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Formula used :
Total Required Inventory (TRI) = Weekly Part Usage * Lead-time * Number of locations for stock
# Kanban = TRI / Bin Capacity
Toyota's Taichi Ohno introduced kanban as a tool in the development of Just In Time manufacturing.
Kanban, meaning "billboard" or "sign", is a scheduling system that pulls production based on actual demand. The system controls the timing and quantity, as well as the precise item to be produced.
The concept came from observing the way a grocery store keeps its shelves stocked with an item:
This process works well in grocery stores and can be valuable in a manufacturing environment also. It is easy to imagine the final assembly point or final storage area for finished goods as the "display shelf". As customer orders deplete the supply of finished goods, a point is reached that triggers a production order. Likewise, when a production order depletes raw material to below its trigger point, a purchase order is sent to the external supplier.
Depending on the complexity of the manufacturing operation, there may be many locations for kanban cards. The same size of bolt, used in many places in the factory, might all point to one internal storage area from which the purchase order is sent to the supplier. A complex sub-assembly's card might send production orders to several areas in the factory.
Regardless of the complexity or the number of processing steps in a factory that pass kanban requests internally, each process should be considered a "shelf" awaiting a demand from its "customer", the downstream process.
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The first physical implementation of kanban used actual cards such as one might see in stores. The card contains this information:
"Electronic kanban" describes a computer system that triggers the orders when inventory is depleted. This performs the same function; there are trade-offs among ease of implementation, ease of change, employee training, and perhaps reliability.
Depending on historic demand for an item, and the lead time required, the kanban process need not wait until the stock is entirely depleted. For example, one may decide to order when the quantity drops to 10. An obvious approach is to place the kanban card where it would be visible when the quantity in stock reaches 10. It is a simpler concept, however, if it is implemented in this fashion:
So when the final storage bin requests the last ten items from the secondary bin, the secondary bin sends the order to replenish itself back to the factory or supplier.
A kanban system requires stable and fairly level demand, varying by no more than 10% to 20% at most. Shelf life may also be a factor.
The "supermarket" example works well for staple goods, such as fresh vegetables, bread and rice: items which are regularly consumed and replenished. Items with seasonal demand, such as Valentine chocolates, Easter eggs, or Christmas fruit cakes would not be re-stocked immediately after that event. Instead, shelf space is made available for the next seasonal item.
In contrast, the supply chain for frozen turkey may continue operating all year, even if the seasonal demand peaks for Thanksgiving and Christmas. When raising poultry, production is hard to manipulate, but freezing and warehousing is relatively straightforward.
If too little inventory is available to meet demand, or the manufacturing or supply processes run slower than required, the external customer will experience a delay. This business risk must be managed against the beneficial cost reduction of carrying less inventory than before kanban was introduced.
A company with a diversified product line may have naturally balanced or unbalanced demand. Lawn mowers and snow blowers, for example, are required in different seasons, so there is a natural balance. A kanban system is unlikely to try to restock both products simultaneously.
However, if all of the company's products rise and fall in demand simultaneously, it will result in conflicts. An example would be a company that manufactures small motors for lawn mowers and other warm weather consumer products.
Toyota implemented six important practices to enable kanban to serve its needs:
Production leveling is a separate topic, and may be difficult to achieve; that may be why the final three practices refer to it. To over-simplify, level production means that each process works at a steady pace rather than racing in reaction to crises, with idle periods between orders.
Lean manufacturing tries to avoid having inventory, which is seen as a waste of cash, storage space and the motion required to store and retrieve items.
It may be better to say that it is possible to arrive at a rational compromise, depending on the mix of products demanded by external customers.
An absolutely Lean factory never stops moving material as it moves from the loading dock as raw material, through internal steps as goods-in-process, and onto the truck from the shipping dock. No inventory is kept anywhere. If external customers always buy in economic order quantities with flexible deadlines, suppliers are always reliable, and processing time is minimal, then a Lean factory will maintain level production for each order and does not need kanban.
If the external customers buy in variable quantities and orders may pile up, it becomes necessary to deliberately pursue production leveling. This keeps equipment and personnel operating at a steady and sustainable pace while producing fewer defects than would be created in a mad rush. To avoid missing customer deadlines, however, requires a minimal inventory of finished goods to cover peak demand.
Once one accepts the need for the "minimal inventory of finished goods to cover peak demand", then kanban becomes an excellent way to trigger the production cycle. The quantities noted on the kanban cards reflects the compromise between the Lean goal of zero inventory and the conflicting demands to satisfy varying demands from external customers.
On the assumption that the factory is building different products simultaneously, kanban can also serve the goal of production levelling, or heijuka. This was first implemented using the heijuka box, a pigeonhole mailbox. Each product that a machine or process can make has a horizontal row in the box. Vertical columns correspond to work shifts. As kanban order cards are brought to that machine, the cards are placed in the correct row for the product they represent. By distributing the cards along the row, the orders are assigned to subsequent shifts. Each shift should have a selection of cards that achieves the goal of level production.
Electronic versions of heijuka are available, but the cards provide a relatively easy implementation and certainly serve as tools for training.
A kanban system requires a fairly level and well-understood demand, as well as careful analysis of the capabilities of the manufacturing process.
A well-researched and well-implemented kanban system is capable of delivering cost savings by reducing inventory, warehousing and deferring manufacturing expenses until production is required.
By Oskar Olofsson