What is the Kanban Inventory Management System?

The Kanban inventory management system (or Kanban) is a lean inventory control system widely used in just-in-time (JIT) manufacturing based on Kanban principles. It is a visual and pull-based inventory management system that originated from the Toyota Production System.

The Kanban inventory management system utilizes cards, bins, or other signals to indicate the status and quantity of inventory items at different stages of the production or distribution process. By visually representing the flow of materials, Kanban enables teams to manage inventory levels more effectively and respond to changes in demand. When managed by scanning barcodes, it’s an eKanban system.

The Kanban inventory management system’s main goal is to establish a smooth and efficient workflow. This is done by limiting work in progress (WIP) and ensuring that inventory is replenished only when needed. This minimizes waste, reduces lead times, and optimizes overall production efficiency.

The Kanban inventory management system is a powerful inventory control system that enables organizations to streamline their production processes, reduce waste, and improve overall efficiency to meet customer needs and changing market conditions.

Difference Between Scrum and Kanban

Scrum and Kanban are both popular agile project management methodologies, but they have some key differences. To help you differentiate Scrum from Kanban and vice versa, here are the main differences:

Focus

Scrum emphasizes time-boxed iterations called sprints. This is where a set of tasks is completed within a fixed period. Kanban, on the other hand, focuses on continuous flow, allowing tasks to be completed as they are ready without strict time constraints. This makes the Kanban inventory management system ideal for manufacturing processes.

Planning

Scrum requires detailed planning at the beginning of each sprint. Before each sprint, a defined set of tasks and priorities is set. However, Kanban has a more flexible approach to planning, allowing tasks to be added or removed as needed based on the current workload. This is why the Kanban inventory management system is flexible and can respond to customers’ needs.

Work in Progress (WIP) Limits

Kanban uses WIP limits to control the number of tasks that can be in progress at any given time. This prevents overload and promotes a smooth flow of work within your team. Scrum does not have explicit WIP limits or controls, but the team is expected to focus on a limited number of tasks during each sprint and communicate if they cannot finish tasks on time.

Roles and Responsibilities

Scrum has defined roles such as Scrum Master, Product Owner, and Development Team, each with specific responsibilities. The Scrum Master, for example, sets tasks and leads sprints. Kanban has fewer prescribed roles, allowing for more flexibility in team structure and responsibilities.

Iterative vs. Continuous Improvement

Scrum follows an iterative approach, with regular retrospectives at the end of each sprint to identify areas for improvement. Kanban, however, promotes continuous improvement by encouraging teams to regularly review and optimize their workflow. In Kanban, you reflect constantly throughout the process, not at the end of it.

Visualization

Both Scrum and Kanban use visual boards to track and visualize work. However, Kanban typically focuses on visualizing the flow of work through different stages, while Scrum visualizes the progress of tasks within a sprint.

The choice between Scrum and Kanban depends on the specific needs and preferences of the team, project, and industry. Scrum is well-suited for projects with fixed periods and a need for structured planning (i.e. software development), while Kanban is more flexible and adaptable to changing priorities and workloads (i.e. manufacturing).

Benefits of a Kanban Inventory Management System

It is hard to identify gaps in your supply chain, especially if your supply chain spans various warehouses, and even various countries. Hence, a Kanban inventory management system offers several benefits that help you align your manufacturing processes to your business objectives, such as:

Improved Inventory Control

Kanban provides real-time visibility into inventory levels. This allows businesses to maintain optimal stock levels. By using visual signals and setting inventory thresholds, Kanban helps prevent overstocking or stockouts, reducing carrying costs and improving overall inventory control. This helps to keep your warehouse clean and manufacturing lean.

Reduced Waste

Kanban focuses on just-in-time (JIT) inventory management. That means ensuring materials or products are replenished only when needed. This minimizes excess inventory, reduces waste, and frees up capital that would otherwise be tied up in inventory. This speeds up the manufacturing process, delivering faster turnaround times and reduced carrying costs. That’s right, save costs on storage, insurance, and more.

