In the late 1940s, the Kanban inventory system was developed by Toyota to improve its production management process. Over the years, Kanban has evolved to suit many types of projects and industries. But, at its center, Kanban is still an inventory management system.
What is Kanban inventory management?
Toyota needed a way to improve its engineering and production processes to streamline inventory and keep up with demand. The answer was found in a grocery store.
Grocery stores tend to keep minimal supplies on hand to reduce spoilage (i.e., produce going bad) and shrinkage (i.e., goods lost to theft, damage, etc.). As a result, they use a “pull” method of production where they only stock as many products as they expect to sell and only replace stock when inventory levels reach a certain low.
This “just-in-time” approach is at the center of the Kanban manufacturing system of inventory management. The system is designed to help you manufacture only what is needed when it is needed. But it’s not just about limiting the number of goods produced. Kanban inventory management also focuses on how to improve your processes and workflows to remove bottlenecks, cut down on waste, and improve quality, so that you can do more with less.
The Kanban inventory system uses visual cards or product bins to help you see a clear map of your entire inventory management process. This high-level overview allows you to quickly understand where everything is and identify problem areas that need your attention.
Kanban inventory system guidelines
When Toyota rolled out the Kanban inventory system in its main factory, it introduced six guidelines for successful implementation:
- Don’t stockpile: Those receiving the finished inventory should only request or accept as much as they need. In other words, if your retailer only expects to sell five cars in the next month, they shouldn’t order ten.
- Don’t overproduce: Your production team should only make as many products as they expect will be ordered. If you need to supply fifty cars to your retailers, don’t make sixty.
- Don’t pass on defects: Whenever a defect is discovered, it must be immediately pulled off the production line. Don’t leave it in flow and try to fix it later in the process.
- Stabilize processes: Work to maintain a level of quality and standardize processes, so output and production times become predictable.
- Maintain level production: Find a level of production that will meet demand while maintaining a steady workflow. Your target should be a continual flow of production, so there are no stops and starts or peaks and valleys.
- Optimize processes: Once you have a stable workflow in place, look for ways to improve it, remove bottlenecks, and increase efficiencies.
When using a Kanban bin system of Kanban inventory management, you use two bins to signal when it’s time to produce more inventory or restock. In general, each stage in the process will have two bins to work through. When the first bin of materials or work-in-process is empty, it’s the trigger to reorder or restock.
How much inventory is in each bin will depend on reordering times, as you need to ensure the first bin is refilled before the second bin becomes empty. Yet, you don’t want it filled too soon, or you’ll be stockpiling (which goes against Kanban).
What are the benefits of Kanban inventory management?
The primary benefits of a Kanban inventory system are:
- Lower inventory costs: Since Kanban focuses on reducing inventory on hand, rework, and waste, companies can experience significant savings by implementing Kanban.
- Improved COGS: Since products are only produced to meet demand, it's easier to ensure your employees and materials are being used on what will sell. Combined with stable production, this helps lower your costs of goods sold (COGS), improving your profit.
- More space: Since you don’t have to stockpile inventory, you free up space for other uses. You can expand productions, sell off warehouses, or find other more profitable ways to use the empty space.
- Better oversight: The visual nature of Kanban helps keep everyone on the same page as far as how production is going, what is working well, and what’s not.
- Lowers the risk of obsolescence: When you have a lot of inventory, there’s a risk some items might become outdated before you have a chance to sell them. Kanban removes this risk.
What are the challenges of Kanban inventory management?
The Kanban inventory system can come with several challenges, especially during initial implementation. The main challenges to watch out for are:
- Forecasting: When you’re starting out, it can be difficult to know how much inventory and materials to stock. You may not have the data yet to tell you ordering times, processing times, or demand. You will likely have to go through trial and error to figure out the right inventory levels to maintain a smooth flow of production.
- Strict rules: The Kanban system of inventory management requires strict adherence to the guidelines, especially in regards to stockpiling, overproduction, and defects. For employees new to Kanban, it can be a struggle to adapt. But, not following the rules to the letter will result in inefficiencies.
- Swings in demand: If you have a business with rapid swings in demand, Kanban can struggle to keep up. The Kanban supply chain emphasizes stability and predictability, not flexibility.
- Unreliable suppliers: If a supplier can sometimes deliver in three weeks but takes three months in other cases, it makes it very difficult to maintain the right level of materials and inventory to meet demand without stockpiling.
- Economies of scale: Since Kanban is about producing a steady amount to meet demand, it often results in smaller batches of production. But sometimes, producing fewer, larger batches can be more efficient or save you more money. Kanban doesn’t take into account potential economies of scale.
Why use Kanban inventory management?
If you have a supply chain with low or stable demand and reliable suppliers, the benefits of Kanban inventory management far outweigh the drawbacks.
In the past, companies relied on physical bins to manage inventory throughout the Kanban workflow. Fortunately, with RFID tags and Kanban inventory software, this is no longer necessary. Now, even if production is spread across different facilities or even in different countries, you can still use Kanban inventory management to improve your workflow.
What companies benefit from a Kanban inventory system?
Some companies that benefit from Kanban inventory management are:
- Medical suppliers. During the novel coronavirus pandemic, many people and organizations were attempting to stockpile medical equipment while others were forced to go without. While it was nearly impossible to predict this type of outbreak, having a steady just-in-time flow of gear may have reduced or eliminated the panic and ensured everyone had what they needed when they needed it.
- Manufacturing companies. Research shows that Kanban inventory management can improve operations and increase the sustainability of manufacturing companies.
- Automotive companies. As Toyota originally created it, it should be no surprise that Kanban is beneficial for automotive manufacturers in particular.
- Power equipment. MTD, a leading designer and manufacturer of durable outdoor power equipment, was able to improve its product development and production using Kanban.
How do you implement Kanban inventory with Wrike?
Wrike’s Kanban templates make setting up your Kanban inventory management a breeze. Our Kanban project management views enable you to avoid the physical bins and manage your inventory system entirely online. Plus, you can customize your Kanban boards to reflect your inventory stages rather than settling for standard workflows that may not fit your business.
Wrike seamlessly integrates our Kanban boards with dashboards and real-time reporting, so you gain even more visibility into the state of your production, where bottlenecks are, and what you can do to improve your system. Sign up for a free trial today and discover how Wrike will help you implement the perfect Kanban inventory system.