Kanban: Why, Where & How?
Before I knew any Japanese, I knew Domo Arigato meant ‘thank you very much’ — Domo Arigato to Dennis DeYoung and Styx for that bit of early multi-lingual education.
Now, sadly, I still know very little Japanese. But I know that Kanban roughly translated means ‘visual signal’, thanks in large part to the huge popularization of lean and “The Toyota Way.” While this popularity has rocketed Kanban up the list of “common Japanese words known by non-Japanese speakers from Oklahoma” (like me), Kanban should not mean “supply chain panacea” as some supply chain folks would have us believe.
Kanban is a very powerful inventory replenishment tool in the right setting, but is not the right tool for all inventory items in all settings. This isn’t an attack on Kanban; I would say the same thing for any supply chain methodology. Multiple approaches and tools are required to build a world class supply chain because rarely is there a “one size fits all” answer that delivers supply chain optimization. Ok, if I’m going to tell you it doesn’t belong everywhere, then I owe you our view of where it is best used and how to get the most out of Kanban as a replenishment tool. For those interested in a quick recap of Kanban, follow this link: What Is Kanban?
The Power of Kanban
Kanban is an effective and simple visual method of signaling replenishment that is robust, easy to train and easy to execute. One of the best aspects of Kanban is that it works even when system inventory accuracy is suspect. This explains in part its popularity on the factory floor where inventory consumption in the system often lags physical use of inventory – causing the system to show available stock that has already been used in the manufacturing process.
Kanban’s popularity as a replenishment method has exploded due to its reliability and simplicity. In any environment where replenishment cycles are short with close proximity to the replenishment source (e.g. stockroom or supplier) Kanban is an excellent, demand-driven replenishment method. In addition, it can be a very quick, efficient replenishment mechanism for execution by material handlers, and replenishing Kanban locations in a factory is often completed multiple times per day.
The evolution and improvement of e-Kanban solutions has addressed or mitigated issues that previously limited Kanban to close-proximity sources of supply. Still, e-Kanban solutions are limited in many ERP packages, whereas other replenishment methods are more widely supported and available. When using Kanban in situations where suppliers are not in close proximity or have relatively long replenishment cycle times, two bin Kanban drives significantly higher inventory than other replenishment methods. Multi-card Kanban avoids this inventory impact but is less commonly used and potentially less commonly supported in ERP systems. Given these limitations, even with the advent of e-Kanban solutions, our recommendation is to limit Kanban to high-turn replenishment with close proximity sources of supply.
In settings where inventory control and accuracy are high, such as a physically restricted stockroom with limited shrinkage and tight transactional controls, other replenishment methods can provide better inventory results than Kanban. In addition, when demand volatility is high with longer lead times, Kanban can increase the volatility felt by suppliers and increase average on-hand inventory over other replenishment methods.
This is why you often see manufacturers employ a hybrid replenishment approach: Kanban to replenish factory floor inventory from the stockroom but another method such as Min-Max, reorder point, or MRP with safety stock to drive replenishment of the stockroom by external suppliers. See illustration below:
Replenishment Suppliers to Stockroom
Electronic: ROP, Min-Max, MRP
Accurate, controlled inventory
Replenishment Stockroom to Factory Floor
Kanban: Visual, simple, reliable
System inventory balances in factory are not always accurate but replenishment
Kanban Sizing via Right Sized Inventory
Right Sized Inventory provides the analytical solution to optimally set the right Kanban quantities for each of your items and dynamically update those Kanban parameters as demand changes. However we also support six other replenishment methods because we believe that no one replenishment method is right for all situations.
As an RSI customer you can use different replenishment methods for different items in the same location. Or you can use different replenishment methods for the same item in different locations. We also make it very easy for you to run ‘what if’ scenarios to see the impact of various replenishment methods on average inventory levels. Once target inventory levels are determined and accepted, those levels are linked back to your existing IT infrastructure to drive ongoing replenishment activity. The important thing is that you employ the replenishment method that best fits your physical inventory environment, preferred operational processes and current IT system capabilities.
What Is Kanban?
Generically, Kanban can refer to any environment where the need for replenishment is signaled by a manual, visual signaling method that does not rely on system transactions, inventory levels or consumption triggers. Another consistent aspect of Kanban is that each bin / container / card contains the same quantity. This type of replenishment method is sometimes referred to as “Fixed Quantity; Variable Frequency”. In other words, when you signal replenishment, you always request the same quantity of units. However, you will not always signal replenishment on a consistent frequency. This is contrasted with methodologies generically called “Fixed Frequency; Variable Quantity” where you might order once per week on the same day each week but order only the quantity consumed during the previous week, which will of course vary as demand varies.
Two common examples:
In this replenishment method, two bins or containers of any shape or size are used to store inventory. Each bin / container has the same unit quantity, known as the “Kanban quantity.” When a bin is empty, a simple visual method is used to signal the need for replenishment. These methods can include a red “stockout” sign as shown in the image included here. Another common method is to turn the empty bin upside down. Material handlers make regular patrols through the factory to look for replenishment signals. In many cases, the actual empty bin will be brought back to the stockroom to be refilled and returned to the factory stocking location. Two-bin Kanban can also be deployed electronically with a “bin empty” signal manually triggered within an e-Kanban solution or module. This can be very practical where the distance between stockroom and stocking location is too great for empty containers to efficiently travel back and forth.
In this replenishment method, multiple cards are used to represent quantities for replenishment. Each card contains a Kanban quantity which is the same on all cards. The cards themselves are the signals for replenishment and usually travel between a Kanban board and a work center, stockroom or nearby supplier. Multi-card Kanban functions very similar to 2-bin Kanban except that there are usually more than 2 cards active in the system for each item. This method is often used in situations where the cycle time to replenish a Kanban is long enough that 2-bin Kanban would drive Kanban quantities that are too large. Distributing the work across multiple cards results in smaller Kanban quantities with more frequent replenishment.