Understanding Kanban in Lean Manufacturing

The origin of Kanban dates back to post-war Japan when Toyota sought alternatives to optimize production and reduce waste, having been inspired by the supermarket product replenishment system. Through direct observation of customers, who only took the products they strictly needed off the shelves, and how employees replenished stocks according to demand, Toyota engineers took this logic to the factories.  Thus, they created an efficient and visual method of managing workflows called Kanban, an essential tool of lean manufacturing for operational efficiency and continuous improvement.

In this article, the fundamental principles of Kanban in lean manufacturing are discussed, as well as its implementation and the main benefits it brings to companies.

What is Kanban in lean manufacturing?

In lean manufacturing, ensuring a continuous and efficient flow of materials and information is essential for reducing waste and increasing productivity. One of the key methodologies for achieving this efficiency is Kanban, a system that manages production operations and material transportation, ensuring that all flows are synchronized.

The origins of Kanban

Kanban originated in Japan as part of the Toyota Production System (TPS). Inspired by the operation of supermarkets, Taiichi Ohno developed Kanban as a tool to regulate flow and eliminate waste.

Kanban means “card” or “visual signal” in Japanese, reflecting the essence of the system: clear and visual communication of production or transportation needs, promoting a pull system where production occurs only based on actual customer demand. Kanban can take different forms, being implemented both physically and digitally. Additionally, it can be applied in various contexts: production Kanban, which is used to signal production orders, and logistics or movement Kanban, which is used to signal material transportation orders.

Figure 1 – Example of a production Kanban

The core principles of Kanban

Kanban is based on key principles of lean manufacturing, ensuring more efficient, flexible production that aligns with actual demand. The four fundamental principles are:

• Workflow visual management – provides a clear view of the operational state, allowing teams to monitor task progress, identify delays, and make decisions to optimize workflow.
• Pull production – Aligns production with actual customer demand, ensuring that resources are used efficiently and preventing overproduction.
• Limiting Work in Progress (WIP) – Sets a maximum limit on WIP, reducing inventory and waiting times while ensuring a smooth flow in production.
• Continuous improvement – Encourages constant performance analysis, making waste and optimization opportunities visible.

By following these principles, Kanban helps organizations create a more agile and effective workflows, reducing waste, improving productivity, and ensuring faster and more consistent deliveries.

How Kanban aligns with lean principles

Kanban is fully aligned with lean principles. Implementing a lean system requires creating flow throughout the entire supply chain, typically starting with production and logistics.

To ensure flow in production, it is essential to adopt a one-piece flow, minimize waste by optimizing line design and standard work, and reduce setup times to increase flexibility.

In logistics, it is essential to use small containers that can be moved easily by hand, stored in standardized supermarkets, and supported by standardized and frequent supply cycles.

This physical infrastructure is necessary for a lean system, but ensuring the flow of information is equally important—and this is where Kanban comes in. The synchronization process defines various types of Kanban and Junjo information loops. This article focuses on Kanban loops, the most common in a continuous flow system, representing a replenishment model based on consumption.

Kanban replenishment logistics loop

A Kanban replenishment cycle operates based on the following principles:

• The cycle starts at a customer inventory location.
• The part is available for immediate delivery to the customer.
• The part must be replenished when the stock reaches the reorder level.
• Reorder level = demand during replenishment time + safety stock.
• Safety stock = variation in demand during replenishment lead time.
• The Kanban (or set of Kanbans) typically serves as a replenishment order.

Figure 2 – Replenishment cycle with Kanban

The total replenishment time depends on the time required to complete the following task groups:

1. Order processing time.
2. Order picking time.
3. Transportation or production time.
4. Material receiving time.

Types of Kanban loops

Six main types of Kanban loops can be identified in a factory, where both material supply and delivery need to be managed. These are divided into two groups:

I. Transportation Kanban:

• Customer transportation Kanban: Order for delivery from the supermarket of finished products to a customer.

• Internal transportation Kanban: Used for internal replenishment loops.

• External transportation Kanban: Order from a supplier to be delivered to an inbound supermarket.

II. Production Kanban:

• Flow production Kanban: Used in lines or machines with zero changeover time and a one-piece flow.

• Signal production Kanban: Applied to lines or machines that require a changeover time above zero and have no Kanban cards associated with containers (the Kanban indicates the batch size).

