Hand Side. The
solution, with no investment, was to move some racks from
one part to the other one.

Furthermore, the resulting total cost curve is an

exponential type one. Because of that, you will notice that if
the organization operates around the economic batch size
point, where the curve is approximately flat, a variance in
the batch size will not impact significantly the total cost.
You may take advantage of that, for example, if desired,
increasing the turns of the buffer. This would be a lean
manufacturing approach.

CONCLUSION
The proposed management of the Injection Area
Kanban system trough the Economic Batch Size calculation
should help organizations to improve their manufacturing
operations, with an eye in inventory holding costs and IMM
setup costs (replenishment costs), without loosing the
benefits of the Kanban system.

You will also notice that if you add one or two racks
more you can make a big difference regarding total
operational costs, depending in what point of the curve you
are currently operating. To decide if you should go ahead
with an additional rack, you should evaluate the NPV (net
present value) of the investment in racks and the return of
additional racks in the model at 20% interest rate, for
example. For NPV calculations, see [1].

The methodology here was applied to an injection

area, with high complexity mix of products and low volume
production. This methodology also seems more adequate
when big injected parts are considered, as these parts
usually are heavy (raw material investment) and take a lot of
space floor.

Each organization will be required to define its

opportunity cost (the applicable interest rate to evaluate the
inventory). This rate should be at the same risk level of the
injection buffer.

The approach is also interesting as a basis for training

the Scheduler, the person who schedules mold changeovers.
If the Scheduler doesn't respect the Kanban system, the
organization will occur in losses, as it will be not working
close to the optimal point of operation.

This interest rate can also consider other inventory

holding costs as, for example, the cost of insurance,
maintenance, etc. In this case, the interest rate will be a
sum of components. See table 4.

Some adjustments may be also required if the

economic batch size takes too long to complete (number of
parts x cycle time). As discussed previously, the flat region
of the EBS curve should help that.

KANBAN LINKAGE After the data in the model is

input, the current injection buffer situation can be analyzed
and actions, if necessary, taken.
The strategy used to simplify the analysis was to not
take actions if the annual losses were under US$3,000 for a
single part. For example, the economic batch size for a
specific part is 60 racks and the injection buffer is currently
with 60 racks, 10 as safety stock, making 50 available for
the injection batch. If the losses were under US$3,000,
actions were not taken at this time.

The proposed methodology shows also that the

organizations should revise their safety stocks regularly, as
it will impact the inventory holding costs (the average
inventory is half of the batch + safety stock). The
organization should also review the number of parts that a
rack can handle, this will save space floor.

FUTURE WORK
The interest rate used to evaluate the inventory
holding costs were based in a corporate number for our
region. An interesting future work would be to build a local
interest rate for that purpose. Prepare the injection area
operators to handle the Scheduler position is also an
interesting future work. Also, the organizations should keep
an eye in the Lean Manufacturing concepts, as to reduce
setup duration, improve racks capacity and respect the
kanban system.
REFERENCES
1. Ross, S., Westerfield, R., Jaffe, J., Corporate
Finance, The McGraw-Hill Companies, Inc., 1999. ISBN
85-224-2942-1.
2. Davis, M., Aquilano, N., Chase, R., Fundamentals
of operations management, The McGraw-Hill Companies,
Inc., 1999. NY, NY, USA. ISBN 0-256-22557-5.
3. Gitman, L., Principals of Managerial Finance:
Brief, Addison Wesley Longman, 2000. ISBN 0-32106081-4.
4. Bowersox, D., Closs, D., Logistical management,
The McGraw-Hill Companies, Inc., 1999. ISBN 85-2242877-8.

ABOUT THE AUTHOR Edgard Landwehrkamp holds a

B.S. in Electrical Engineering from UNICAMP State
University of Campinas, Brazil (1996). He received training
as Six Sigma Black Belt from Six Sigma Academy (2001)
and has a MBA in "Strategic Management of Businesses"
from Visteon Co./University of Sao Paulo USP (2003).
He works as Senior Manufacturing Engineer/ Black Belt
inside the Interior & Climate Systems Manufacturing
Operations, Visteon Co., Guarulhos, Brazil, coordinating
the Cost & Process Improvement Team. Previously, he was
Product Development Engineer.
elandweh@visteon.com

(55.11)6465-9012

Average 230 days volume [daily rate]

280

828

parts

Current buffer size = racks - safety [# racks]

54

92

racks

Recommended EBS [# racks]

Delta (missing/ over) racks in the system [#racks]

Economic Batch Size

Date: 10/Sep/02

92
(38)

30,000

economic batch size point

[US$/year]

25,000

Total cost

20,000
15,000

Inventory holding costs

10,000

Setup costs

5,000

91
10
2
11
3
12
4
13
5
14
6
15
7
16
8
17
9
19
0
20
1
21
2
22
3
23
4
24
5
25
6
26
7
27
8
28
9
30
0
31
1

80

69

58

47

36

25

Batch size = Racks/ setup

EBS

Total Cost

D/Q*S

Q/2*H

Status Analysis
If current situation is below US$3,000 total losses per year, keep the current batch size.
If not, review it.
(1,918)

OK

Figure 1 Above simulation of a cockpit skin in the spreadsheet model. The result was under US$3,000.

Table 1 Above the "left" side of the spreadsheet model. One row of the setup costs calculation shown.

Table 2 Above the "right" side of the spreadsheet model. One row of the inventory holding costs calculation
shown.
Buffer total cost & EBS

Total Cost

EBS

26,240

Batch size
[# parts]

Racks

225

25

Table 3 Above the total cost sum. The target is to find the minimum point of operation.

Picture 1 Above racks with cockpit skins at the injection buffer area.

Picture 2 Above skin being injected at 2,500 ton IMM.

Picture 3 Above detail of a rack with skins inside.

Picture 4 Above 2,500 ton Kanban board.

Q
average stock

Q/2

Figure 2 Above the batch size Q and the average stock Q/2.

Component
Capital cost
Taxes
Insurance
Obsolescence
Storage
TOTAL

Average
15.00%
1.00
0.05
1.20
2.0
19.25%

Table 4 Above stock maintenance cost components for US companies.

Source: BOWERSOX, D., CLOSS, D., LOGISTICAL MANAGEMENT

Range
8 - 40%
0.5 - 2
0-2
0.5 - 2
0-4
9 50%

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