Increased Efficiency and Predictability

Kanban promotes a smooth flow of materials or products through the supply chain. By eliminating bottlenecks and reducing lead times, businesses can improve operational efficiency and responsiveness to customer demands. With a Kanban inventory management system, businesses have a better sense of risks and can plan to mitigate them before they slow down the manufacturing process.

Improved Communication and Collaboration

Kanban relies on visual signals and clear communication between different stages of the supply chain. This fosters collaboration and coordination among team members, suppliers, and stakeholders. Resultantly, leading to improved communication and a shared understanding of inventory needs. Because of this visual nature, the Kanban inventory management system also offers transparency into every stage and role of the manufacturing process.

Increased Flexibility, Adaptability, and Reporting

Kanban allows for flexibility; responding to changes in demand or production requirements. It enables businesses to adjust inventory levels and production schedules based on real-time data. This ensures that resources are allocated efficiently and effectively, which results in cost savings and increased productivity to meet customer demands.

Additionally, because of its basis on real-time data, the Kanban inventory management system can also produce status reports on the go. This is great for reporting and making data-informed decisions.

Continuous Improvement

Kanban encourages continuous improvement by regularly reviewing and optimizing the workflow. By identifying and addressing bottlenecks or inefficiencies, businesses can continuously enhance their inventory management processes and overall operational performance. This is particularly important during busy periods and ensures the manufacturing process can meet customer demand.

Customer Satisfaction

With improved inventory control, reduced lead times, and increased responsiveness, businesses can better meet customer demands and expectations, by delivering goods quicker, and higher in quality. This leads to higher customer satisfaction and loyalty. By speeding up the manufacturing process, customers can also get any problem with the product resolved a whole lot quicker.

Overall, a Kanban inventory management system helps businesses streamline operations, reduce waste, and improve efficiency. This leads to cost savings, increased productivity, and improved customer satisfaction.

Challenges of a Kanban Inventory Management System

We have highlighted the benefits of the Kanban inventory management system, but some manufacturing companies opt for alternative manufacturing models. While a Kanban inventory management system offers numerous benefits, it also has some challenges and disadvantages to consider:

Lack of Detailed Planning

The Kanban inventory management system focuses on a more flexible and adaptive approach to inventory management. However, this can sometimes result in a lack of detailed planning, which may be necessary for certain industries or projects that require strict timelines and resource allocation.

While the manufacturing process is based on data, it could be hard to make decisions because there is no set allocation. The deadline is simply meeting customer needs. This could be difficult to explain to the leadership team, too.

Limited Capacity Planning

Kanban does not explicitly address capacity planning or resource allocation. Without proper capacity planning, there is a risk of overloading teams or resources. Capacity planning is challenging in Kanban inventory management system because it is responsive and reactive in nature, not planned. This could lead to bottlenecks and inefficiencies.

Difficulty in Handling Seasonal or Fluctuating Demand

The Kanban inventory management system is designed for a steady flow of work. Hence, it may struggle to handle sudden spikes or fluctuations in demand. Without proper forecasting and capacity adjustments, businesses may face challenges in meeting customer demands during peak seasons or unexpected surges.

Dependency on Reliable Supply Chain

Kanban relies on a smooth and reliable supply chain to ensure the availability of materials or products when needed. Any disruptions or delays in the supply chain can impact the effectiveness of the Kanban inventory management system. Again, the lack of forecasting may lead to inventory shortages or production delays, causing customer dissatisfaction.

Limited Visibility for Complex Supply Chains

The Kanban inventory management system may face limitations in providing visibility. This could mean a lack of control for complex supply chains with multiple suppliers, distribution centers, or global operations. Managing and coordinating inventory across various locations and stakeholders can be challenging without robust systems and processes in place. This could result in increased manufacturing costs.

Potential for Understocking or Stockouts

While the Kanban inventory management system aims to prevent overstocking, there is a risk of understocking or stockouts. This is true if inventory thresholds are not accurately set or if demand patterns change unexpectedly. The reactive nature of the Kanban inventory management system and lack of forecasting can result in missed sales opportunities, customer dissatisfaction, and potential revenue loss.

