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How Does Kanban Work? - ADDVALUE - Nilesh Arora
How Does Kanban Work? - ADDVALUE - Nilesh Arora
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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
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
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
Variable size
stackable bins
Stacked supply
INVENTORY MIN-MAX
Production
Outbound
transportation
Receiving
Material
sources
Production
materials
Shipping
Inventories
in-process
Finished goods
Inventory
locations
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Inventories that are of little or no value due to being out
of date, spoiled, damaged, etc.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
Derived demand
Demand is determined from the demand of another item of
which it is a part
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
Procurement costs
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
Cost objectives
Balancing conflicting costs to find the most
economical replenishment quantities and timing
Customer Service,
i.e., Stock Availability
Minimum cost
reorder quantity
Cost
Total cost
yin
r
r
a
ost
c
g
Procurement cost
Stockout cost
Replenishment quantity
Quantity on hand
Q
Place
order
Demand
During
LT
ROP
Receive
order
Stockout
LT
LT
Time
Inventory level
Quantity for
control
Actual
on hand
ROP
Safety stock
0
LT
Time
LT
Quantity on hand
Q2
Q1
q
Stock
level
reviewed
0
M = maximum level
LT
M - q = replenishment quantity
LT = lead time
Order
received
LT
Time
T
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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