Kanban Procurement Systems
Author: Jeffrey Fink

Kanban (in Japanese, “sign-board” or “bill-board”) is a work/process scheduling system that seeks to maximize productivity through a reduction in waste and idle time.  The term Kanban, refers to a system of procurement, as well as the actual card that is used as an authorization for an up-stream process/work-center (or vendor/supplier) to re-supply a specific quantity of parts or components, usually exactly what was used in the down-stream process/work-center.  Kanban does not refer to either the bin/container or to the material inside, although many who use Kanban procurement systems make this mistake!

Kanban, developed in 1953, is an important component of the famous “Toyota Production System” (TPS), as well as Lean Manufacturing and Just-in-Time (JIT).  The overall concept is to produce only what is required, when it is required, and in the quantity required.  When properly implemented, it can result in significant reductions in waste (“Anything other than the minimum amount of equipment, materials, parts and workers, which are absolutely essential to production.” Fujio Cho, Toyota, Suzaki, 1987).  The following are some examples of waste that can be reduced or eliminated:  Processing waste (scrap); idle-time of machinery; product defects; finished-goods or raw material/component parts inventory; inefficient production processes or activities.

Kanban systems are an important component part of Lean Manufacturing environments: Lean Manufacturing is a process that seeks to substantially reduce or eliminate non-value-added activities or waste in order to decrease unit costs, and increase quality and production efficiency.  Kanban procurement systems play an important part of effective and successful Lean Manufacturing environments.

Kanban procurement systems also are an important component in Just-in-Time and Cellular Manufacturing environments.  Cellular manufacturing is also a part of Lean Manufacturing.  Cellular manufacturing seeks to take advantage of similarities between parts through standardization and common processes.  Just-in-Time and cellular manufacturing are closely related, as cellular production layouts are most successful using JIT for raw material and component procurement.  JIT can leverage the cellular manufacturing layout to significantly reduce finished-goods and work-in-process (WIP) inventory levels.  Successfully implemented, these improvements can enable a company to “Build-to-Order”, and produce the products its customers want, when they want them, in the quantity desired, which, of course, can greatly reduce inventory levels, and lower costs and improve cash-flow.

Kanban is also used in industrial re-engineering to better position and use machinery.  For example, instead of locating machines by function, you can create “cells” of equipment and employees that can allow related products to be produced from beginning to end in continuous flow in one location, instead of having component parts produced in one place, and then stored and delivered to a different machine in a different location.  This greatly reduces excess inventory as well as time and expense to move the material around the facility.

Kanban is a “Pull and Replenish” system, in other words, raw materials and component parts are only produced or purchased when demand from down-stream processes require them.  It is more effective when used for high-volume, lower value items/parts.

Kanban systems also exist within a company’s material requirements planning (MRP) system, and it operates (for Operations/Production) on the Shop-Floor level.

What are the benefits of a successfully implemented Kanban program?

  • It creates a process or system that is highly responsive to customers (both internal as well as external).  It is reactive (to actual demand) instead of building by attempting to predict demand.  Thus, it seeks to supply only the actual demand, and not build excess raw materials/sub-assemblies/component parts or finished-goods.
  • It helps to maximize a company’s time and resources.
  • Reduces finished-goods and raw material/component part inventory levels.
  • Reduces waste and scrap in material as well as in process/systems.
  • Provides flexibility in production, allowing a company to scale up and down in production quantities based upon demand.  So, if demand drops, the company is not left with excess inventory.
  • Increases productivity and efficiency.
  • It assists in the process of continuous improvement, for example, through its elimination of product defects, and in its flexibility regarding production.
  • The supply of raw materials and component parts will be eliminated as a source of bottlenecks, allowing the company to focus on other potential areas of improvement.

What are the risks or problems with an inefficient or poorly-implemented Kanban system?

  • Not keeping the Kanban board up-to-date.  If the information is not current, then the process loses it efficiency, and material will not flow properly.
  • Adding too much extraneous information to the Kanaban cards themselves, or to the board.  If too much “noise” is added, then the important information can be lost and decision-making and material procurement can be compromised, again, leading to inefficient material flow.  The basic information for a Kanban card is Part number, description, supplier (or work center), customer (company, or a work-center), lead-time, bin number, product quantity.
  • The concept of ‘limits’ or ‘constraints’ in Kanban systems are the necessary component in order to improve the system, so the company needs to treat the limits and constraints seriously.  In this way, improvements can be implemented.  If the limits are ignored, the inventory will build up, and the process will not be improved.
  • Kanban is an important component of a successful overall operations/production process.  It needs to be a part  of a functioning project management approach.  Having a solid and sound operations foundation will provide the basis for the improvements that accrue from successfully implemented Kanban procurement systems.
  • Kanban is a part of Kaizen (a system of continuous improvement in quality, technology, processes, company culture, productivity, safety as well as leadership).

 

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