Par Versus Kanban: How To Manage Variable Usage

The great majority of hospitals in the United States manage hospital supplies using what is called the "Par Level" method. One of the strengths of this method, it is claimed, is that it works well in the face of variable usage. The actual usage of a hospital supply item is unlike that of a manufacturing part, in that the rate of use is dependent on the patient need at the time, which is difficult to control or forecast. A factory can predict with good accuracy how many widgets it will need, based on a production plan and a Bill of Material. A hospital can certainly analyze historical usage data, but cannot control that pesky variable, the patient, very well. Defenders of the Par Level method therefore make the case that it is the only replenishment method for the variable usage environment. In this article I will describe how the Par Level method works, how the Par Level method could be replaced using a method called Kanban, and how a Kanban system could be used properly to respond to the admitted challenge of high variability of usage.

On the face of it the Par Level method makes good sense. The basic idea is to set a target quantity of a given item that you want to stock at the place where it is used. A rule of thumb of, say linked here, a two-day supply based on average usage, would be a reasonable goal when setting these target or "par" quantities. As the supplies are consumed, based on actual need during the day, the quantity on hand will decrease. The heart of the Par Level method is to have a supplies handler review the on-hand quantity, and restock the items that are needed to bring the total quantity back "up to par". If the item is consumed more quickly than usual, having a supplies handler review the inventory daily will help to ensure that the item is not depleted completely. The key to the success of the Par Level method in the face of uncertain usage is to check stocking levels frequently, usually once a day.

The Kanban system, mentioned above as an alternative, is the material replenishment method used by leading manufacturing companies around the world, including the Toyota Motor Company. It is similar to the Par Level method in that a target level of material is calculated, based on average usage and a certain number of days of usage. In this sense the methods are virtually identical. The difference is in the method for refilling items that have been used. Instead of physically looking and counting every day, the Kanban method sets up a signal (the literal meaning of the word Kanban) for replenishment that eliminates totally the need for counting or assessing inventory quantities. This is done in a variety of ways, with the most common one being to divide the item quantity into two, and signal for replenishment when the first quantity has been used up. Details of how a Kanban system works are readily available elsewhere, and the method is well-known, so I don't need to repeat it here. The benefits compared to the Par Level method are substantial, including a reduction in the number of resupply trips, the elimination of counting, a potential reduction in overall inventory levels, and a reduction in supply shortages.

The focus of this article, however, is on one critical issue: what happens when the actual usage of an item exceeds the planned usage? How do the Par and Kanban systems respond to unplanned consumption? After all, if usage were known with total certainty ahead of time, there would be no excuse for ever running out of an item. Is daily checking and counting the only alternative available to hospitals? Let's compare the two methods.