Kanban is an effective supply chain management tool that is most utilized in the industry to reduce lead time, improve efficiency and deliver the product to the customer in the shortest possible lead time. Kanban is a visual board/display to initiate prompt action to ensure the smooth flow of materials without production interruption and delay.
In industry, lead time in material procurement, manufacturing, packaging, and dispatch are always high as each process is interdependent, Kanban system helps to manage the supply chain by initiating a prompt action/response.
What is Kanban? (Kanban tool)
Kanban is one of the lean techniques used as a signal system for material supply, material replenishment and to indicate,
- Need of material
- Quantity of material
- Time of material feed/delivery
- Location of material where material replenishment needed
- Material feeding as per product variability and sequence
- To inform the supplier about the material or parts requirements well in advance
And most importantly, the Kanban tool or system is used to avoid excessive or overproduction in the entire supply chain!
In simple words, the Kanban tool helps manufacturers, suppliers, and distributors to produce what is required based on customer or market demand.
History of Kanban
- The Kanban system is invented by the Toyota system to reduce over-production and over-inventory.
- The meaning of Kanban in Japanese is display or sign board which indicates the part number, quantity, and location where the parts are required.
- A Toyota engineer Taiichi Ohno has introduced the Kanban system in Toyota Production System in 1950.
Let’s understand how the Kanban system helps a supermarket in the material replenishment cycle.
Kanban system works very well in a pull system and Just-In-Time methodology.
- Step 1: Customer picks merchandise (eg. food, cloth, daily needs, household utensils) from shelves/racks as per need.
- Step 2: At the billing counter, billing desk personnel scan each piece of merchandise. Post completion of the billing process, the ERP system sends a trigger to the backend warehouse team for sold item details.
- Step 3: Trigger for material replenishment from warehouse to display racks results in the physical movement of goods/merchandise from warehouse to display racks
- Step 4: Step 3 generates an additional Kanban trigger from the ERP system to the distributor/manufacturer for combined orders. In step 4, minimum order quantity (MOQ) & lead time of merchandise manufacturing must be considered. Few distributors or manufacturers accept when the MoQ threshold is meeting.
- Step 5: Order merchandise from distributors/manufacturers that are supplied to supermarkets. In step 5, the lead time of transportation is also considered.
Kanban system works very well in a pull system and Just-In-Time methodology.
Pull system:
In the pull system focus is on make-to-order, not make-to-stock (build up an inventory). In a pull system (make-to-order) system, production is based on customer demand or order.
Kanban is an effective tool to achieve the following objectives of the pull system,
- No or minimum waste – Avoidance of work in Progress (WIP)
- Elimination or reduced waiting time
- Better productivity
- Optimum inventory (no excess or less inventory)
- Better balance between supply and demand
- Precise production
- The on-time and flawless flow of raw materials/parts/components
- Advance shipping notification (ASN) to supplier considering supplier lead time of manufacturing parts/materials.
- Better production yield and first time right
- Efficient use of production equipment, manpower, and infrastructure
- Production planning based on actual demand or customer order
- To manage supply chain risk.
To manage supply chain risk.
Examples of the Kanban system in day-to-day life,
a. A low fuel indicator or reserve fuel level in car/bike: Signal for refueling.
b. A low battery level in cell phone or laptop: Signal for battery charging.
c. A low stock of groceries at home: Signal for grocery purchases.
d. Low Credit card limit: Singal to pay outstanding credit card bill.
Examples of the Kanban system in the industry
a. Low parts/component availability at workstation: Operator places red tag, which is an indication to the logistics team to supply the required quantity of raw material or stock
b. A low stock/inventory level at the factory: Initiation of advance shipping notification (ASN) and purchase order to a supplier to meet lead time and supply the parts/component to the customer on time.
Kanban & Daily Milk Run:
Daily milk run is a very popular system/technique in the supply chain. Well, a daily milk run is nothing to do with only milk supply, it’s more about recurring in-bound and out-bound material flow from supplier to the manufacturer and vice versa.
In simple words, the milk run technique is most commonly used in the supermarket, courier or freight and distribution industry, where a consignment/courier is collected from a central location or hub and loaded in the truck/vehicle in sequential order, and couriers are delivered to the end customer.
Advantages of Kanban System
- Smooth flow of material without bottleneck
- Helps organization for smooth material replenishment
- Useful to maintain required inventory
- Helps organizations to avoid waste, over-inventory, and over-production
- Eventually savings in inventory cost
- Kanban system can be linked to SMART manufacturing solution like Industry 4.0
Disadvantages of Kanban System
- Kanban system works well in a pull system, whereas it’s not suitable for push system manufacturing method.
- Kanban system requires careful study of manufacturing and transportation lead time, and minimum order quantity (MoQ) before implementation, hence sudden changes in the supply chain may collapse the Kanban system.
- Loss of Kanban trigger/card disrupts the supply chain.
- Kanban practice and protocol must be maintained throughout the supply chain, if any one element fails to follow the Kanban process it results in delay and shortage of supply.
Types of Kanban
In industry different types of Kanban systems are used depending on the type of production system and business need.
Please refer to the following image to understand the type of Kanban system.
