There are advantages to both Economic Production Quantity (EPQ) model and the Kanban model (Nicholas, 1998). The EPQ still has large lots, which generally lower costs associated with long setup times but due to larger inventories raise costs. Kanban systems on the other hand, manufacture only the necessary quantity of products, at the necessary time, and at the necessary place resulting in reduced work-in-process (WIP) inventory (Monden, 1993). Kanban systems tend to have lower inventory costs but higher setup costs since setups are more frequent.
There is a lack of research evaluating EPQ and Kanban that isolates setup time. Clearly, Kanban is not the answer for all situations and neither is EPQ. When setup costs are high, the EPQ model may be more appropriate.
The Setup time variable was evaluated for the two systems (Kanban and EPQ) against the five performance measures of total annual cost, total completion time, average WIP inventory, average WIP cost, and annual setup cost. EPQ outperforms Kanban on three (total cost, total time, setup cost) of the five measures used for setup time. On the measure of WIP inventory # units, EPQ is superior when setup time is less than 5 minutes. On the measure of WIP inventory cost, Kanban 5 is superior.
The research helped clarify for practitioners whether EPQ might be more suitable than Kanban for their given situations. It gives practitioners a potential solution for evaluating the choice between Kanban and EPQ. By evaluating the Kanban and EPQ in a single study, this dissertation offers managers a better understanding of choosing the correct production system for their multi-product production line. This contribution is significant because it evaluates the different systems and provides insights on selecting the correct system for a multi-product item.