Kanban Examples - ADDVALUE - Nilesh Arora

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Kanban
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?? Kanban

• ?? 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.

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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.

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Categories of Kanban
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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• The Parts Are Always Withdrawn From The Prior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  Quantity Withdrawn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.

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Kanban Options

• 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

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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.

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Example Kanban
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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.

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Kanban Examples
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Double sided racks.
Variable size stackable bins
Stacking bins, when top is empty, remove and
start using the bottom bin.
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Double sided racks
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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.
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Stacked supply
Reserve supply behind
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INVENTORY MIN-MAX
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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

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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
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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

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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 managements attention away from
  careful planning and control of the supply and
  distribution channels by promoting an insular
  attitude about channel management

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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.

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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? lt 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
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Pull vs. Push Inventory Philosophies
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Costs Relevant to Inventory Management

• Carrying costs
• Procurement costs
• Out-of-stock costs

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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

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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.

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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

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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

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Typical Inventory Conflicting Cost Patterns
Total cost
Minimum cost reorder quantity
Cost
Carrying cost
Procurement cost
Stockout cost
Replenishment quantity
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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
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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
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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
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Performance Metrics - Turnover Ratio
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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.

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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

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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.

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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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