Kanban: When to Use it in Your Manufacturing Operations

Kanban is a communication system that controls the flow of the shop, and synchronizes the level of production to customer demand. Kanban is a visual system that allows everyone to see the flow, and to adjust to the level it is set at. Kanban uses signals to determine when an operation should start the next activity, and these signals can be cards, containers, emails or electronic notices. At its simplest, Kanban is similar to a two bin system, where an order for activity occurs when the first bin is empty.

Where should it be used?

Kanban can be used effectively in circumstances where demand is relatively stable (plus or minus 10 or 30%), and operations are not shared on multiple product lines with variable demands. Kanban is similar to lean manufacturing, but allows Kanban quantities to exceed the lot size of one. This allows for some flexibility in the shop for unexpected events, but not enough to overload the shop with excessive inventory. Of course, the goal of Kanban is to continuously lower the Kanban quantities through improvement of the shop processes that are causing the problems.
Like other manufacturing systems (MRP, Lean, etc), Kanban is only applicable where there is little variance in execution. For example, raw material shortages of vendors, or downtime of equipment, etc, can shut down the entire production sequence.

How does it work?

With the Kanban system, time is no longer wasted, money is no longer scarce, customers will no longer question, and quality will never be questioned. A Kanban system is one way of achieving Just-in-time (JIT) production. It works on the premise that each process on a production line pulls just the number and type of components the process requires, at just the right time. The mechanism used is a Kanban signal. This is sometimes a physical card but other methods can be used.

What does a Kanban signal look like?

Content

The identity of the item that should be stocked “on this shelf”
The reorder quantity
“To whom” to send the order
Any other information that that may be needed by the person making that order

Mediums

Cards- This was the original approach for Kanban, and placed a physical card with each container of materials. As each container emptied at the operation, it was passed back to the previous operation to be refilled.
Email- Although not a common approach, the Kanban system can be run with simple email notifications of empty Kanban container.
Electronic- A more recent and popular approach is the use of data collection tools to assist the Kanban system. When containers are emptied, the bar codes on the containers are scanned, which triggers the replenishment cycle. The electronic version also allows easy adjustment of kanban quantities for changes in customer demand or production improvements.

What are some of the Kanban benefits?

Leveling of production: By setting Kanban quantities that tie back to customer demand levels, the entire shop is set to those exact demand quantities. This provides insight into the exact flows necessary, and facilitates easy continuous improvement to those quantities.
Lowering of WIP- By coordinating the production of each operation to the demand coming from the next operation, the WIP inventory is limited to that of the Kanban settings. With continuous improvement, these Kanban quantities are slowly reduced as problems are resolved. The end result is minimal inventories.
Lowering of paperwork/planning: Since the Kanban system runs on the Kanban signal (card, container, or other signal); there is no need for shop orders, production floor scheduling and the like. The only planning necessary is the readjustment of Kanban quantities for demand changes or improvements on the shop floor.
Optimize the flow of work: Imagine the ease of structuring work flows with steady demand needs. Each operation can be based on a certain quantity, and optimized for that quantity. For example, the right machine can be employed to produce that quantity of parts (not too big and expensive, and not too small to cause cycle time problems). Kanban allows you to structure the right capacity. Optimizing the flow of work also minimizes queue time, since each operation is designed to produce that exact quantity. Optimizing the flow has one last benefit in producing JIT like inventory movement. Items are produced when demanded from the next sequential operation, and therefore arrive exactly as needed.
Focuses on a common goal: One of the unexpected successes of Kanban is the benefits from everyone’s insights into the common goal of the shop. Employees can see their contribution towards the customer demand, and work to stringently meeting those demands. Previously, the best insights for each employee were the individual goals of their own operations. Kanban provides visibility for everyone.
More cash: Of course, one of the benefits of lower inventories is an increased level of cash. This cash results from the lack of investment into inventories.
Less handling: When you can plan your shop strictly to level demands, you can also plan the layout of your shop to improve handling productivity
Improved quality (less inventory before discovery): One of the tenets of Kanban is the practice of not sending poor quality down the line. This combined with less WIP, means there are less parts produced when quality problems are found. The fewer items produced with problems, lowers the cost of rework or disposal.
Accuracy of inventory, and reduced obsolescence: When inventory is produced only to demand, there is less of it on the shop floor. Accuracy is improved since repetitive quantities are used, which makes the quantity more visible. It is not unusual for containers to hold a fixed quantity, making it easy to identify missing components.

What are some of the Kanban limitations?

