Implementing a KANBAN System

A KANBAN system helps you maintain the right amount of inventory based on customer demand.  This is a great system for manufacturing and or distribution sites that have a high variety of parts with steady flow & long lead times.  This is exactly the situation we face at Thomson Precision Ball.  We must have the right product on our shelves when customers order because our build to order cycle can be as long as 16 weeks!

A KANBAN system not only ensures you have enough stock on the shelves, it provides a visual method to know when product needs to be replenished.  A KANBAN card represents a certain amount of product in a “bin”, that when used, provides a signal to the buyer that more product needs to be reordered.  This simple process keeps product flowing and shows you visually the status of all the parts.

Here are some of the highpoints of our process which enabled us to develop our KANBAN program.

1. Classify Current Buy:  We analyzed our sales for the last year and determined the products that needed to be considered.  We sorted products from highest sales dollars to lowest and classified items as either A (accounting for 85% of our accumulated sales), B (the next 10% or 85%-95% sales), and C  (the bottom 5%, or 95%-100%).  We then focused on products in the A & B categories and disregarded “spike” or “one time orders”.
2. Determine Storage Location.  Ensure you have adequate space and the area is accessible & neat.  This is a critical but often overlooked step.  If you start in a bad location, the KANBAN system will be ineffective.
3. Calculate the Bin Size:  We used the following formula to calculate bin size:
   
   (Daily Usage x Lead-time) + (Safety Stock)  =  Qty per Bin
                          Total # Bins – 1
   
   daily Usage = Monthly Usage/21 days  (note: accounts for weekends)
   Lead time = time needed to get product from suppliers
   Safety Stock = choose the number of extra days as a buffer
   Bins = chose the number you want to maintain.
   
   For the bin size you need to take into account the physical space you have, the reliability of your suppliers, and how much inventory you can maintain. The more bins you have will reduce your inventory levels, but add levels of complexity.  We settled on a 4 bin system.
4. Compare the bin sizes to supplier requirements.  Round up (or down if just under) to what your supplier will supply in one batch.  We ensured our bins are multiples of box quantities that my suppliers provide.  Not only does this make the orders easier, it allows you to verify quickly your product count by simply counting the number of boxes on the shelf.
5. Create KANBAN cards, title cards, and bin location sheet .  Laminate cards, be neat, and include supplier, quantity per card, part number description, and lead time.  We used color coded cards for different families of material and always had the last card pink to show that there was only one bin remaining.  Another tip is to use magnetic material (as opposed to adhesive tape or the like) to hold the title cards, bin separators, and the like to the racks.  Not only does this look neater, it provides flexibility to move product with ease.
6. Board to Track Orders.   We created a board that allows us to visually track product ordered, stock outs, and when product will be arriving.   We detailed the arrivals for the current month by day, and for the future months by week.  This provides the complete visibility for what you have on the shelf and when the next replenishment will arrive.  
7. Manage and Refresh.  The KANBAN system is a living program and requires daily management to ensure success.  All users must be trained.  A KANBAN system also requires periodic “refreshing” of the data on which it was built.  We conduct a mini-KAIZEN every six months to review the parts on the KANBAN to determine which ones can be removed, which bin sizes need to be adjusted, and what parts should be added.  

An effective KANBAN system takes a great deal of work and planning up front, but the efforts pay even larger dividends.  Spend the time at the beginning to know the parts you need and plan for the right amount of space.  It is very tempting to rush into setting a KANBAN up without this data, but I guarantee you will be doing it over again.  Also give yourself the flexibility to expand or reorganize the area.  

I hope some of these tips help from someone who has just gone through the exercise.