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“Kanban”

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看板 – Kanban• 看板 – Kanban literally

means “visual card,” “signboard,” or “billboard.”

• Toyota originally used Kanban cards to limit the amount of inventory tied up in “work in progress” on a manufacturing floor

• Not only is excess inventory waste, time spent producing it is time that could be expended elsewhere

• Kanban cards act as a form of “currency” representing how WIP is allowed in a system.

What is Kanban• Kanban means many things. • Literally, Kanban is a Japanese word that means "visual

card".• At Toyota, Kanban is the term used for the visual &

physical signaling system that ties together the whole Lean Production system.

• Kanban as used in Lean Production is over a half century old.

• It is being adopted newly to some disciplines as software.

Categories of Kanban

Instruction

Withdrawal

Kanban

Production Kanban (non lot production)

Triangle Kanban (for lot production)

Interprocess Kanban

Supplier Kanban

• Never Pass on A Bad Part• The Parts Are Always Withdrawn From The Prior Process• Produce Only What Is Necessary To Replenish The Quantity

Withdrawn• Level Load Production, Rapid Changeover, Small Lot

Production, Zero Defects• Kanban Is Used To Fine Tune (Not Provide For Major

Changes)• The Process Must Be Capable Of Producing Good Parts

(Rational And Stable)• Need Efficient Methods Of Transportation, Shortest Routes

Possible• Disciplined Organization• Nothing Is Made or Transported Without A Kanban.• Kanban Cards Always Accompany the Parts Themselves.• The Number of Kanbans Should Decrease over time.

Rules of the Kanban

• No Cards– Visual (Tape On Floor)– Two-Bin or Bin Systems– Supplier Containers– Painted floors, i.e. squares, circles

• Card Systems– Electronic Kanbans - Fax or Emails– Warehouse Or Parts Racks– Kanban Boards – Magnetic or Cards– Containers– Flow Thru Racks– Supplier Boxes

Kanban Options

How does Kanban work?There are many flavors, but the core of Kanban means:• Visualize the workflow

– Split the work into pieces, write each item on a card and put on the wall.– Use named columns to illustrate where each item is in the workflow.

• Limit WIP (work in progress) – assign explicit limits to how many items may be in progress at each workflow state.

• Measure the lead time (average time to complete one item, sometimes called “cycle time”), optimize the process to make lead time as small and predictable as possible.

This is a direct implementation of a lean pull scheduling system.

Example Kanban

Kanban

• The implementation of a kanban system, as well as other lean manufacturing methods, like 5s, and kaizen, can have significant benefits for almost any type of work.

• Kanban is faster, more efficient, and saves significant money over most other production models.

• A kanban system is also far more directly responsive to customer demand.

• Kanban is a system that visually indicates when production should start and stop.

Kanban Examples

                                                                                                                                                                                                 

Double sided racks.

Stacking bins, when top is empty, remove and start using the bottom bin.

Variable size stackable bins

Double sided racks

Special twinbins, top holds secondinventory, when bottom is empty, pullmiddle lever that allows top inventoryto drop into lower bin, flag pops upidentifying upper bin needs to be refilled.

Stacked supplyReserve supply behind

INVENTORY MIN-MAX

What are Inventories?• Finished product held for sale• Goods in warehouses• Work in process• Goods in transit• Staff hired to meet service needs• Any owned or financially controlled raw

material, work in process, and/or finished good or service held in anticipation of a sale but not yet sold

What are Inventories?Materialsources

Inboundtransportation

Production Outboundtransportation

Finished goodswarehousing

Customers

Inventory locations

Finished goodsShi

ppin

g

Inventoriesin-process

Rec

eivi

ng

Productionmaterials

Reasons for Inventories• Improve customer service

– Provides immediacy in product availability• Encourage production, purchase, and transportation economies

– Allows for long production runs– Takes advantage of price-quantity discounts– Allows for transport economies from larger shipment sizes

• Act as a hedge against price changes– Allows purchasing to take place under most favorable price terms

• Protect against uncertainties in demand and lead times– Provides a measure of safety to keep operations

running when demand levels and lead times cannot be known for sure

• Act as a hedge against contingencies– Buffers against such events as strikes, fires, and disruptions in supply

Reasons Against Inventories• They consume capital resources that might be put to

better use elsewhere in the firm• They too often mask quality problems that would more

immediately be solved without their presence• They divert management’s attention away from careful

planning and control of the supply and distribution channels by promoting an insular attitude about channel management

Types of Inventories• Pipeline

– Inventories in transit• Speculative

– Goods purchased in anticipation of price increases• Regular/Cyclical/Seasonal

– Inventories held to meet normal operating needs• Safety

– Extra stocks held in anticipation of demand and lead time uncertainties• Obsolete/Dead Stock

– Inventories that are of little or no value due to being out of date, spoiled, damaged, etc.

