Kanban:  What It Is (and What it Ain't)
Tom Southworth, CONNSTEP

It happens almost every time I go into a client. "Here's our kanban" they exclaim and I, naturally, start looking around for a card, or a sign, or a signal of some sort. In other words, I start looking for a kanban. When I ask where this mysterious kanban is I'm always told its "right here" and the person always points to racks of inventory.

Kanban is not inventory. Kanban is a communication tool. Kanban means sign-board, but in today's Lean enterprise a kanban can be any communication tool that signals a need for replenishment of an item or part.

Kanban, itself, is an admission of failure. This might sound harsh but it's true. One of the two pillars of the Toyota Production System is Just In Time - the other is Respect for People. Just in Time means just in time. Just In Time is the ultimate in one-piece flow. Make one and move one only when it's needed; not before, certainly not after, and only in the quantity that's needed.

That's an unreasonable if not impossible goal for most manufacturers. The solution for Toyota was to have a small supply of parts that would be readily available - just in time - in order to keep a production line moving. This small supply came to be known as a supermarket. The tricky part was in knowing when to replenish these small supplies. That is where kanban came to be used. The kanban, or sign-board, was the signal to replenish the supply. Kanban became the solution for failing to have true just in time.

So kanban is not inventory. Kanban is a tool to help control inventory levels by signaling when these inventories need to be replenished. These signals can be any number of things:

  A card
  An electronic sign
  An empty space
  An empty container
  A marker of some type

At least one company uses colored golf balls. Yes, golf balls. Each time a unit of inventory is used a golf ball is rolled down a tube to the supermarket area. Once the tube is filled, that is, once a predetermined number of golf balls have been sent down the tube that is the signal to replenish the supply of that particular part. Different parts use different color golf balls.

Kanban and Your Business
How and where does this apply to your business? Well, take a look at your total square footage. How much of that is dedicated to actual production, which is the place where value added activities are conducted? How much of your floor space is filled with inventory, including all raw materials, WIP, and finished goods? Don't just count inventory racks - count every box, every tote, and every pallet sitting on your floor. Divide your cumulative inventory square footage into your total square footage. The number will probably shock you. Ask yourself this question - are you a manufacturer or a warehouse? Most of you will think you're a manufacturer, but the reality is you're a warehouse because you have a higher percentage of inventory square footage than any other function or department, including production.

Choose Wisely
Kanban is a powerful tool. Used properly in a complete Lean Enterprise system it can help eliminate 50-90% of your inventories without disrupting your schedules. Just think of the cash savings you'll realize by eliminating not only the physical inventories but the costs associated with storage and handling. Invest that cash back into your business and you continue the cycle of continual improvement and growth.

Used improperly kanban can run you out of product and cause you to miss critical delivery dates, so it's important to start small and choose parts or items that you know that you can quickly replenish in a matter of hours or a couple of days if an emergency were to arise.

Pick non-critical consumables like corrugated and commonly used materials to start with. Use visual signals - sign boards, index cards, or painted lines on a shelf where inventories can be seen and quantified by where they fall in relation to a vertical painted scale (green = good, do not order; yellow = getting low, initiate a reorder; red = critically low, attention is needed immediately). You can outline pallet positions on a floor and create a standard work procedure whereby the inventoried item stored on that pallet (or pallets) is not replenished until a specified number of pallet positions are empty.

Kanban and CONWIP
Kanban can also help control inventory aging, as FIFO lanes (First In - First Out) can be combined with kanban to create what's called CONWIP, or "constant work in process". If you have, say, four pallet positions in a CONWIP FIFO lane for item "A", your inventory variances month to month for item "A" will never be more than the value of what's in that FIFO lane and your bottom line becomes more predictable.

Kanban vs. Consignment
Kanban should not be confused with "consignment" inventories. Consignment inventories are nothing more than free warehouse space for your suppliers. You're paying for the real estate, the heat, the electricity, the racks, the insurance, the property taxes and the labor to unload, transport and store this supposed "free" inventory that's doing nothing more than taking up valuable space that could be used for production. If a supplier can keep you stocked with consignment inventories then you have a supplier with whom you can establish a kanban system for inventory replenishment, and you can stop being a free warehouse for that supplier. Establishing FIFO and using kanban can also help your suppliers with their own inventory management, as they'll begin to see what your actual consumption patterns are so it's a win-win scenario. They no longer have to scramble to replace 50 units when 10 are all that you need in your FIFO lane. You've now become a predictable, steady customer instead of one who is always calling in emergency orders that wreck everyone's schedule.

Types of Kanbans
There are two types of kanban - there is a production kanban and there is a withdrawal kanban. A production kanban, as the name implies, is a signal to produce an item. It is, in a sense, a permission slip to create a fixed quantity of that item. The example of using painted squares in a FIFO lane for pallets is one example of a production kanban. An empty pallet position is a signal that gives permission to the upstream operation to create more items to fill in the empty pallet position. This means jobs that have multiple releases can be scheduled by the shop floor and not need the constant intervention of a scheduler/planner or even a scheduling system. The downstream operation schedules production by consuming product and creating a signal to replenish what's been consumed.

A withdrawal kanban is also a permission slip, not to produce an item but to remove an item - or a fixed quantity of an item - from an inventory supply or from a parts supermarket. This does not automatically create a signal for replenishment - that's a production kanban.

Withdrawal kanbans can be used internally and with external suppliers. Let's say you have a special product that can only be purchased in 500 pound totes with a minimum 5 tote quantity and it is only run once every 3 weeks by your supplier. You typically use this special material for multiple customers and one 500 pound tote can be used on many different orders. Since this is a specialty item it's expensive, so you don't want to have too much on the floor (it is, after all, tying up your cash) but you also can't afford to run out and you can't predict when you'll need it. Here's a suggestion for a withdrawal kanban.

When you receive a shipment of 5 totes use 5 index cards that list the item # (yours or your vendor's, it doesn't matter), and mark each card with a 1, 2, 3, 4 or 5. These cards become the withdrawal kanban for that item. When tote #1 is completely consumed, send the kanban card marked #1 to your buyer. This is the signal that one tote has been withdrawn from inventory. When tote #2 is consumed, kanban card #2 is sent to your buyer. At this point, your buyer can be authorized to place an order for another 2,500 pounds of this item knowing that a) you have three more totes left and b) the replenishment order should be no more than 3 weeks out based on the supplier's production schedule. You could authorize the buyer to wait until kanban card #3 is submitted if you want - it all depends on your comfort level with your vendor and your knowledge of your customer base and your average consumption.
 

By using a kanban system you can eliminate having a job that needs 2 totes of material go out to production only to find out that you're down to 1 tote and no one's placed a purchase order for more material. Now you have an emergency, probably a break in charge (if you're lucky enough to convince the supplier to break in), and expedited freight costs. A simple kanban using index cards can prevent this (as opposed to that expensive computer-based MRP system you probably have).

To summarize, kanban is not rack after rack of inventory, no matter how neat and organized that inventory may be. Kanban is a tool that's used to control inventory and this tool can free up valuable space - and cash that's being wasted - and it can help you to stabilize your delivery and production schedules and your bottom line.

Article courtesy of Label & Narrow Web magazine.