The Par Level Myth Exposed – The Method Nobody Uses (Except Hospitals)
Story One: the keynote speaker at a recent regional meeting of APICS (American Production and Inventory Control Society) featured a high-level executive from a hospital material supply company, one of the largest in the country. After an informative but somewhat lackluster presentation, during the question period, a hand shot up. “How are Kanban methods being used in your hospital supply chain strategy?” was the question. After a short deer-in-the-headlights moment, the speaker responded: “What is Kanban?”.
Story Two: a recent meeting in Las Vegas of hospital supply chain professionals featured a speaker on the topic of Kanban. The push-back from the crowd was tough, with person after person emotionally defending the Par Level system currently in use at their hospital. The speaker was able to answer each challenge well, but the debate came to a conclusion 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 in your mind at this point in the article: what is Par Level and what is Kanban? These two terms refer to methods used to manage supplies and materials, in a hospital or any place. We associate the Par Level system with hospitals because virtually no one else uses it, for reasons we shall see. Both methods share the idea that we should set up 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 are in agreement. Where they diverge is in the way that they propose to accomplish these goals.
The Par Level system proposes that we count the number of items remaining in a specific location, and simply replace the items that are needed to bring the quantity “up to par”, i.e. back up to the target quantity. What could be easier, right? Of course that involves frequent counting, which is a wasteful and non-value-adding activity, and it requires frequent trips back to the stockroom, which is another wasteful and non-value-adding activity. Worst of all, the counting that is required is so onerous that most supply handlers don’t do it, they simply “eye-ball” the materials and make an educated guess at the supplies to be refilled. Many supplies handlers are experienced and manage to keep on top of things most of the time, but as the saying goes, that’s a hell of a way to run a railroad. The end result: certainly excessive effort and probably sub-par results as measured by shortages, organization of storage areas, and staff satisfaction.
As we said, the Kanban method has the same overall goals but approaches the replenishment process differently. Kanban is a Japanese word that means “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 only to those items that need refilling. We do this by dividing the quantity to be stored into several sub-quantities. For example, we might take a par level of 100 pieces and divide it into two quantities of 50. No action is required until the first 50 are gone. We will then replace 50, but continue to use the remaining 50 during the refill process, so there is no delay for 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 container itself.
This is not rocket science, but using the Kanban method can cut the number of items to be counted daily down to zero (none!) and the number of trips to the stockroom by at least 50%. This is the reason that Kanban is the method of choice for world-class organizations around the world. And it is also the reason why the Par Level system would never even be considered.
