# What Is the Kanban System?

![Kanban: An inventory control system used in just-in-time manufacturing to track production and order new parts and materials.](https://www.investopedia.com/thmb/IIRWB3V3EkME66JWRnz0XHk6K4A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/kanban.asp-FINAL-1d12162ec5e14cea9d5862bae096895d.png)

*— Investopedia / Jiaqi Zhou*

## What Is Kanban?

Kanban is an inventory control system used in [just-in-time (JIT)](https://www.investopedia.com/terms/j/jit.asp) manufacturing. It was developed by Taiichi Ohno, an industrial engineer at Toyota, and takes its name from the colored cards that track production and order new shipments of parts or materials as they run out. Kanban is a Japanese word that directly translates to "visual card," so the kanban system simply means to use visual cues to prompt the action needed to keep a process flowing.

### Key Takeaways

*   Kanban is an inventory control system used in just-in-time (JIT) manufacturing to track production and to order new shipments of parts and materials.
*   Kanban uses visual cues to prompt the action needed to keep a process flowing.
*   One of the main goals of kanban is to limit the buildup of excess inventory at any point on the production line.
*   Kanban also strives to limit bottlenecks by promoting communication and information sharing between individuals and departments.
*   Successful implementation of kanban may lead to reduced expenses, greater customer satisfaction, more efficient processes, and minimized risk due to unforeseen problems.

## Understanding the Kanban System

The kanban system can be thought of as a signal and response system. When an item is running low at an operational station, there will be a visual cue specifying how much to order from the supply. The person using the parts makes the order for the quantity indicated by the kanban and the supplier provides the exact amount requested.

For example, if a worker is bagging product on a conveyor belt, a kanban may be placed in the stack above the last 10 bags. When the worker gets to the card, he gives the floor runner the card to bring more bags. A station further from the supply room might have the kanban placed at 15 bags and a closer one at five. The flow of bags and the placement of cards are adjusted to make sure no station is left bag-less while the belt is running.

The kanban system can be used easily within a factory, but it can also be applied to purchasing [inventory](https://www.investopedia.com/terms/i/inventory.asp) from external suppliers. The kanban system creates extraordinary visibility to both suppliers and buyers. One of its main goals is to limit the buildup of excess inventory at any point on the production line. Limits on the number of items waiting at supply points are established and then reduced as inefficiencies are identified and removed. Whenever a limit of inventory is exceeded, it points to an inefficiency that needs to be addressed.

As containers of parts or materials are emptied, cards appear, color-coded in order of priority, allowing the production and delivery of more before a hold-up or shortage develops. A two-card system is often used. Transportation cards (also referred to as T-kanban) authorize the movement of containers to the next workstation on the production line, while production cards (also referred to as P-kanban) authorize the workstation to produce a fixed amount of products and order parts or materials once they have been sold or used.

> **Important**
>
> Kanban often requires company-wide buy-in to be effective. Each department must be relied upon to perform their necessary tasks at a specific time in order to transition the process to future departments. Without such buy-in, kanban methodologies are futile.

## Kanban Core Practices

The kanban method has several core principles that define how processes occur and how team members should be involved in the process.

### Visualize Workflows

At the heart of kanban, the process must be visually depicted. Whether by physical, tangible cards or leveraging technology and software, the process must be shown step-by-step using visual cues that make each task clearly identifiable. The idea is to clearly show what each step is, what expectations are, and who will take what tasks.

Old-fashioned (but still used today) methods included drafting kanban tasks on sticky notes. Each sticky note could be colored differently to signify different types of work items. These tasks would then be placed into swim lanes, defined sections that group related tasks to create a more organized project. Today, inventory management software typically drives kanban process.

### Limit WIP

As kanban is rooted in efficiency, the goal of kanban is to minimize the amount of [work in progress](https://www.investopedia.com/terms/w/workinprogress.asp). Teams are encouraged to complete prior tasks before moving on to a new one. This ensures that future dependencies can be started earlier and that resources such as staff are not inefficiently waiting to start their task while relying on others.

A company must internally assess the appropriate amount of WIP to be carrying as it works through the kanban process. This is often tied to the number of people along the process; as the number of workers tied to a project decreases, so does the allowed quantity of items being worked on. This limitation also communicates to other teams or departments that they must be considerate of their ask of other teams as each group of individuals may be imposed a working limitation.

