Introduction to Kanban

Imagine a process where the operators schedule the line. Also, imagine this same process having visual indicators that allow you to instantly determine the schedule status of the process at a glance.

Does this sound like a fairytale? Or is this a process that has been converted to kanban scheduling?

A Short History of Kanban

The Japanese word kanban, which translates as "signboard," has become synonymous with demand scheduling. [1] Kanban traces its roots to the early days of the Toyota production system. In the late 1940s and early 1950s, Taiichi Onho developed kanbans to control production between processes and to implement Just in Time (JIT) manufacturing at Toyota manufacturing plants in Japan. These ideas did not gain worldwide acceptance until the global recession in the 1970s. By using kanbans, he minimized the work in process (or WIP) between processes and reduced the cost associated with holding inventory. [2]

Originally, Toyota used kanban to reduce costs and manage machine utilization. However, today Toyota continues to use the system not only to manage cost and flow, but also to identify impediments to flow and opportunities for continuous improvement. Interestingly, Mr. Onho modeled many of the control points after U.S. supermarkets ”hence the term kanban supermarkets.

It should be noted that the idea of JIT manufacturing was originally conceived by Kiichero Toyoda, founder of the Toyota Motor Company, and son of Sakichi Toyoda, the founder of the Toyota Company, the parent company. [3] [4] However, it was Mr. Onho who developed the strategy of kanban, which became one of the pillars of Toyota's successful implementation of JIT manufacturing. [5]

[1] Toyota Motor Corporation, The Toyota Production System ”Leaner Manufacturing for a Greener Planet, p. 19.

[2] Taiichi Onho, Toyota Production System ”Beyond Large-Scale Production (Portland: Productivity Press, 1988), Chapter 1.

[3] It is an interesting aside that the Toyota Company started the Toyota Motor Company with the money received from selling the rights to produce a weaving loom that had been designed by Sakichi Toyoda.

[4] Onho, Toyota Production System, p. 89.

[5] Onho, Toyota Production System, p. 123.

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.

1. Reduces inventory
2. Improves flow
3. Prevents overproduction
4. Places control at the operations level (with the operator)
5. Creates visual scheduling and management of the process
6. Improves responsiveness to changes in demand
7. Minimizes risk of inventory obsolescence
8. 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. [6] 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.

Reduces Inventory

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.

Improves Flow

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.

Prevents Overproduction

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." [7] 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.

[6] Michael L. George, Lean Six Sigma: Combining Six Sigma with Lean Speed (New York: McGraw-Hill, 2002), p. 38.

[7] "Chasing the Make-To-Order Dream." White paper presented at the Logistics and e-Supply Chain Forum, 2001.

Kanban Implementation Process

How does one achieve all these fantastic benefits? First, you must make the commitment to make change and no longer accept the status quo. You must be willing to accept the uncomfortable feeling associated with implementing new ideas. You must be committed to making a plan and following through on this plan. If you can accept the above " musts ," then the seven steps listed in Figure 1-2 are your roadmap to implementing kanban in your organization. These steps allow you determine your current situation, what you want to achieve, and how you want to achieve it. Additionally, as we progress through the book, we will build these seven steps into a flow for continuous improvement.

1. Conduct data collection
2. Calculate the kanban size
3. Design the kanban
4. Train everyone
5. Start the kanban
6. Audit and maintain the kanban
7. Improve the kanban

Figure 1-2: Seven Steps to Implementing Kanban.

Step 1 Conduct Data Collection

In this phase you will collect the data necessary to characterize your production process. The act of gathering data will allow you to make a decision based on facts instead of on desires or gut hunches. This data will allow you to calculate the kanban quantities (which is the next step). As you proceed through this step, be honest about the process's real capabilities so that you can calculate realistic kanban quantities that support customer demand.

The first step also represents a golden opportunity for conducting value stream mapping (VSM) for your entire plant and allows you to determine which production processes would be good candidates for implementing pilot kanban scheduling systems. Additionally, the plans for kanban can be considered in the larger scheme of implementing lean manufacturing during the VSM process.

Step 2 Calculate the Kanban Size

Once you know where you are, you can calculate the size of the kanban. Initially, you will calculate the kanban container size based on current conditions, not based on future plans or desires. However, step 7 will focus you on ways to reduce kanban quantities based on a realistic continuous improvement approach. The initial calculations will utilize the production requirements, the system scrap rate, the process productivity rate, planned downtime, and changeover times to calculate a replenishment interval. The replenishment interval (which will be explained in greater detail in Chapter 4) will establish your order quantities. The final kanban container quantities will also include a buffer for safety stock and to account for any process cure, drying, or normalization periods. These calculations will form the basis for the kanban design in the next step. Chapter 4 will also address a quick method for setting kanban levels in mature processes or for those people who just want to jump in and swim.