• Batch production Kanban: Applied in lines or machines that require a changeover time above zero and use Kanban cards associated with containers.

Figure 3 – Six types of Kanban cycles

The role of visual management in Kanban

As a visual information system, the Kanban system provides a clear view of the state of production and logistics, making it easier to identify delays and act quickly to solve problems.

The importance of visual workflows in manufacturing

Visual management is a fundamental principle of lean manufacturing in nearly all its methodologies. It ensures efficient information flow, promotes transparency, and enables an immediate understanding of reality at the Gemba. This clarity facilitates decision-making and drives continuous process improvement.

Kanbans make information and material flows visible, allowing all employees to understand the state of production and material requirements clearly. This approach reduces dependence on verbal instructions or complex systems, making management more intuitive and efficient.

Examples of effective visual management

Visual management is integrated throughout operational processes, ensuring both production and logistics run efficiently. Some key examples include:

• Kanban: Kanban cards contain essential information about production or material replenishment needs, including part reference, required quantity, consumption point, and supplier.
• Logistics boxes: Enable visual control of all orders, which are used to organize Kanban cards according to the production start date.
• Leveling boxes: Represent the starting point of the Mizusumashi cycle, allowing visual control of production sequencing, establishing the line’s Takt Time, and identifying potential delays in logistics routes.
• Sequencers: Placed at the beginning of production lines, ensuring the application of the FIFO principle in Kanban and allowing teams to monitor production progress or delays.

Integrating visual management across these elements ensures that production and logistics operate efficiently and with full transparency for all employees involved.

How Kanban facilitates a pull system

Implementing a pull system is based on a three-phase planning approach. The first phase involves strategic planning, the second focuses on capacity planning, and the third addresses execution planning. Kanban plays a crucial role in the third phase, managing the flow of information on what production lines should produce and what logistics should transport.

The concept of the pull system in lean

A pull system is a production and logistics model where material replenishment and production are triggered based on actual customer demand. Unlike the traditional push system, where forecasts drive production, the pull system ensures that materials and products are only produced and moved when needed.

Steps to implement pull planning and Kanban in a lean manufacturing system

To implement a pull system, defining the planning strategy for finished products and components is essential, as well as determining whether they should be produced for stock or to order. Next, logistics and production capacity must be assessed. Finally, the execution plan is established.

Figure 4 – Stages of pull planning

1. Strategic planning

There are two fundamental strategies for planning the production of finished products:

1. Make to Order (MTO): The product is not ready for immediate delivery, and the customer must wait until the order is completed.
2. Make to Stock (MTS): The product is available for immediate delivery when the order is placed, requiring production to replenish stock and maintain availability.

Most companies adopt a combination of these strategies. Firm customer orders can be directly converted into Kanban cards, while MTS products require a replenishment algorithm to maintain appropriate stock levels.

High runners (high-turnover products) are ideal for the MTS strategy, as they are frequently ordered, reducing the risk of excess inventory. Conversely, low runners (low-turnover products) are produced in smaller volumes and less often, making them more suitable for the MTO strategy. However, the decision between MTO and MTS must align with the company’s overall business strategy.

Another critical factor is the planning strategy for component production. Some components may be manufactured for stock (MTS), while others are produced only when ordered (MTO). This decision directly impacts how components are supplied to the assembly line through Kanban or Junjo systems.

Defining the planning strategy for components becomes apparent once the plan for the finished product is established. The commonality of parts (i.e., using the same part across multiple finished products) plays a crucial role. Components used in high runners are often classified as MTS, whereas specific parts for low runners are typically managed as MTO to prevent unnecessary inventory buildup.

2. Capacity planning

The second stage of pull production planning is capacity planning, the outcome of which is often referred to as the production-logistics contract. This contract defines the capacity that must be available to meet customer orders in the short to medium term.

Capacity planning is essential for anticipating fluctuations in market demand, including seasonality. Typical planning horizons can be annual, coinciding with the yearly budget year, or set on a quarterly or monthly basis. The customer’s Takt Time must be calculated, and capacity decisions must be made to ensure production meets the expected demand. These decisions involve assembly line capacity, specific machines’ capacity, the supermarket’s size (intermediate stock levels), and transportation capacity. The production-logistics contract is used to standardize the expected monthly capacity. Demand forecasts provide the necessary information for capacity planning, and in many cases, these forecasts can be made by product family rather than for individual products.

