Introduction to Kanban - ADDVALUE - Nilesh Arora

1. “Kanban” by Best Performing Consulting Organization AddingValueInTotality!!

2. 看板 – Kanban • 看板 – Kanban literally means “visual card,” “signboard,” or “billboard.” • Toyota originally used Kanban cards to limit the amount of inventory tied up in “work in progress” on a manufacturing floor • Not only is excess inventory waste, time spent producing it is time that could be expended elsewhere • Kanban cards act as a form of “currency” representing how WIP is allowed in a system.

3. What is Kanban Kanban means many things. Literally, Kanban is a Japanese word that means "visual card". At Toyota, Kanban is the term used for the visual & physical signaling system that ties together the whole Lean Production system. Kanban as used in Lean Production is over a half century old. It is being adopted newly to some disciplines as software.

4. Production Kanban (non lot production) Instruction Triangle Kanban (for lot production) Kanban Interprocess Kanban Withdrawal Supplier Kanban Categories of Kanban

5. Rules of the Kanban • Never Pass on A Bad Part • The Parts Are Always Withdrawn From The Prior Process • Produce Only What Is Necessary To Replenish The Quantity Withdrawn • Level Load Production, Rapid Changeover, Small Lot Production, Zero Defects • Kanban Is Used To Fine Tune (Not Provide For Major Changes) • The Process Must Be Capable Of Producing Good Parts (Rational And Stable) • Need Efficient Methods Of Transportation, Shortest Routes Possible • Disciplined Organization • Nothing Is Made or Transported Without A Kanban. • Kanban Cards Always Accompany the Parts Themselves. • The Number of Kanbans Should Decrease over time.

6. No Cards Visual (Tape On Floor) Two-Bin or Bin Systems Supplier Containers Painted floors, i.e. squares, circles Card Systems Electronic Kanbans - Fax or Emails Warehouse Or Parts Racks Kanban Boards – Magnetic or Cards Containers Flow Thru Racks Supplier Boxes Kanban Options

7. How does Kanban work? There are many flavors, but the core of Kanban means: • Visualize the workflow • Split the work into pieces, write each item on a card and put on the wall. • Use named columns to illustrate where each item is in the workflow. • Limit WIP (work in progress) – assign explicit limits to how many items may be in progress at each workflow state. • Measure the lead time (average time to complete one item, sometimes called “cycle time”), optimize the process to make lead time as small and predictable as possible. This is a direct implementation of a lean pull scheduling system.

8. Example Kanban

9. Kanban The implementation of a kanban system, as well as other lean manufacturing methods, like 5s, and kaizen, can have significant benefits for almost any type of work. Kanban is faster, more efficient, and saves significant money over most other production models. A kanban system is also far more directly responsive to customer demand. Kanban is a system that visually indicates when production should start and stop.

10. Kanban Examples

11. Double sided racks. Variable size stackable bins Stacking bins, when top is empty, remove and start using the bottom bin.

12. Double sided racks

13. Special twinbins, top holds second inventory, when bottom is empty, pull middle lever that allows top inventory to drop into lower bin, flag pops up identifying upper bin needs to be refilled.

14. Stacked supply Reserve supply behind

15. INVENTORY MIN-MAX

16. What are Inventories? • Finished product held for sale • Goods in warehouses • Work in process • Goods in transit • Staff hired to meet service needs • Any owned or financially controlled raw material, work in process, and/or finished good or service held in anticipation of a sale but not yet sold

17. What are Inventories? Finished goods Customers Material Inbound Production Outbound warehousing sources transportation transportation Receiving Production materials Inventories in-process Shipping Finished goods Inventory locations

18. Reasons for Inventories • Improve customer service • Provides immediacy in product availability • Encourage production, purchase, and transportation economies • Allows for long production runs • Takes advantage of price-quantity discounts • Allows for transport economies from larger shipment sizes • Act as a hedge against price changes • Allows purchasing to take place under most favorable price terms • Protect against uncertainties in demand and lead times • Provides a measure of safety to keep operations running when demand levels and lead times cannot be known for sure • Act as a hedge against contingencies • Buffers against such events as strikes, fires, and disruptions in supply

19. Reasons Against Inventories • They consume capital resources that might be put to better use elsewhere in the firm • They too often mask quality problems that would more immediately be solved without their presence • They divert management’s attention away from careful planning and control of the supply and distribution channels by promoting an insular attitude about channel management

20. Types of Inventories • Pipeline • Inventories in transit • Speculative • Goods purchased in anticipation of price increases • Regular/Cyclical/Seasonal • Inventories held to meet normal operating needs • Safety • Extra stocks held in anticipation of demand and lead time uncertainties • Obsolete/Dead Stock • Inventories that are of little or no value due to being out of date, spoiled, damaged, etc.