Need for Continuous Monitoring

Kanban requires ongoing monitoring and continuous improvement to ensure its effectiveness. Without regular reviews and adjustments, the system may become stagnant or fail to adapt to changing business needs and market conditions. Therefore, regular check-ins and data reviews are important to ensure processes are working, which is time-consuming.

It is important to carefully assess these challenges. Consider the specific requirements of your business before implementing the Kanban inventory management system. Proper planning, monitoring, and continuous improvement efforts can help mitigate these disadvantages and maximize the benefits of the Kanban inventory management system.

How to Implement and Run a Kanban Inventory Management System

Implementing and running a Kanban inventory management system requires work. It may involve several steps like this:

Audit Your Current Inventory Management Process

Assess your existing inventory management process to identify pain points and areas for improvement. Understand the flow of materials or products, lead times, and inventory levels.

Define Workflow and Inventory Stages

Map out the different stages of your inventory management process, from procurement to production to distribution.

Set Inventory Thresholds

Determine the optimal inventory levels for each stage of the workflow. Set clear thresholds that trigger replenishment or production based on customer demand, lead times, and other factors.

Visualize the Workflow

Create a visual Kanban board or system to track the flow of inventory. Use cards or digital tools to represent each item or SKU. Move them across the board as they progress through the workflow stages.

Establish Kanban Signals

Define the signals or triggers that indicate when inventory needs to be replenished or produced. This can be a physical or a digital signal like reaching a specific inventory level in your inventory management software.

Implement Pull System

Adopt a pull-based system where inventory is replenished or produced only when there is a demand or signal from downstream stages. This helps prevent overproduction and reduces waste.

Set WIP Limits

Determine the maximum number of items or tasks that can be in progress at each stage of the workflow. This prevents bottlenecks and ensures a smooth flow of work.

Establish Communication and Collaboration

Foster clear communication and collaboration among team members, suppliers, and stakeholders involved in the inventory management process. Ensure everyone understands the Kanban system, their roles, and responsibilities.

Monitor and Measure Performance

Regularly monitor and measure key performance indicators (KPIs) such as lead times, inventory turnover, and customer satisfaction. Use this data to identify areas for improvement and make data-driven decisions.

Continuously Improve

Regularly review your Kanban inventory management system to identify opportunities for improvement. Encourage feedback from team members and stakeholders to optimize inventory management processes.

Provide Training and Support

Train employees and offer support and guidance to ensure everyone understands and follows the Kanban inventory management system effectively.

Adapt to Changing Needs

Be flexible to adapt to changing customer demands, market conditions, and business requirements. Continuously adjust inventory thresholds, WIP limits, and workflow stages to optimize inventory management.

Remember that implementing a Kanban inventory management system is an iterative process. It may take time to fine-tune and optimize the system based on your specific business needs and challenges. Regularly review and refine the system to ensure its effectiveness and alignment with your goals.

History of the Kanban Inventory Management System

The Kanban inventory management system was developed by Taiichi Ohno, an industrial engineer at Toyota. This happened in Japan, during the 1940s and 1950s. The system is named after the colored cards that are used to track production and order new shipments of parts or materials as they are depleted.

The Kanban inventory management system was and remains an integral part of the Toyota Production System (TPS). This has helped Toyota Motor Corporation improve production efficiency and minimize waste.

One of the challenges TPS faced was overproduction. This occurs when goods are manufactured more than demand. This leads to surplus inventory and ties up capital and storage space; resulting in waste which is unsustainable.

The manufacturing industry has always had a big waste problem, even in the 1950s, but it has been amplified in recent years. To address this issue, Taiichi Ohno devised the Kanban inventory management system. Its purpose was to regulate inventory levels, prevent overproduction, and identify supply chain gaps – especially if your supply chain involves various warehouses that may even be in various countries.

The system employed visual signals, such as cards, to communicate inventory status and requirements across various stages of the supply chain. When inventory levels reached a specific threshold, a Kanban signal would be triggered, indicating the need for additional production or ordering.

Over time, the Kanban inventory management system underwent further refinement and improvement. Eventually, the Kanban became a fundamental element of the TPS philosophy.

