What Is Kanban
With kanban scheduling, the operators use visual signals to determine how much they run and when they stop or change over. The kanban rules also tell the operators what to do when they have problems and who to go to when these problems arise. Finally, a well-planned kanban has visual indicators that allow managers and supervisors to see the schedule status of the line at a glance.
We define kanban scheduling as demand scheduling. In processes controlled by kanbans, the operators produce products based on actual usage rather than forecasted usage. Therefore, for a scheduling process to be considered a true kanban, the production process it controls must:
Only produce product to replace the product consumed by its customer(s)
Only produce product based on signals sent by its customer(s)
The kanban schedule replaces the traditional weekly or daily production schedule most of us have become familiar with in manufacturing operations. This schedule is replaced with visual signals and predetermined decision rules that allow the production operators to schedule the line.
Think of kanban scheduling as an execution tool rather than a planning tool. The kanban, which can take many forms, directs the operation of the process on a day-to-day basis. Kanban scheduling does not replace material planning, but rather takes the material planning information and uses it to create the kanban. What kanban replaces is:
The daily scheduling activities necessary to operate the production process
The need for production planners and supervisors to continuously monitor schedule status to determine the next item to run and when to change over
It thus frees up the materials planners, schedulers , and supervisors to manage exceptions and improve the process. Finally, it also places control at the value-added level and empowers the operators to control the line.
We created this book to help the reader achieve this level of scheduling. To achieve this objective, we have proposed a set of steps to help the reader implement their own kanbans. The main body of the book will help the reader implement kanbans on lines that produce multiple part numbers that require changeovers between part numbers. The Appendixes will explain how to set up kanbans for several different types of dedicated work centers that do not change over nor produce multiple part numbers .
The book also addresses the concerns and fears that prevent organizations from implementing kanban scheduling. These fears arise because kanban forces many people to challenge their paradigms , or basic beliefs, about how production processes should be scheduled, or who should be scheduling and controlling production processes. As you progress through the planning process, think about the issues, concerns, and fears you have about converting to kanban scheduling. The book will help you to develop the structures and rules necessary to answer these issues, concerns, and fears.
Why Implement Kanban Scheduling
Besides the big-picture benefits spelled out above, what are the other benefits that justify the expenditure of time and resources to implement kanban scheduling? Figure 1-1 lists the benefits of kanban that lead to improved productivity and reduced capital cost.
Places control at the operations level (with the operator)
Creates visual scheduling and management of the process
Improves responsiveness to changes in demand
Minimizes risk of inventory obsolescence
Increases ability to manage the supply chain
Figure 1-1: Benefits of Kanban Scheduling.
As Figure 1-1 shows, the benefits of kanban scheduling extend well beyond the hard dollar savings associated with reducing inventory. Unfortunately, many kanban opponents fail to recognize these benefits, preferring instead to focus only on the economic order quantity (EOQ) versus the kanban quantity.
They fail to recognize that inventory generates hidden cost in overhead, rework , scrap, customer service activities, and material handling.  However, it is the inventory reductions coupled with these other factors that make kanban a necessity to remain competitive in today's business environment. Additionally, the benefits of kanban can become a driver for creating a culture of continuous process improvement; when the improvements are translated directly into lower inventory quantities , it allows people to see the benefits of taking action.
When you calculate the kanban quantities based on current conditions (downtime, scrap, and changeover times), you should see a decrease in inventory levels. From our experience, inventories can be reduced by 25 percent to 75 percent. The exercise of calculating kanban quantities forces you to identify your real situation. It also forces you to examine the comfort levels and informal rules that allow inventory levels to build up over time. Additionally, since you will use realistic data, you have a measure of confidence that the calculated quantities will allow you to successfully continue supplying your customers.
From a financial side, the inventory reduction not only saves the carrying costs of the inventory but also the physical space occupied by the existing inventory. The freed-up space can then be used for new business opportunities or may eliminate the need for planned expansions or leasing of offsite warehouses.