Step 3 Design the Kanban

Once you have calculated the kanban quantities required to support production requirements based on current conditions, you're ready to develop a design for the kanban. The completed kanban design will answer the question of how you will implement the kanban. The design will consider:

• How will the material be controlled?
• What are the visual signals?
• What will be the rules for conducting the kanban?
• Who will handle the kanban transactions?
• Who will make the scheduling decisions?
• Who will resolve problems?
• What visual management items will be needed?
• What training will be required?
• What is the implementation schedule?

The end product of this step should be a plan for implementation of the kanban, including implementation actions, action assignments, and schedule milestones.

As you finish the design step, don't be afraid to commit to a start date. Don't be guilty of analyzing yourself into inaction. Pick a start date, build a plan to support this date, and monitor the plan for progress toward hitting this date.

Step 4 Train Everyone

Before starting to schedule with kanban, don't forget to train everyone on how the system will work and on their role in the process. Develop a simple presentation to explain the process and the visual signals. Also, review the rules during the training. Take the participants through what-if scenarios to help them understand their roles and the decision-making process. Conduct a dry run so that everyone knows how the kanban signals will be handled and what the signals mean. Keep the training focused on operating the kanban. Don't try to make everyone a kanban expert ”just train them on their piece of the puzzle.

Step 5 Start the Kanban

Once you have a kanban design and training completed, you can start the kanban. Before you implement kanban scheduling, make sure you have all your visual management pieces in place. Having the signals set up, control points marked , and the rules completed and coordinated before you start will avoid confusion and make training much easier. As you deploy the kanban, anticipate problems that may impact success and take action to prevent or mitigate these problems. Finally, during the deployment stage, develop a scheduling transition plan ”determine the exact point for the change and the amount of inventory required to make the change.

Step 6 Audit and Maintain the Kanban

After the kanban starts, you must begin the next step of the process ”auditing the kanban. Auditing is the step that usually gets overlooked in most failed start-ups. So, when designing the kanban, identify who will audit the kanban. Typically, the auditor will be watching how the scheduling signals are handled and whether the customer stays supplied. When the auditor finds problems, then the problems need to be fixed immediately by the responsible party to maintain the integrity of the kanban design. Taking action prevents the kanban from being pronounced a failure by the operators.

The auditor will also look at future requirements to make sure the kanban quantities meet expected demand. If you don't adjust the kanban quantities to forecasted demand, then expect to continually intervene manually in the scheduling process (a sure way to kill the kanban).

Step 7 Improve the Kanban

Finally, after the kanban gets running, look at how to improve the kanban to reduce inventory quantities. Resist the urge to just start pulling containers. Look at how the system is running and identify any quantities that were oversized, and pull the necessary containers immediately. After this one-time adjustment, only reduce the quantities based on improvements made to the production process.

Chapter 9 suggests potential improvement areas that create opportunities to reduce quantities. Don't be fooled into the fallacy of just reducing the kanban quantities on a whim. Determine the amount that can be reduced by using the same calculations you used in sizing the kanban to calculate the new quantities.

It Takes a Team to Be Successful

Before we rush off to implement kanban, we need to address who does the implementation. The implementation of kanban will only work when you have the buy-in of the process stakeholders. Therefore, you need a cross-functional team to implement kanbans. This team, which needs to include operators, material handlers, supervisors, managers, and scheduler/material planners, will help you create kanbans that address operating conditions and logistics. They will also help create the buy-in needed to implement and operate the kanban since they become the voice of the stakeholders.

Although you may be able to design and set up the kanban without the help of the team, you cannot create the necessary buy-in by yourself. Additionally, each team member's input only improves the kanban design by ensuring that logistics items and team member concerns don't get overlooked.

Do You Need a Consultant?

Many people who are not familiar with kanban ask whether you need a consultant. The answer to this question is: it depends. To answer this question, complete this book and consider the following items when making this decision:

• Are the planned kanbans simple or complex?
• Do you have sufficient resources to manage the program?
• Do you have the necessary in-house expertise to lead a team in designing and implementing the initial kanbans?
• Are you implementing kanbans in one plant or multiple plants?
• Do you want to develop a cadre of implementers?

The answers to these questions will determine whether you need outside consultants . The only definite recommendation we have is that if you are planning to implement kanban in a large corporation with numerous sites, then use this book as a resource for your in-house teams, but hire a consultant initially to train the teams. However, as the in-house teams gain implementation experience you will have no need for outside support.

Choosing the Target Process or Department

In choosing a target process or department, follow these suggestions:

• Initially, start simple. Select a pilot area that will undergo full implementation. Complete all the phases and let your organization see the benefits before starting a second round of kanbans.
• Look across your organization and select a process that has a clear delineation between itself and the process it supplies .
• Because the kanban essentially replaces the traditional forecasted schedule, select a target area where a "customer-supplier" relationship is easy to identify and understand. The basic use of the kanban will be to meet the needs of the "customer."
• Consider a process with fairly steady demand. The steady demand makes the calculation process simpler and the kanban runs smoother.
• Consider the readiness of the process operators to accept change and, more importantly, to participate in making kanban a success. Do not underestimate the power of resistance to change.
• Finally, go for a base hit or a double, not a homerun, when selecting the pilot site. The key in the pilot implementation is to make it successful and to create a learning experience for the organization. A successful implementation also gives the rest of the organization the confidence to overcome their fears of implementing kanban.