Subsequently, it was adopted by numerous manufacturers and businesses worldwide, beyond the car industry. Despite its origins in Toyota and Japan, many manufacturing businesses use the Kanban inventory management system to improve inventory management and production efficiency.

Today, the Kanban system remains widely utilized as an inventory management technique and serves as a cornerstone of lean manufacturing principles. Today, the system is more automated, coining the term eKanban. It is also used by top manufacturing companies – some may surprise you – like Nike, Pixar, Zara, Starbucks, and so many more.

Must-Know Kanban Inventory Management Vocabulary

The Kanban Inventory Management System is unique – so unique that it has its own set of vocabulary. You have already seen some of it above. Here are some expert terms to know so you sound like a Kanban pro:

Pull System

A fundamental concept in Kanban that refers to a system where work is pulled based on actual demand, not forecasts. Therefore, inventory is replenished only when needed, reducing waste and improving efficiency.

Kanban Card

A physical or digital signal used to represent a specific item or task in the Kanban system. It contains information such as item details, quantity, and location, and is used to trigger the replenishment or production of that item.

Kanban Board

A visual representation of the workflow in a Kanban inventory management system. It consists of columns representing different stages of the process, and cards are moved across the board as work progresses.

WIP (Work in Progress)

Refers to the number of tasks or items being worked on but not yet completed. In Kanban, limiting WIP is crucial to prevent overburdening the system and maintain a smooth flow of work.

Lead Time

The total time it takes for a task or item to move through the entire Kanban inventory management system, from start to completion. It includes the time spent actively working on the task and any waiting time.

Cycle Time

The actual time it takes to complete a task or item, excluding any waiting time.

Replenishment

The process of restocking inventory or materials based on Kanban signals.

Just-in-Time (JIT)

A manufacturing philosophy that aims to produce or deliver items at the exact time they are needed, eliminating waste and reducing inventory holding costs. It is the core of the Kanban inventory management system.

Takt Time

The rate at which items need to be produced or delivered to meet customer demand. It is calculated by dividing the available production time by the customer demand within that time period. Takt time helps synchronize production with demand and maintain a balanced workflow.

Kaizen

A Japanese term that means continuous improvement that refers to the ongoing effort to identify and implement incremental improvements in processes, systems, and workflows by encouraging employee engagement and continuous learning.

Bottleneck

A stage or resource in a process that limits the overall capacity or flow of work. It is the slowest or most constrained part of the system and can cause delays.

Kanban Pull Signals

Visual cues, such as cards, lights, or electronic notifications, used to indicate the need for replenishment or production. These signals are triggered when inventory levels reach a predefined threshold.

Heijunka

A technique (also known as production leveling) used in Kanban to balance production or workload across different periods or resources. This eliminates fluctuations and achieves a consistent, predictable flow of work, reducing waste and improving efficiency.

Gemba

A Japanese term that refers to the practice of going to the actual work area or location to observe and understand the current state of operations.

By familiarizing yourself with these terms, you will gain a deeper understanding of the Kanban inventory management system and how to implement it successfully. Whether you are a beginner or an experienced practitioner, these terms are great to know or refresh!

The Future of Kanban Inventory Management Systems

A Kanban inventory management system offers numerous benefits for businesses. Kanban enables organizations to streamline their inventory processes, reduce waste, and improve overall efficiency. With its focus on just-in-time inventory replenishment, Kanban helps minimize excess inventory and associated carrying costs while ensuring that materials are available when needed.

Looking ahead, the future of Kanban inventory management systems is promising. We can expect to see more sophisticated digital Kanban solutions that integrate seamlessly with other business systems, such as ERP and CRM. These advancements will further enhance visibility, automation, and collaboration within the supply chain, enabling businesses to optimize their inventory management practices and respond swiftly to changing market demands.

As businesses strive to stay competitive in today’s fast-paced and dynamic market, adopting a Kanban inventory management system can provide a strategic advantage. By embracing this lean methodology, organizations can achieve greater operational efficiency, cost savings, and customer satisfaction. The future of inventory management lies in the continuous improvement and optimization offered by Kanban, making it a valuable tool for businesses of all sizes and industries.