21. Nature of Demand • Perpetual demand • Continues well into the foreseeable future • Seasonal demand • Varies with regular peaks and valleys throughout the year • Lumpy demand • Highly variable (3  Mean) • Regular demand • Not highly variable (3 < Mean) • Terminating demand • Demand goes to 0 in foreseeable future • Derived demand • Demand is determined from the demand of another item of which it is a part Accurately forecasting demand is singly the most important factor in good inventory management

22. Pull vs. Push Inventory Philosophies PUSH- Allocate supply to each PULL - Replenish inventory with warehouse based on the forecast order sizes based on specific needs for each warehouse of each warehouse Demand forecast Warehouse #1 Q 1 A 1 Demand A Q 2 2 forecast Plant Warehouse #2 A 3 Q 3 A = Allocation quantity to each warehouse Demand Q = Requested replenishment quantity forecast by each warehouse Warehouse #3

23. Costs Relevant to Inventory Management • Carrying costs • Procurement costs • Out-of-stock costs

24. Procurement costs • Price of the goods • Cost of preparing the order • Cost of order transmission • Cost of production setup if appropriate • Cost of materials handling or processing at the receiving dock

25. Carrying Costs • Cost for holding the inventory over time • The primary cost is the cost of money tied up in inventory, but also includes obsolescence, insurance, personal property taxes, and storage costs • Typically, costs range from the cost of short term capital to about 40%/year. The average is about 25%/year of the item value in inventory.

26. Out-of-stock costs • Lost sales cost • Profit immediately foregone • Future profits foregone through loss of goodwill • Backorder cost • Costs of extra order handling • Additional transportation and handling costs • Possibly additional setup costs

27. Inventory Holding costs Customer Service , i.e., Stock Availability Inventory Management Objectives • Good inventory management is a careful balancing act between stock availability and the cost of holding inventory. • Service objectives • Setting stocking levels so that there is only a specified probability of running out of stock • Cost objectives • Balancing conflicting costs to find the most economical replenishment quantities and timing

28. Typical Inventory Conflicting Cost Patterns Total cost Minimum cost reorder quantity Cost Carrying cost Procurement cost Stockout cost Replenishment quantity

29. Reorder Point Control for a Single Item Quantity on hand Q Demand During LT Place order Q ROP Receive order P 0 Stockout LT LT Time

30. Reorder Point Control Quantity on hand +on order backorders Quantity for control Actual on hand Inventory level Q ROP Safety stock 0 Time LT LT

31. Periodic review control with demand uncertainty M T = review interval q = quantity on hand Qi = order quantity Q2 Q1 Quantity on hand ~ q Stock level reviewed Order received 0 M = maximum level M - q = replenishment quantity LT = lead time Time LT LT T T

32. Performance Metrics - Turnover Ratio

33. What are the benefits of Kanban? Some commonly observed benefits are: Bottlenecks become clearly visible in real-time. This leads people to collaborate to optimize the whole value chain rather than just their part. Useful for situations where operations and support teams have a high rate of uncertainty and variability. Tends to naturally spread throughout the organization to other departments such as HR and sales, thereby increasing visibility of everything that is going on at the company.

34. Benefits of Kanban Reduce Inventory Kanban will reduce inventory, on average, by 25 to 75%. This saves any company significantly in terms of rent, electricity, and storage space. In addition, all of the space freed by the implementation of a kanban system can be used for future expansions or new opportunities

35. Benefits of Kanban Improve work flow The visually organized environment ensures all parts are easily found and continually stocked. The speed of moving from one task to another is significantly reduced by the creation of clearly marked flow lanes, kanban cards, and clearly marked labels.

36. Benefits of Kanban Prevent Overproduction Because parts are only created at the visual signal by the kanban label (link), inventory is much less likely to be overproduced. Resulting in significant savings in the holding of stock.

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