Nature of Demand• Perpetual demand

– Continues well into the foreseeable future• Seasonal demand

– Varies with regular peaks and valleys throughout the year• Lumpy demand

– Highly variable (3 Mean)• Regular demand

– Not highly variable (3 < Mean)• Terminating demand

– Demand goes to 0 in foreseeable future• Derived demand

– Demand is determined from the demand of another item of which it is a part

Accurately forecasting demand is singly the most important factor

in good inventory management

Pull vs. Push Inventory Philosophies

Plant

Warehouse #1

Warehouse #2

Warehouse #3

A1

A2

A3

A = Allocation quantity to each warehouseQ = Requested replenishment quantity by each warehouse

Q1

Q2

Q3

Demandforecast

Demandforecast

Demandforecast

PULL - Replenish inventory withorder sizes based on specific needsof each warehouse

PUSH - Allocate supply to eachwarehouse based on the forecastfor each warehouse

Costs Relevant to Inventory Management

• Carrying costs• Procurement costs• Out-of-stock costs

Procurement costs

• Price of the goods• Cost of preparing the order• Cost of order transmission• Cost of production setup if appropriate• Cost of materials handling or processing at the

receiving dock

Carrying Costs

• Cost for holding the inventory over time• The primary cost is the cost of money tied up

in inventory, but also includes obsolescence, insurance, personal property taxes, and storage costs

• Typically, costs range from the cost of short term capital to about 40%/year. The average is about 25%/year of the item value in inventory.

Out-of-stock costs

• Lost sales cost– Profit immediately foregone– Future profits foregone through loss of goodwill

• Backorder cost– Costs of extra order handling– Additional transportation and handling costs– Possibly additional setup costs

Inventory Management Objectives• Good inventory management is a careful balancing act

between stock availability and the cost of holding inventory.

• Service objectives– Setting stocking levels so that there is only a specified probability

of running out of stock• Cost objectives

– Balancing conflicting costs to find the most economical replenishment quantities and timingCustomer Service, i.e., Stock Availability Inventory Holding costs

Typical Inventory Conflicting Cost PatternsC

ost

Replenishment quantity

Stockout cost

Procurement cost

Carrying cost

Total cost Minimum costreorder quantity

Reorder Point Control for a Single Item

ROP

Qua

ntity

on

hand

0

Q

Q

Receive order

Place order

Stockout

LTTime

LT

DemandDuringLT

P

Reorder Point Control

ROP

Q

0

Inve

ntor

y le

vel

LT LTTime

Safety stock

Actual on hand

Quantity on hand +on order backorders

Quantity for control

Periodic review control with demand uncertainty

Q1

Stock level reviewed

T TLT LT

Order received

Q2

M

q

0

Qua

ntity

on

hand

Time M = maximum levelM - q = replenishment quantity LT = lead time

T = review interval q = quantity on handQi = order quantity

~

Performance Metrics - Turnover Ratio

inventory Averagesales Annualratio Turnover

What are the benefits of Kanban?Some commonly observed benefits are:

• Bottlenecks become clearly visible in real-time. This leads people to collaborate to optimize the whole value chain rather than just their part.

• Useful for situations where operations and support teams have a high rate of uncertainty and variability.

• Tends to naturally spread throughout the organization to other departments such as HR and sales, thereby increasing visibility of everything that is going on at the company.

Benefits of Kanban

Reduce Inventory• Kanban will reduce inventory, on average, by 25

to 75%. This saves any company significantly in terms of rent, electricity, and storage space.

• In addition, all of the space freed by the implementation of a kanban system can be used for future expansions or new opportunities

Benefits of Kanban

Improve work flow• The visually organized environment ensures all

parts are easily found and continually stocked.• The speed of moving from one task to another

is significantly reduced by the creation of clearly marked flow lanes, kanban cards, and clearly marked labels.

Benefits of Kanban

Prevent Overproduction• Because parts are only created at the visual

signal by the kanban label (link), inventory is much less likely to be overproduced. Resulting in significant savings in the holding of stock.

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