Kanban Inventory: System & Process

Instructor: Saranya Ramachandran

Saranya has a Bachelors in Science focused on Electronics and Telecommunication and a Masters in Business Administration. She has 8 years of Project Management Experience and is PMP Certified.

Kanban inventory is a system of lean manufacturing where production happens with the least amount of inventory. Instead of stocking huge amounts of inventory, a signal is used to re-order the inventory as they get used up in the production process.

History of Kanban

An industrial engineer by the name of Taichi Ohno observed how supermarkets handle their inventory. He wanted to replicate it in his manufacturing process. A lot of waste could be eliminated by keeping the inventory and labor at the minimum level required. Out of this approach, the Kanban process was formed for inventory management. Kanban is also very closely related to Just in Time Methodology which produces the product only based on the demand. Kanban is also related to Lean Manufacturing methods that eliminate waste and keep processes efficient.

How Kanban works

A supermarket only restocks items based on the quantity it hopes to sell. The Kanban methodology uses terminology such as downstream and upstream to indicate where the pull typically happens. For instance, in order to manufacture a part, an inventory may be required. The team that manufactures the new part will be called upstream, and it orders from the downstream only the amount of inventory that is required to manufacture the part.

The manufacturing companies followed a similar approach while engaging a few more rules on how the Kanban system works:

  • Orders for parts are placed upstream for exact quantities required by downstream.
  • Upstream produces only the quantity ordered by downstream. The sequence specified by the Kanban is also followed.
  • Items will be accompanied by Kanban.
  • Defective items are removed and never processed as part of the order.
  • As the inventory gets used up, Kanban is reduced to reflect the actual quantity.

Advantages of using Kanban

The major advantage of using the Kanban system is the cost savings due to reduced inventory and the space that is also saved as a result of reduced storage cost. The Kanban system also uses pull approach where demand drives production, thus eliminating any risk of overproduction. Using the Kanban system, managers know exactly where they stand in terms of inventory, and hence it is a great reporting tool.

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