If your organization has conducted value stream mapping, then use the future state map to select the target site. The value stream maps (made famous by James P. Womack and Daniel T. Jones in their book Lean Thinking [8] ) should ideally provide multiple targets to choose from if your plant is typical of most plants that start the process of lean manufacturing. Additionally, the value stream mapping process should help you with data collection.

We recommend against selecting a finished goods kanban as your first kanban project. Dealing with the external variables of the customer-supplier relationship can be tricky, so get some experience before implementing. Instead, select an internal process to learn the ropes . You should get good at kanban before you bring your external customer into the picture. (Remember that lean manufacturing is about serving the customer, so you don't want to endanger the paying ones!)

[8] James P. Womack and Daniel T. Jones, Lean Thinking (New York: Simon & Schuster, 1996).

Keys to Successful Implementation of Kanban

Many organizations refuse /fail to implement kanbans due to their fears. They fear loss of control, they fear their employees lack ability, they fear running out of material, they fear....

The answer to these fears is to develop plans that resolve these fears. Your response to these fears should be to put plans in place to prevent them from becoming reality so that the organization can reap the benefits of kanban scheduling.

Because we want you to be successful in implementing kanbans, we have identified several factors that greatly add to the chances of success. These ideas will be further discussed in later chapters, and their impact on success will become clear. We believe the following items lead to successful implementation:

• Size the kanban to current conditions
• Adapt container size to allow flow
• Make kanban signals visual
• Develop rules that provide decision points plus checks and balances
• Train the operators to run the kanban system
• Set up audit plans to keep assumptions current and maintain system discipline
• Develop a phased improvement plan to reduce the kanban quantities

Keep these ideas in mind as you read this book, and adopt these suggestions as you develop plans for addressing your process peculiarities .

Using the Workbook as a Guide

To assist in the implementation process, we have developed a CD-ROM Workbook (which is included with this book) that allows you and your team to progressively implement the steps. The workbook has forms that allow you to gather the information necessary to calculate quantities , design the kanban, develop an implementation plan, and develop a training plan.

Use the CD-ROM yourself or print out the forms for your team's use during the implementation team meetings.

What s in the Appendixes

To further increase your understanding of the kanban implementation process, we have included case studies and special topics in the Appendixes. The two case studies show implementation projects from different industries so that you can see the process in action. These case studies have been written as stand-alone works to allow use as a teaching aide and to fully illustrate the implementation process.

There are seven appendixes that deal with special topics, including:

• Appendix A. MRP versus Kanban
• Appendix B. Kanban Supermarkets
• Appendix C. Two-bin Kanban Systems
• Appendix D. Organizational Changes Required for Kanban
• Appendix E. EOQ versus Kanban
• Appendix F. Implementation in Large Plants
• Appendix G. Intra-Cell Kanban

We broke these topics into separate appendixes because we felt that:

• they required more detail than was appropriate for inclusion in the main body of the book
• they would cause confusion if placed in the main body of the book

Summary

We define kanban scheduling as demand scheduling. 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.

To help in the implementation process we have proposed a seven-step process that will guide you through the implementation process. Keep these seven steps in mind as you progress through this book:

1. Conduct data collection
2. Calculate the kanban size
3. Design the kanban
4. Deploy the kanban
5. Train everyone
6. Audit and maintain the kanban
7. Improve the kanban

However, while these process steps will guide you through the implementation, the implementation of kanban does not happen in a vacuum it requires a team approach.

The biggest obstacle to implementing kanban is you. The fear of losing control, running out of material, and the ability of the operators keep many companies from ever starting the journey. Don't become part of this group recognize your own fears and put action plans in place to prevent these fears from being realized. Or, if your fear can't be prevented, then have a standard operating procedure in place to deal with the problem when it occurs.

To further improve your potential for successful implementation the chapter identified seven common characteristics of successful kanbans. The remainder of the book will expand upon these items and how they impact success.

To further aid you in the implementation process, we have developed a CD-ROM workbook. We have also included a series of appendixes covering special topics and illustrative case studies. These items will help reinforce and clarify the concepts in the main body of the book so that you can successfully implement kanban scheduling

Notes

1. Toyota Motor Corporation, The Toyota Production SystemLeaner Manufacturing for a Greener Planet, p. 19.

2. Taiichi Onho, Toyota Production SystemBeyond Large-Scale Production (Portland: Productivity Press, 1988), Chapter 1.

3. Onho, Toyota Production System, p. 123.

4. Onho, Toyota Production System, p. 89.

5. Michael L. George, Lean Six Sigma: Combining Six Sigma with Lean Speed (New York: McGraw-Hill, 2002), p. 38.

6. "Chasing the Make-To-Order Dream." White paper presented at the Logistics and e-Supply Chain Forum, 2001.

7. James P. Womack and Daniel T. Jones, Lean Thinking (New York: Simon & Schuster, 1996).