The Exposed Peer Level Myth: The Method Nobody Uses (Except Hospitals)
First story: The keynote speaker at a recent APICS (American Society for Inventory and Production Control) regional meeting introduced a high-level executive from a hospital supply company, one of the largest in the country. After an informative but somewhat lackluster presentation, during the question period, a hand went up. “How are Kanban methods used in your hospital supply chain strategy?” was the question. After a brief deer-in-the-headlights moment, the speaker responded, “What is Kanban?”
Story two: A recent gathering in Las Vegas of hospital supply chain professionals featured a speaker on the subject of Kanban. The pushback from the crowd was harsh, with person after person emotionally defending the Par Level system currently in use at his hospital. The speaker was able to respond well to each challenge, but the discussion came to an end when one of the participants stood up and said, “Hey guys. Let’s be honest. Par Level doesn’t work that well. Kanban is the future. Get over it.”
There may be two questions on your mind at this point in the article: what is Par Level and what is Kanban? These two terms refer to the methods used to manage supplies and materials, in a hospital or anywhere. We associate the Par Level system with hospitals because virtually no one else uses it, for reasons we’ll see. Both methods share the idea that we should set a target amount of material for any given item and location, never have more than that amount, and never run out. On these points the two methods agree. Where they diverge is in the way they set out to achieve these goals.
The Par Level system proposes that we count the number of items left in a specific location and simply replace the items that are needed to bring the amount “up to par”, that is, back to the target amount. What could be easier, right? Of course, that involves frequent counting, which is a wasteful, non-value-added activity, and requires frequent trips back to the warehouse, which is another wasteful, non-value-added activity. Worst of all, the required counting is so onerous that most supply handlers don’t do it, they just “look” at the materials and make an educated guess about what supplies need to be refilled. Many supply handlers are experienced and manage to keep on top of things most of the time, but as the saying goes, that’s an awesome way to run a railroad. The bottom line: certainly over-effort and probably below-average results as measured by scarcity, organization of storage areas, and staff satisfaction.
As we said, the Kanban method has the same general goals but approaches the replenishment process differently. Kanban is a Japanese word meaning “signal,” and creating a clear signal is at the heart of the Kanban method. Instead of counting everything all the time, Kanban proposes that we set up a signal system so that we can respond to only those items that need to be recharged. We do this by dividing the quantity to be stored into several sub-quantities. For example, we could take an even level of 100 pieces and split it into two quantities of 50. No action is required until the first 50 are depleted. We’ll then replace 50, but continue to use the remaining 50 during the reload process, so there’s no delay due to lack of supplies. The actual Kanban or signal could be an empty bin, a card that is removed and placed in a collection box, or a flag that is raised on the bin itself.
This isn’t rocket science, but using the Kanban method can reduce the number of items counted daily to zero (none!) and the number of trips to the warehouse by at least 50%. This is why Kanban is the method of choice for world-class organizations across the globe. And it is also the reason why the Par Level system would not even be considered.
