LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL. XI (3) KANBAN SYSTEM USED TO OPTIMIZE INVENTORY LEVELS SISTEMUL KANBAN FOLOSIT PENTRU OPTIMIZAREA MĂRIMII STOCURILOR DIANA TĂGĂDUAN* The Kanban System introduced in this paper was developed by the VicePresident of Toyota Motor Company, Mr. Taiiohi Ohnos. Kanban is the production control system that “pulls” production JIT allowing smaller stocks to be produced. Kanban is a method to control the material flow by a JIT production system by using cards to authorize a work station to transfer or produce materials. Key words: inventory system, materials flow, cards Toyota is, according to Fortune’s 2007 Magazine, the third most admired company in the world. This is partially due to its reputation as “super-efficient” producer with “eco-consciousness”. When one talks about Toyota, one cannot ignore the Just In Time (JIT) stocks control system. But despite all the stories related to this sophisticated system used to control stocks implemented for the first time by Toyota, the company actually is based upon a basic practice, the Kanban method. Kanban is a signaling system developed by Toyota in the early ‘50s to be sure that materials arrive just in time in the production process, not later, not earlier than needed. At Toyota, Tauchi Ohno and Shiega Shingo began to combine Ford techniques with other techniques in order to implement the Toyota production system. Unlike their forerunners, they dealt with stocks. As space was limited, the land being very expensive in Japan, Japanese companies faced a real problem with stocks storing. Before 1950, this had been considered as a disadvantage and it had forced companies to produce in small and very small quantities. Toyota had seen the opportunity of this situation and tried to change this system into a flexible system, good for production of several range of vehicles. The Ford system was perfect when they produced just one type of product. Thus, by standardizing tools, * „Aurel Vlaicu”University Arad, Romania FACULTATEA DE MANAGEMENT AGRICOL devices and elements of different vehicles, overhead costs diminished considerably. Concerning the Just In Time system, in a simple manner one can say that the plant worked with small lots of products to save storage space. When the raw material stock was reduced at a certain level, an order was placed with the supplier to start the production of the next lot (Kan cards). When the second level was reached, the supplier received the order for the delivery of semi-fabricates (Ban cards). Thus we have the KanBan card. All these happened between 1949 abd 1975 and the Just In Time system of Toyota was taken by other Japanese companies. When productivity raise and qualitative benefits were obvious worldwide, American entrepreneurs began to travel to Japan in order to study this system. They came back to the USA with superficial issues, such as Kanban cards and quality circles. Most of the attempts to copy the Toyota system failed, because the concepts were not integrated within a complete system and few were to understand the fundamental principles There is a funny story related to the implementation of the Kanban system. In an article published by Fred Harriman.com, the ex-manager of Toyota Group, Chihiro Nakao relates the experience he had with Taichi Ohno who had introduced this sytems together with Shiego Shingo. Taichi Ohno, in his continuous concern to obtain an ideal JIT model among the companies within Toyota Group, one of the problems he faced was to prevent people from ordering too much and too soon from suppliers as they did not want to be run of raw materials. Chihiro Nakao remembers about an incident. Mr. Ohno identified a person who was about to receive materials too soon and told him: “Who are you and where do you come from? What makes you think you have the right to use this material? Let me see your kanban.” (which meant “show me your authority”). Such incidents proved the necessity “to show the kanban”, when a material was acquired, to demonstrate the need of the respective material and the proof that the previous material had been consumed. A modality to prove that all the application rules of the JIT method were followed was needed. As Mr. Ohno’s request to see the “kanban” left quite a strong impression, the cards that were issued to limit the stocks were named “kanbans”. LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL. XI (3) Worldwide producers currently use this system to control stocks based on the still competitive card system implemented by Toyota. The principle that governs the Kanban model is explained as it follows: the previous ring of the chain places orders according to the needs of the next ring of the chain. The Kanban method introduces a new philosophy of stocks management. While by traditional methods the work force is specialized at fixed periods of time, directed from upstream to downstream by a managing plan, by the Kanban method the demand imposes and places orders upstream. Kanban had meant a physical notification by a card (kanban in Japanese actually means card). Kanban cards look like a cardboard ticket, that may be covered by a plastic layer (for protection) and contain information like: unit name and code, number of units per products, process, supplier, etc.) Kanban cards have two major functions within the production processes: Ø They issue signals from the previous ring to the next ring in the production chain to begin the production of necessary pieces Ø They notify workers to dispatch pieces to the next processing position so that they reach where needed in the moment when they can be processed. Ø Kanban is the production control system that “pulls” production JIT allowing smaller stocks to be produced. Kanban is a method to control the material flow by a JIT production system by using cards to authorize a work station to transfer or produce materials. There are two types of Kanban systems: with one and with two cards. Two card Kanban. In the production system of Toyota, for instance, stock is strictly controlled at lower levels by the use of a manual kanban system with two cards. The two cards are attached to the standardized containers used to move pieces from one work cell to another. A kanban