3. Execution planning

The third stage of pull planning is execution planning, which determines what to produce and what quantity. The outcome of this process is a production order list containing three types of production orders: final customer orders for MTO products, replenishment orders for MTS products, and special final customer orders for MTS products, where the order size is large and therefore requires a longer-than-usual delivery time.

Once the list of production orders is complete, the production leveling process (Heijunka) begins, which aims to schedule production in small batches, ensuring a stable and predictable cadence, for example, with constant daily production.

The leveling process consists of various planning operations that convert orders into manageable batches and launch an optimized production sequence, balancing quantities while respecting capacity constraints. These orders are then collected and delivered by the Mizusumashi, initiating production on the lines.

The key steps in the leveling process include:

• Defining the reference line (the line that will receive production orders).
• Converting production orders into Kanban cards (smaller batches).
• Creating a logistics box to organize Kanban cards by production start date, leveling the monthly workload while ensuring adherence to the agreed daily production capacity in the production-logistics contract.
• Creating a leveling box, which schedules the production sequence, organizes the Mizusumashi’s collection cycle, and levels the daily workload based on defined production capacity.

This planning approach optimizes flow, enhances production stability, and efficiently responds to customer demand.

Benefits of pull systems vs. push systems

Choosing between a pull system and a push system directly impacts operational efficiency, inventory levels, and the ability to respond to demand fluctuations. Pull systems are based on actual customer demand, preventing overproduction and reducing waste. The main benefits include:

• Agile response to demand: Enables quick adjustments to variations in demand, avoiding excess or stock shortages.
• Inventory reduction: Produces only what is needed, minimizing storage costs and tied up capital in stock.
• Greater visibility and control: Ensures continuous production monitoring, synchronizing each stage with the next.
• Cost reduction: Optimized production flows reduce costs related to defects, unnecessary storage, product obsolescence, and other forms of waste.
• Improved operational efficiency: Lower inventory levels expose inefficiencies, driving continuous improvement.

Adopting pull principles instead of push reduces reliance on demand forecasts, which are often inaccurate and can lead to waste and imbalances in the supply chain.

The relationship between WIP limits and pull systems

In pull systems, Work in Progress (WIP) is controlled and maintained through Kanban systems and the implementation of one-piece flow lines. These approaches ensure that production flows efficiently without generating unnecessary inventory.

This reduces lead time and increases flexibility, allowing production to respond quickly to actual demand while minimizing waiting times. Additionally, as mentioned earlier, eliminating intermediate stock makes waste more visible.

Reducing WIP in pull systems ensures that production remains efficient, leveled, and synchronized with real demand, optimizing resource utilization and driving continuous improvement.

Benefits of implementing Kanban in lean manufacturing

Implementing Kanban improves efficiency, reduces unnecessary inventory, optimizes delivery times, and eliminates process waste. By adopting Kanban, companies achieve a more agile, flexible, and efficient production system aligned with lean manufacturing principles.

Improved production efficiency

Kanban and other lean manufacturing tools optimize the flow of materials and information, enhancing operational efficiency. By providing visual control and enabling real-time adjustments, Kanban reduces line idle time, improves team productivity, and ensures a more stable and predictable production pace.

Stocks and lead time reduction

By aligning production with actual demand, Kanban helps reduce lead time, ensuring faster and more efficient deliveries while minimizing the need for large inventories of raw materials, components, and finished products. This lowers storage costs and improves the agility of the supply chain.

Reduction of waste in processes and continuous improvement

Implementing Kanban eliminates overproduction, waiting times, and unnecessary movements, aligning with lean manufacturing principles. Additionally, it fosters a culture of continuous improvement, enabling teams to quickly identify and resolve operational issues while adjusting processes to achieve greater efficiency and quality.

Practical examples of Kanban in lean manufacturing

Implementing the Kanban system enhances productivity in discrete manufacturing by synchronizing workflows and aligning production with actual demand. Below, we explore two examples from distinct manufacturing industries successfully implementing Kanban.

Kanban in automotive production

Two orders are typically received in the automotive industry: from dealerships and final customers. The approach to dealership orders differs from that used for final customer orders.