### Manage Workflows

As a process is undertaken, a company will be able to identify strengths and weaknesses along the workflow. Sometimes, limitations are not met or goals not achieved; in this case, it is up to the team to manage the workflow and better understand the deficiencies that must be overcome.

A critical part of kanban is to observe and eliminate [bottlenecks](https://www.investopedia.com/terms/b/bottleneck.asp) prior to them occurring. This includes forecasting production and resource utilization. As a process becomes more predictable, a company will find it is easier to make commitments to customers or make processes even more efficient by fully scaling back additional unused resources.

### Clearly Define Policies

As part of visually depicting workflows, processes are often clearly defined. Departments can often easily understand the expectations placed on their teams, and kanban cards assigned to specific individuals clearly identify responsibilities for each task. By very clearly defining policies, each worker will understand what is expected of them, what checklist criteria must be met before completion, and what occurs during the transition between steps.

### Implement Feedback Loops

When using the kanban method, companies often gather information, analyze how processes are flowing, and implement changes to further improve the process. This feedback loop allows employees to continuously improve and make incremental changes that are easier to adapt to. The feedback may be [positive feedback](https://www.investopedia.com/terms/p/positive-feedback.asp) or negative feedback. The kanban approach enables workers to understand failures early in the process and allows the company to adapt to a correct path before inefficiencies become a larger issue.

### Improve Collaboration

Because tasks are broken down into very small kanban cards, individuals must often rely upon each other when using the kanban method. Individuals, often on different teams, must collaborate and discuss transitions between swim lanes, while other individuals must group to identify and resolve issues quickly. Under kanban, changes to the process must be broadly communicated as adjustments made in one area may have a wider impact in other.

## Kanban Board

The kanban process utilizes kanban boards, organizational systems that clearly outline the elements of a process. A kanban board often has three elements: boards, lists, and cards.

Kanban boards are the biggest picture of a process that organizes broad aspects of a workflow. For example, a company may choose to have a different kanban board for different departments within its organization, such as finance, marketing, and others. The kanban board is used to gather relevant processes within a single workspace or taskboard area.

Kanban lists are the to-do items within each board. For example, a [manufacturer](https://www.investopedia.com/terms/m/manufacturing.asp) may have each stage of manufacturing as a list item, as kanban lists often represent different stages of production within a similar field. Kanban lists may also flow from one task to another; often, one task will end and another task will pick up with the next action item following the completion of the prior list item.

Last, kanban cards live within lists and represent the most minute, detailed action items needed to complete the list. These cards are the specific items that must be addressed in sequential order to complete the list. For example, a manufacturer must contact the supplier, confirm raw material availability, submit the order, receive the inventory items, and begin manufacturing. Each of these steps can even be refined further into more specific kanban cards that represent mini-projects.

The example below depicts the an example of a kanban or pull system with well-defined tasks, swim lanes, and an overall demonstration of the flow of tasks.  

![Example of Kanban Board](https://www.investopedia.com/thmb/m2dFZQmCPctOj3QHT0K1-f2Xx7A=/1141x0/filters:no_upscale():max_bytes(150000):strip_icc()/kanban-ec043ce6adb34d67be1be061df7f82e9.JPG)

*Example of Kanban Board. — U.S. General Services Administration*

## Electronic Kanban Systems

To enable real-time demand signaling across the [supply chain](https://www.investopedia.com/terms/s/supplychain.asp), electronic kanban systems have become widespread. These e-kanban systems can be integrated into [enterprise resource planning (ERP)](https://www.investopedia.com/terms/e/erp.asp) systems. These systems leverage digital kanban boards, lists, and cards that communicate the status of processes across departments

Toyota, Ford Motor Company, and Bombardier Aerospace are among the manufacturers that use e-kanban systems. These electronic systems still provide visual signals, but the systems are also usually enabled to automate parts of the process, such as transport through the factory or even filing purchase orders.

## Scrum vs. Kanban

[Scrum](https://www.investopedia.com.cach3.com/articles/investing/051815/scrum-agile-methodology-explained.asp.html) and kanban both hold methodologies that help companies operate more efficiently. However, each have very different approaches to achieving that efficiency. Scrum approaches affix certain timeframes for changes to be made. With kanban, changes are made continuously.