circulation card is similar to an order and allows the transfer of the materials from a supply work center to a work center that use them. The second production kanban card authorizes the materials production to replace materials previously transferred. Materials are transferred and FACULTATEA DE MANAGEMENT AGRICOL produced in boxes, and a certain number of boxes in circulation in a particular moment correspond to each item of the production process. Besides, each box contains a stable quantity of materials. By choosing the number of boxes and the quantities contained, stocks are carefully and visibly controlled at the production level. By reducing the number of cards in use between two work centers that interact, process stocks tends to be null and necessary parts arrive precisely in time. As a result, there are no raw material stocks, composing parts stocks or final products stocks. Production without stocks is the main feature of the pull planning and control system. The card flow between two working centers is simple. When an assembly center begins to use X piece, a worker takes the circulation card (kanban) and goes to the storage area of that working center where he finds a container full with X pieces. He replaces the production card with the circulation card which allows him to move the container. The production card released is introduced in a panel (the succession of cards in the panel will indicate priorities for production centers). No additional piece is made if not authorized by card. When a container is complete, the production card is introduced inside it and the contained is moved to a storage area. The result is actually a “pull” production system. Each action of the assembly section will determine a series of actions that need to be fulfilled in the working centers. If a working center has no production cards, no piece will be produced. As long as there is no piece produced in advance, stocks are maintained at a low level. A standard container is used to keep and transport pieces. No piece is moved or produced without a circulation or production card. The system can similarly be used for systems with fixed command and re-supply point. In such a case, the fixed amount is the quantity in the container, and the reorder point is the point where the card gives the signal concerning the need of a new supply. Controlling the number of circulation cards, stocks of products in course of production is strictly controlled. Generally, when a system is introduced for the first time, several cards are issued in case they should be needed. Their number is gradually reduced, and the problems can be identified, analyzed and corrected. A safety stock usually represent one percent of daily demand, but its ideal value is zero. LUCRĂRI ŞTIINŢIFICE, SERIA I, VOL. XI (3) A “pull” production system uses physical withdrawals as an authorizing system for the production. The signal may be a card, a metal plate, an empty container, a free space on the floor or an electronic signal. It is not important how the signal looks, as long as its function is understood. Kanban is a manual “pull” system. Orders are determined by current consumption more than by planed consumption so that planning errors ale eliminated. By contrast, MRP (material needs planning system) is a “push” computerized system where material resource quantities introduced in production were calculated by planed consumption rather than current consumption One card Kanban. By contrast with the two card system, a single card kanban system uses a transport (or moving) kanban and does not use a production kanban. While Toyota and other companies use the two card system, the single card kanban system is more often used. Although the kanban system has a simple design, it implies a strict control on the production system: Ø No part of the stock is moved if not allowed to move a circulation card; Ø Each box contains nor more and no less than a fixed exact stock quantity; Ø For each box there is a single kanban card; Ø As soon as materials are taken from a box, the kanban card is removed from the box and placed in the box of the circulation card; Ø If all boxes of a station contain the physical quantity of the stock, the operator stops the production until it receives another kanban card; Ø All boxes as well as the entire equipment are placed in standard locations. As far as Kanban method is concerned, we can also talk about Kanban measure. There are two methods of measuring out-turn of a production process: the levels of the flow time and work in course. Flow time (WIP) represents the period of time necessary for a unit to pass through the whole process, from the beginning to the end (in average). By the application of the Kanban method, many companies registered substantial improvements. They reduced the level of their stocks and their production time. This is why they are able to offer better services FACULTATEA DE MANAGEMENT AGRICOL to their customers (shorter preparation time) and make reduced investments in stocks by comparison to their competitors. REFERENCES 1. JEFFREY LIKER, 2003, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer, First edition, McGraw-Hill; 2. MALMBORG, CHARLES J., 1986, Kanban and Just In time at Toyota, Industrial Management, sept-oct.1986, vol.28; 3. OHNO, TAIICHI 1995, Toyota Production System: Beyond Largescale Production, Productivity Press Inc; 4. OHNO,K.,NAKASHIMA,K. AND KOJIMA,M., 1995, Optimal numbers of two kinds of kanbans in a JIT production system. International Journal of Production Research, 33; 5. SHINGO, SHIGEO,1989, A Study of the Toyota Production System from an Industrial Engineering Viewpoint (Produce What Is Needed, When It’s Needed), Productivity Press, 6. SHIGEO SHINGO, ANDREW P. DILLON, 1998, A Study of the Toyota Production System from an Industrial Engineering Viewpoint, Ed. Hardcover; 7. YASUHIRO MONDEN, 1998, Toyota Production System, An Integrated Approach to Just-In-Time, Third edition, Norcross, GA: Engineering & Management Press. Copyright of Agricultural Management / Lucrari Stiintifice Seria I, Management Agricol is the property of Banat University of Agricultural Sciences & Veterinary Medicine Timisoara and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use.