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Kanban

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Kanban
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
Instructi
on

Kanba
n
Withdraw
al

Production
Kanban (non lot
production)
Triangle Kanban
(for lot
production)
Interprocess
Kanban
Supplier
Kanban

Rules of the 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The Parts Are Always Withdrawn From The Prior Process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Quantity Withdrawn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.

Kanban Options
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

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, like5s,
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.

Variable size
stackable bins

Stacking bins, when top is empty,


remove and start using the bottom
bin.

Double sided racks

Special twinbins, top holds second


inventory, when bottom is empty, pull
middle lever that allows top inventory
to drop into lower bin, flag pops up
identifying upper bin needs to be
refilled.

Reserve supply behind

Stacked supply

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?


Inbound
transportation

Production

Outbound
transportation

Receiving

Material
sources

Production
materials

Shipping

Inventories
in-process

Finished goods

Inventory
locations

Finished goods Customers


warehousing

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 managements 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
Accurately forecasting
Lumpy demand
demand is singly the
Highly variable (3 Mean)
most important factor
Regular demand
in good inventory
Not highly variable (3 < Mean)
management

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

Pull vs. Push Inventory Philosophies


PUSH - Allocate supply to each
warehouse based on the forecast
for each warehouse

PULL - Replenish inventory with


order sizes based on specific needs
of each warehouse

Q1

Warehouse #1

Demand
forecast

A1
A2
Plant

Q2
Warehouse #2

A3

Demand
forecast

Q3
A = Allocation quantity to each warehouse
Q = Requested replenishment quantity
by each warehouse

Warehouse #3

Demand
forecast

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

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 timing
Customer Service,
i.e., Stock Availability

Inventory Holding costs

Typical Inventory Conflicting Cost Patterns

Minimum cost
reorder quantity

Cost

Total cost

yin
r
r
a

ost
c
g

Procurement cost
Stockout cost
Replenishment quantity

Quantity on hand

Reorder Point Control for a Single Item

Q
Place
order

Demand
During
LT

ROP
Receive
order

Stockout
LT

LT
Time

Reorder Point Control


Quantity on hand
+on order
backorders

Inventory level

Quantity for
control

Actual
on hand

ROP

Safety stock

0
LT

Time

LT

Quantity on hand

Periodic review control with demand


M
uncertainty
T = review interval
q = quantity on hand
Qi = order quantity

Q2

Q1

q
Stock
level
reviewed

0
M = maximum level
LT
M - q = replenishment quantity
LT = lead time

Order
received

LT

Time
T

Performance Metrics - Turnover


Ratio
Annual sales
Turnover ratio
Average inventory

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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