When properly implemented, kanban improves the flow of the operation. The improved flow results from not only reducing inventory space, but also the order created by designing the kanban material flow. The process of setting up control points, setting up flow lanes , hanging signs, and so on, provides directions for moving the material. The kanban process also gives the operators producing the parts guidance on what and when to produce. (They also know when not to produce.) The increased controls serves to tame the woolly beast called inventory.
In many production processes, control of production quantities can be haphazard. This lack of control can allow overproduction of parts, which is one of the seven wastes identified in the Toyota Production System (TPS). The kanban prevents overproduction by specifying the production container sizes and the maximum number of containers to be produced. This structure thus allows control without expensive or labor- intensive tracking systems.
The kanban uses visual signals that let operators know how many of each part to produce and what to produce next . These visual signals also tell operators (and their supervisors) when to stop and when to start production.
Places Control at the Operations Level (with the Operator)
Just as managers, supervisors, and materials planners can see the production schedule at a glance, so can the operators. Therefore, with proper rules and scheduling guidance, the operators can run the line. The kanban's design tells them what to run, how much to run, and what sequence to run. Additionally, the visual nature of the kanban tells everyone immediately when the process is in trouble, so that someone can step in to make course corrections.
Therefore, once again kanban reduces one of the seven wastes ”not properly utilizing human resources. By creating a system that allows operators to control their production process, we proverbially harness their minds to help us succeed in the game of business.
This step can also lead to other opportunities for increased empowerment (and potential profitability). Additionally, by allowing the production operators to control the line, we free up managers and schedulers to move on to other activities, such as waste elimination and supply chain management.
By the way, control of the line by production operators does not happen for free. Before the operators can run the line with the kanban, they will need training and mentoring. You cannot throw them the "keys" and expect them to operate the line like experienced schedulers. However, if the kanban design sticks with the theme of keeping it simple, then training will not be a problem.
Creates Visual Scheduling and Management of the Process
With proper use of visual management techniques, the kanban system eliminates the need for a paper schedule. The visual kanban signals (containers, cards, floor markings , etc.) tell the operator the items to be produced and the production sequence. The use of scheduling signals (yellow) and danger signals (red) also tell the operators:
What and how many to run
When and who to call for help
These same visual indicators also tell managers and supervisors the schedule position of the process at a glance. This visual scheduling process thus allows managers, supervisors, and material planners to focus on production problems, future planning, and other continuous improvement activities rather than on the daily control of the production schedule.
Improves Responsiveness to Changes in Demand
The very nature of the kanban scheduling process sets up maximum and minimum inventory levels. These levels provide signals for when and when not to produce. These signals will stop production when demand decreases. Therefore, you avoid the issue of should you or shouldn't you build inventory when orders decrease since the system design tells you to stop.
Likewise, when orders begin to increase, the kanban inventory levels signal the restart of production. This addresses one of the main issues that make people build inventory during downturns ”"What if I don't recognize when to turn the faucet back on?"
Minimizes Risk of Inventory Obsolescence
Just as the kanban stops overproduction, it prevents you from building inventory that can become obsolete. The kanban signals to start production based on demand (or sales) and not on forecast. Therefore, you only build what you need. So when conditions or models change, you only need to manage the material in the production pipeline, not a vast warehouse inventory. Kanban scheduling's visual nature also ensures that inventory does not get lost only to magically reappear in time for write-offs at the next physical inventory.
A subset of the obsolescence issue is freshness, which is an issue for many food items and some "nonconsumable goods."  The kanban structure controls the amount of inventory in the system and thus controls the material freshness. Rules for the kanban can specifically address the lifecycle of the goods and management of the materials age.
 Michael L. George, Lean Six Sigma: Combining Six Sigma with Lean Speed (New York: McGraw-Hill, 2002), p. 38.
 "Chasing the Make-To-Order Dream." White paper presented at the Logistics and e-Supply Chain Forum, 2001.