The models included in dealership orders are carefully selected based on popular colors, configurations, and options. The models chosen for dealership replenishment are usually high runners, selected based on reliable forecasts of consumer preferences. In this context, dealership orders are generally classified as Make to Stock (MTS), while customized orders from final customers follow a Make to Order (MTO) approach.

Both order types are then leveled for production on the assembly line, following a model best described as “assemble-to-order,” where production is adjusted to balance efficiency and customization.

The complexity of automotive production requires an efficient material management system to reduce waste, improve quality, and ensure a continuous production flow. Material synchronization simplifies internal logistics and enhances assembly line efficiency.

Kanban in electronics manufacturing

Electronic product factories face complex logistical challenges due to the many components involved. One of the primary difficulties is ensuring the efficient supply of multiple assembly lines, each working with thousands of different components. Additionally, it is important to prevent stock shortages and production stoppages caused by missing parts. Another key factor is minimizing WIP to maintain a continuous and efficient production flow.

The approach to overcoming these challenges should include:

• Standardization of containers: Using small containers to facilitate handling and storage.
• Border of line supermarket: Organizing materials with a Kanban system of two containers (full and empty) to ensure continuous replenishment.
• Supermarket for parts sorting: Using flow racks to optimize component picking.
• Mizusumashi system: Cyclic material transportation is based on cycle time and uses operators or electric logistics trains.
• Definition of standards and testing: Standardizing and adjusting operations to ensure efficiency.
• Implementation and continuous improvement: Monitoring processes to optimize operations.

Implementing these steps increases productivity in production and logistics, eliminates stock shortages, and enhances space organization and utilization. In summary, applying Kanban in the electronics industry improves material flow, reduces waste, and enhances efficiency, making production more agile and competitive.

Challenges of using Kanban in lean manufacturing

Although Kanban is a powerful tool for optimizing production flow in lean manufacturing, its implementation can face significant challenges. Cultural resistance, the variability of demand, and the complexity of production systems can make it challenging to adopt Kanban and make it work properly. Below, we explore the main challenges and strategies to mitigate them.

Overcoming resistance to change

Introducing Kanban may face resistance from employees and managers, especially in environments accustomed to traditional production and inventory control methods. A lack of understanding about the system’s benefits can lead to insecurity and hesitation in adopting it. To overcome this challenge, it is essential to invest in training, demonstrate quick wins through pilot projects, and actively involve teams in the continuous improvement process.

Managing high levels of demand variability

Kanban works best in environments with relatively stable demand, where flows can be predictable. However, maintaining optimal inventory levels without causing delays or excess stock can be challenging when demand fluctuates significantly. One primary concern is how to handle seasonality. There are two key approaches to managing seasonal demand fluctuations:

• Capacity adjustment: Adjusting capacity means modifying production levels to accommodate expected fluctuations. Capacity planning uses forecasts to determine the required capacity for the following month. As such, capacity can be increased or reduced by adjusting the number of people, the speed of the machines, or other capacity factors.
• Using inventory to absorb demand peaks: Inventory can be used to manage seasonal fluctuations in two ways:
  • When actual demand is lower than the agreed capacity, some orders can be produced in advance. If no orders are available for early production, inventory levels for MTS products can be increased, starting with high-turnover products.
  • When actual demand exceeds the agreed capacity, inventory levels can be used to meet customer needs. If this happens consistently over a long period, it may lead to stock shortages. This can be minimized by adjusting replenishment levels based on seasonality and increasing stock levels for high-turnover products during peak demand periods.

Each situation is unique and requires a tailored strategy to manage seasonality, balancing capacity adjustments and inventory management.

Adapting Kanban to complex systems

Implementing Kanban can be challenging in highly complex operations with multiple interconnected production flows. Production lines with various products and dispersed suppliers require a flexible and well-integrated system. The solution lies in customizing Kanban to fit the company’s specific needs, adopting digital systems to monitor stock levels in real time, and ensuring a more dynamic and efficient management process.

Still have some questions about Kanban in lean manufacturing?

Can Kanban be scaled for larger or more complex manufacturing operations?

Yes, Kanban can be scaled for large-scale and highly complex manufacturing operations, provided it is customized to meet the company’s specific requirements.

Is Kanban part of Kaizen?

Yes, Kanban is an essential tool within the Kaizen philosophy, as it promotes continuous improvement by optimizing production flow and reducing waste.