Variability of demand-customer or suppliers: Variability can be a problem with Kanban. Production is optimized to a certain level of production, and it is difficult to change that level in the short run. In instances where customer demand changes rapidly (+ or – 10-20%), Kanban may not be the best choice.
For suppliers, variability in their deliveries can cause shut downs on the shop floor. There is little room for errors that turn into missed deliveries.
Ability to adjust capacity: Since Kanban focuses on leveling of production, the shop becomes structured to work with certain levels of production. If the levels of production are to spike or increase significantly, the shop can have trouble responding.
Complex multi -use operations: If the operations on the shop floor see demands from many different product lines, Kanban use may be prohibitive. This particularly happens in bottleneck operations, where the operation cannot provide the materials in the time expected. This also happens in products were the routing of each of the different products varies significantly. Typical types of operations that do not work well with Kanban are MTO, ETO, and other onetime production methods.
High setup times or cost: Although the goal is to continuously reduce setup times, there still are areas where the set up times remain high. Kanban targets can conflict with the premise of frequent high cost set ups, and potentially cause high production costs. These costs need to be balanced against the benefits of Kanban to determine the most effective way to go.
Pain in setup and finding optimal flow quantities: Kanban implementation is a slow process of setting quantities, finding problems, making process improvements, and resetting goals. Although this process leads to a continuous improvement effort, it can be painful until the right Kanban levels are eventually found. Many people compare this process to lowering the level of water in a river, finding the rocks, removing them, and lowering the level of the river again. Many a boat can be damaged until the lowest workable level of the river is found.
Breakdowns stop the whole line: Due to the low levels of WIP (a good thing); machinery breakdowns can also be painful. Again, with the sequential dependencies of Kanban, and the low levels of inventory, plant shutdowns are possible with unexpected machine breakdowns. Use of a good CMMS system is necessary with monitoring of breakdown trends, fix before break, and healthy preventative maintenance.
Does not encourage individual productivity, focuses on general goals: This limitation has a mixed blessing. Having group goals and the visibility to see their progress is a huge benefit of Kanban (see above). However, group goals do have a limitation, in that the individual is not recognized for their specific contribution, and lost in the group performance. This has been shown as one of the draw backs of other motivational systems, such as profit sharing.
What to do with excess labor or machine time: Not all operations run at the same speed, and Kanban’s steady pace can leave some operations with excess capacity. This is perfectly acceptable for low cost operations, but needs review where expensive equipment is involved.
Variability in quality: As with variability in any component of Kanban, poor quality can also cause plant shutdowns. If you are going to produce the exact quantities needed to meet customer demand, any quality deviations could cause a disruption in the meeting of that demand.
Poor execution: As in any production planning and control system, Kanban is dependent on top level execution of all activities. Most interruptions in material availability, equipment uptime, quality rework, etc. will cause the entire production sequence to shut down. There is little inventory to dampen poor execution.

Kanban with ERP

Kanban works very well with an ERP system that has been enabled with the correct features. People find that updating the Kanban usage is much easier with the scanning of container barcodes rather than the passing of physical cards. Cards that would have been manually recorded to the financial and other business systems can now be done automatically. This electronic method also allows instant adjustability of Kanban quantities when customer demands change (rather than reissuing manual cards). Following are some key areas where a Kanban module can be used to efficiently complement an ERP system. The ERP Kanban module would:

Allow creation of Kanban circuits to provide paths from procurement to customer receipt.
Generate/Manage Kanban Card Issuance
Provide Electronic (Bar Code) Scan of cards
Trigger Inventory Transfer as each Kanban is emptied
Trigger Production Receipt & Backflush (shop order-less)
Trigger Purchase Order/Release, Notification and Receipt
Provide History of Kanban Activity with Cycle Time Tracking
Seamlessly interface with Customer Order Processing and Purchasing Modules
Provide Calculation of Kanban Qtys/# Cards from MRP Planning System

Electronic Kanban Card

An example of an electronically produced Kanban card with Bar Code
Courtesy: Workwise, Inc.

The Secret to Success- Applying the right tool to the right circumstances

Kanban can be an exceptional tool under the right circumstances. When there is little fluctuation in customer demand, and few multiple demands on the same equipment for different products, it is a wonderful tool for scheduling and controlling the shop. The flows become smooth, visibility is increased, and consistency makes it easy to achieve great results.

However, when exceeding the parameters of variability, the Kanban system can quickly prove ineffective.

One perspective that is often overlooked, is the review of tasks within operations in which Kanban can be applied successfully. The customer demand may fluctuate too much to use Kanban universally across the shop, but there may be pockets of activities where Kanban may be quite appropriate. For example, your finished goods may have variability for each of the products, but, may have a core group of parts and operations that apply to all products. If the total demand for this core is relatively stable, you may be able to set up these operations in a Kanban system. You could then secure the benefits of Kanban in a major section of your product. You could also consider using a product configurator to separate the variable components from the core (Product Configuration: Zero Inventories?). You may also want to divide up your operations in other creative ways where the circumstances are appropriate.

The secret to success in manufacturing is to analyze your operations and to apply the most beneficial tool possible. There will be areas where lean manufacturing, or Kanban, or MRP or other tools will provide superior results. And, there will also be times where the simple broad brushed application of just one of these methods may cause damage to certain areas of the business. Choose wisely with the right integrated tools.

One last thing to keep in mind is that no tool can operate effectively without good execution. If your suppliers are always late, or your equipment often broke down, or other uncontrolled variability occurs, no tool will help you. Quality execution is always the first premise of success with any tool.As the Biblical expression says, “Give unto Caesar, the things that are Caesar’s”. Discrete manufacturers should apply Kanban where applicable, use MRP/Shop Orders where applicable, and strive for excellence always, and in all ways.