The scrum methodology breaks tasks into sprints, defined periods with start and end periods in which the tasks are well defined and to be executed in a certain manner. No changes or deviations from these timings or tasks should occur. Scrum is often measured by velocity or planned capacity, and a product owner or scrum master oversees the process.

On the other hand, kanban is more adaptive in that it analyzes what has been done in the past and makes continuous changes. Teams set their own cadence or cycles, and these cycles often change as needed. Kanban measures success by measuring cycle time, throughput, and work in progress.

> **Fast Fact**
>
> Kanban should not be confused with kaizen, the methodology of continuous improvement.

## Benefits of Kanban

The idea of kanban carries various benefits, ranging from internal efficiencies to positive impacts on customers.

The purpose of kanban is to visualize the flow of tasks and processes. For this reason, kanban brings greater visibility and transparency to the flow of tasks and objectives. By depicting steps and the order in which they must occur, project participants may get a better sense of the flow of tasks and importance of interrelated steps.

Because kanban strives to be more efficient, companies using kanban often experience faster turnaround times. This includes faster manufacturing processes, quicker packaging and handling, and more efficient delivery times to customers. In turn, this reduces company [carrying costs](https://www.investopedia.com/terms/c/carrying-costs.asp), such as storage, insurance, and risk of obsolescence, while also turning over capital quicker for more efficient usage.

Companies that use kanban practices may also have greater predictability for what's to come. By outlining future steps and tasks, companies may be able to get a better sense of risks, roadblocks, or difficulties that would have otherwise slowed the process. Instead, companies can preemptively plan to attack these deficiencies and allocate resources to combat hurdles before they slow processes.

The ultimate goal of kanban is to provide better service to customers. With more efficient and less wasteful processes, customers may be charged lower prices. With faster processes, customers may get their goods faster. By being on top of processes, customers may also be able to interact with customer service quicker and have resolutions met faster.

## Disadvantages of Kanban

For some companies, kanban is not possible to be implemented or not feasible to practice. First, kanban relies on stability; a company must have a predictable process that cannot materially deviate. For companies operating in dynamic environments where activities are not stable, the company may find it difficult to operate using kanban.

Kanban is often related to other production methodologies (just-in-time, scrum, etc.). For this reason, a company may not reap all benefits if it only accepts kanban practices. For example, a company may understand when it will need [raw materials](https://www.investopedia.com/terms/r/rawmaterials.asp) when reviewing kanban cards; however, if the company does not utilize just-in-time inventory, it may be incurring unnecessary expenses to carry the raw materials during periods when it is sitting idle.

Kanban also has the demand of needing to be consistently updated for a few reasons. First, if completed tasks are not marked off, the team analyzing next steps may not adequately assess where along the process the team is at. Second, there is no timing assessments to different phases, so team members must be aware of how much time is allocated to their task and what future deadlines rely on the task at hand.

## What Are the Rules of Kanban?

Under the kanban method, companies must be continually improving, providing feedback loops to workers, and striving to be efficient with resources. Kanban requires companies to visually depict processes, assign tasks to swim lanes, and ensure individuals are communicating changes across the entire process or project.

## Why Do We Use Kanban?

Kanban strives to save companies time, money, and other resources by ensuring there is minimal downtime between tasks. In addition, kanban attempts to target bottlenecks before they occur, ensuring that steps can be taken in advance to avoid having work in process sit idly back while problems are fixed.

## Is Kanban Agile or Lean?

Kanban bridges both agile and lean frameworks. It is agile in that processes are visually depicted in advance of occurring. This means changes can be made in advance of issues. In addition, kanban is a pull system in that work is pulled through a process when each prior step is completed. Instead of having inventory pile up from one stage to another, kanban aims to have just enough inventory working its way through a manufacturing process.

## The Bottom Line

The kanban approach is a methodology that aims to minimize waste, downtime, inefficiencies, and bottlenecks along a workflow process. Projects are visually depicted using boards, lists, and cards that show responsibilities across departments. When executed appropriately, kanban can minimize manufacturing expenses, utilize labor more efficiently, improve customer service, and minimize delivery times.

> **Article Sources**
>
> 1.  Taiichi Ōno. "[Toyota Production System: Beyond Large-Scale Production](https://www.google.com/books/edition/Toyota_Production_System/7_-67SshOy8C?hl=en&gbpv=0)." Pages 27-29. Productivity Press, 1988.