Careers Business Ownership What Is Kanban? What You Need to Know About Kanban Share PINTEREST Email Print alvarez / Getty Images Business Ownership Operations & Success Supply Chain Management Sustainable Businesses Operations & Technology Marketing Market Research Business Law & Taxes Business Insurance Business Finance Accounting Industries Becoming an Owner By Gary Marion Gary Marion LinkedIn Twitter Director of manufacturing University of South Alabama Gary Marion wrote about supply chain and logistics for The Balance Small Business. With over 20 years of experience, he is the director of manufacturing at Providien. Learn about our Editorial Process Updated on 01/08/21 Kanban is a supply-chain optimization tool that businesses can use to improve efficiency. It is a lean or just-in-time manufacturing system in which only the components and inventory needed at that moment are replenished. This helps companies improve production while lowering inventory. Learn more about how kanban works and how it can improve your production efficiency. What Is Kanban? Kanban is a scheduling system that is used in lean processes and just-in-time inventory replenishment programs to help companies improve their production and reduce their overall inventory. Kanban was developed by Toyota after World War 2 (“kanban” means “signboard” or “billboard” in Japanese). It gained wide acceptance in the west during the 1970s. In traditional kanban, employees use visual signals to tell how much to run during a production process. Visual signals also let them know when to stop or change over. The process replaces forecasted usage with actual usage so that there is very little work-in-progress material. The work or production job enters the process and proceeds through it smoothly and continuously. The kanban process created by efficiency by reducing: Work in progressRe-workAny other delays in the manufacturing process How Kanban Works Because of kanban’s real-time, visual signaling, each area on the production line pulls just enough components or raw material and the correct type of components that the process requires. This is done at exactly the time they are needed, rather than requiring companies to have a projected amount of material on hand which may prove unnecessary. Kanban needs an accurate inventory in order to be effective, so other tools like cycle counting and physical inventories need to be integrated. The trigger for doing this “pull” is the kanban card. A kanban card can be: A physical cardSome kind of electronic signalOther visual signals To eliminate manual errors and lost cards, in today’s world many are electronic. Barcodes are scanned instead of the use of physical cards. The key to an efficient kanban system is the constant calculation and re-calculation of kanban bin sizes (number of units in each kanban) and also the number of kanban bins. An example of a simple kanban system implementation is a "three-bin system" for the supplied parts, where there is no in-house manufacturing. One bin is on the factory floor (the initial demand point)One bin is in the factory store or internal warehouse (the inventory control point)One bin is at the supplier. When the factory floor kanban bin empties (because the parts in it were used up in a manufacturing process), the kanban system sends a signal to the factory store or internal warehouse for kanban replenishment – which signals the supplier to do the same. The empty bin and its kanban card are returned to the factory store or warehouse (the inventory control point). The factory store replaces the empty bin on the factory floor with the full bin from the factory store, which also contains a kanban card. The factory store sends the empty bin with its kanban card to the supplier (usually electronically these days). The supplier's full product bin, with its kanban card, is delivered to the factory store; the supplier keeps the empty bin. This is the final step in the process. Thus, the process never runs out of product. The kanban process provides the exact amount required, with only one spare bin so there is never oversupply. This 'spare' bin allows for uncertainties in supply, use, and transport in the inventory system. Your kanban system will be more effective if it incorporates an agile supply chain. Types of Kanban There are variations in the types of kanban systems that companies can choose to use. Production (P) kanban: A P-kanban authorizes the work center to produce a fixed amount of product. The P-kanban card is carried on the containers that are associated with it.Transportation (T) kanban: A T-kanban authorizes the transportation of the full container to the downstream workstation. The T-kanban card is also carried on the containers that are associated with the transportation to move through the loop again. In some high volume operations, a kanban size might be a single production run, while the supplier is mandated to have two or more kanban bins available. This also happens if the supplier has a long lead time for their replenishment of the bin. Most optimized supply chains have kanban within their core processes. Key Takeaways Kanban is a supply-chain optimization tool that businesses can use to improve efficiency and reduce inventory. It is a lean or just-in-time manufacturing system in which only the components and inventory needed at that moment are replenished.In traditional kanban, employees use visual signals, or kanban cards, to tell how much to run during a production process, as well as when to stop or change over. Today, most kanban cards are electronic.The kanban process provides the exact amount required, with only one spare bin so there is never oversupply. This 'spare' bin allows for uncertainties in supply, use, and transport in the inventory system.