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Kanban System in Operations Management

Instructor: Elizabeth Wamicha

Elizabeth teaches undergraduate courses in Business and Information Technology for the last 7 years. She is currently on course to completing a Doctorate in Information Systems

In this lesson, you will learn the origin and definition of the Kanban system which can be used in production system of an organization to control inventory and increase efficiency. We will also discuss about two major methods that can be used to implement Kanban in an organization.

Definition of Kanban System

The word Kanban originates from the Japanese language and was developed by Taiichi Ohno, an engineer working for Toyota in Japan. The engineer wanted to create a simple system that would be used in controlling and managing inventory at every point of production. Kanban is a system which controls inventory and make production more efficient. This system provides opportunities to identify and improve production process.

Some advantages of the Kanban system are:

  1. Better visualization of any problems that might occur in the production cycle.
  2. Teams can communicate more efficiently due to the highly visual nature of the system.
  3. Achieve just-in-time (JIT) manufacturing by noting the lead time and cycle time of full production process.

The Kanban system reduces the idle time that is experienced in the production cycle making the team more efficient. Teams might be wasting time within the production cycle with issues like low stocks. All these challenges can be identified by the manager by implementing Kanban system.

Operations Management

In an organisation, there are different levels of demand for their products, suppliers who are unpredictable, lead times that are different, high number of parts, stocks that are not moving and other various complicated factors. The important thing is to understand how these complicated factors can challenge the system. The operations management triangle is a useful tool that helps in understanding these complicated factors.

The elements in Kanban that can be substituted in an operation include inventory, information, and capacity. If there is a shortage in any of the three elements, the easiest way of balancing it would be through increasing any of the elements.

The implication of Kanban on these elements are:

  1. Inventory: Kanban is used in operation management to keep the stock levels low and helps in controlling costs. However, inventory levels cannot simply be lowered without having information and capacity in place. It can be disastrous in the production line.
  2. Information: Two elements are related to information: How well can the information be collected on-demand for the product and how fast can the supplier deliver materials for an order? Strong communication between the customer and supplier is important to reduce the inventory levels. Kanban will be more accurate when the information collected is very reliable.
  3. Capacity: It is important to know the response time from the supplier when the inventory is ordered, as this helps to be more tolerant of lower inventories. In order to identify major supply issues with the suppliers, it's important to keep communication open.

In Operations Management, Kanban is used to define a reorder system that is undertaken through visuals. These visuals are easy to use and utilized to improve company operations while reducing inventory. Kanban can also assist in eliminating inventory shortages. We will now discuss the two methods used in the application of Kanban:

Two-bin System

One of the methods that can be used to apply Kanban in operations management is the Two-bin system. In this system the production team gets inventory from one bin, while a second bin has enough stock to cover production.

Let us take an example of an organization that manufactures motor vehicles. One part of the manufacturing chain will have employees that are fitting lights to the vehicles. The employees are provided with a container that has the lights they require for fitting. The stock of lights will be kept at a minimum so as not to clutter the working area; they would have a certain number of lights for a given period. Once the given lights are used, there would be a purchase card at the bottom of the bin and this card would go to the supplies department. The supply department would then go ahead and place an order of the lights. The lights in the second bin should be enough for the team to use until more lights have been purchased.

The Purchase Card can also go to the stores department where they would restock the lights from the stock they have in the stores. In this case the card does not need to be taken to the supplies department. Another method that can be used in this example is the one-bin system, where the shelf with the lights has a visible line or colour to indicate that it is time to reorder. Whatever lights are still available on the shelf should be enough for production until the new order of lights arrives.

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