What is Inventory Kanban and How to Use It

The origins of Kanban dates back to the late 1940s when automobile manufacturing giant Toyota started the Toyota Production System (TPS). Toyota knew that for them to reach the top, they’d have to improve from within. The TPS was their way of organizing their end-to-end operations by optimizing human and machine capabilities and cost-reduction through the elimination of waste. This revolutionary system has become the DNA of Toyota and has been adopted by many other manufacturing companies since then. It has also influenced other management and product development methodologies we know today. 

The Toyota Production System was also called Just-In-Time (JIT) Production. JIT is one of the main pillars of the TPS which was central to how materials and inventory moved and flowed throughout the Toyota production floor. JIT’s concept was to produce products when they are needed and in the quantity needed. With this, Toyota needed a way to communicate inventory levels and signal when parts should flow and in what quantities. And this is where Inventory Kanban enters the picture. 

How the Inventory Kanban System Works

Inventory Kanban is an important element when implementing Just-In-Time. The Kanban method is a visual technique that indicates when parts should move and in what amounts. The information is communicated by using Kanban cards. This helps manufacturing companies keep inventory at a minimum and lets them save on overhead costs. 

For a successful implementation, you can read through our post on Toyota’s six rules for an effective Inventory Kanban management system. But to summarize, the six rules are as follows:

1. Never pass defective products.
2. Take only what’s needed.
3. Produce the exact quantity required.
4. Level the production.
5. Fine-tune the production or process optimization.
6. Stabilize and rationalize the process. 

These rules enable Kanban and JIT implementers to ensure that quality is embedded in the process, inventory levels are kept low, and everyone operates on a pull system basis. 

When managing inventory, Kanban allows inventory managers and staff members to understand material flow and inventory levels visually. This allows them to act faster especially in spotting bottlenecks, inefficiencies, and defects in the process. 

Benefits of Inventory Kanban

Implementing Inventory Kanban proves to be beneficial for optimizing operations and maximizing company resources. Here are some of the benefits you can experience when you do Inventory Kanban right. 

Reduce Costs Attributed to Inventory

Using Inventory Kanban and the Just-In-Time method will help you save on costs. This includes costs due to inventory acquisition, storage, and management such as rent, utilities, taxes, and labor fees. Only having the right amounts and freeing them up as soon as they’re needed will save you money in the long run. Instead of tying up your capital on inventory, you can use the cash savings on other business ventures and investments.

Prevent Defects and Obsolescence

When you have too many products held up on inventory, you run the risk of these items becoming defective or obsolete over time. By using Inventory Kanban, you have more control over the movement of your goods. You can be sure that you can free-up what you have on-stock because they are relevant to the market and are fully functional.

Tailor Your Production Based on Customer Demand

When using Inventory Kanban, it becomes clearer which products are more in-demand than others. You’ll know this by your replenishment rate. The more frequent you restock, the more in-demand that product is. You can then analyze whether you need to adjust your production levels to adequately support your most in-demand product. This can also help you identify your slow-running products so you can reconsider if there’s a need to revamp your product line.

Better Decision Making

When using Inventory Kanban, you have more access to process data. Instead of relying on hunches or subjective assessments, you can leverage the data you get from your Kanban system to make better decisions for your business. Online Kanban tools like Kanban Zone can help you get better control over your Inventory Kanban implementation. You can also get reports that can help you better analyze and understand your Inventory Kanban system. Being fully digital, you can start your Inventory Kanban in no time. 

Explore Inventory Kanban Today

I believe Inventory Kanban isn’t only applicable to manufacturing companies. I see Inventory Kanban being used in retail, medical services, e-commerce, and many more. The concept of producing only what is needed when it is needed is a mindset we should adopt in any business process. Doing so will eliminate a lot of process inefficiencies, bottlenecks, and issues. This approach is aligned with Lean Thinking. If we treat any business as a process, we can come up with ways to lessen waste and defects, make our workflow smooth, and optimize our processes so that we can deliver higher levels of value to our customers.