The term kanban comes directly from the Toyota Production System and literally means ‘signal’. Often, kanban is incorrectly described as a material management system; kanban is simply a system used to trigger an activity (this could be production, material movement or shipment).

Kanban can take many different forms, however the most common is a card system which will be used for the following explanation before providing details of some other common systems.

Kanban Card

The simple kanban card is probably the most common type of kanban used. The card can take many forms, however usually contains the following information:

– Part / Inventory Number

– Part / Inventory Name

– Short description

– Image of component

– Kanban type

– Supplier

– Qty on Kanban

– Lead time

– Item location

– Card / Kanban Number of

– Responsible planner / buyer

The Kanban system is a replenishment system used in place of a materials requirement planning (MRP) system. The two systems are not intended to be used for the same parts. This is where many businesses come unstuck; they use a kanban system and continue to use their MRP system. This creates confusion and / or complacency. An MRP system is not to be confused with an ERP system (Enterprise Resource Planning) which provide a much broader business financial management system; MRP is usually one function of an ERP. A card system works by triggering the supplier (this can be internal or external) to produce a part or quantity of parts. It really can be that simple. Some businesses choose to maintain an internal only kanban system; in these instances the trigger is often used to initiate the purchasing process from a supplier.  While not as effective in reducing waste as a supplier kanban, this model can still provide good benefits.

A simple internal kanban process between a warehouse and production is defined in the following diagram.


The kanban is triggered by the shipment of a part to the customer. In classic pull production theory this action creates demand on production to produce a part. The kanban card is returned to production as a trigger to fill the demand. When the part is completed it is returned to the warehouse with the kanban card. The colour-coding is used to visually display the urgency. When the first card is returned to production both the warehouse staff and production staff can easily see there is a demand, however as there is still stock available in the warehouse (in this case two) the replacement can be made with normal priority. If the second card is returned to production it is clear there is now some urgency as stock is now low. When the third card is returned to production, the warehouse is now out of stock and replacements should be expedited. There is some science behind the volumes which will be explained in further detail in a later section.

In the above example, two simple three position kanban boards are used – one in the warehouse and another in production. A single card is stored in each position meaning the inventory of finished goods will not exceed three units. For a low volume selling item this may be okay, for larger volume items there are a couple of options.

1) Increase the number of pegs and cards to increase the total size of inventory.

2) Store multiple cards on each peg. Once again this will increase the total size of inventory.

Of these two options the first offers greater visibility and control of inventory. A simple system as above can be effective for high or low volume parts and can be used throughout the value stream to trigger staged production, materials, and even resource planning. Kanban will work in small, medium or large organisations and can be effectively implemented without expensive infrastructure or technology.

A card kanban system does require resources to monitor and collect cards; this is often tasked to material handlers on a material route. It is also important to highlight the need to manage the kanban system. Just like any other system there is an element of management and maintenance required for the system to consistently operate at its optimum level. This maintenance may be required for a number of reasons including:

– Changes in demand

– Changes in design or specification

– Changes in supplier

– Lost or damaged cards

Bin System Kanban

Another common type of Kanban system is the Bin System. While the concept of a trigger is the same as with the Kanban card, a bin system is used in place of the cards and visual boards. There are two main variations to the Bin System; Two Bin and Three Bin.

Two Bin System

As the name implies this is a system comprising of two bins; one at the user and the other in the process of replenishment. A two bin system can be useful where demand is low and parts are complex so a minimum level of inventory provides significant cost benefits.

Three Bin System

Similar to the two bin system, this system utilizes three bins and is the more common of the bin type Kanban systems in use. Once again, one bin will be at the user, one at the supplier being replenished and in this instance the third will be in transit to the user or in transit to the supplier. The benefit of this system over the two bin system is the faster replenishment to the user when the replenishment is triggered. Whereas the two bin system where the trigger to replenish comes when the first bin is empty or returned creating a gap in supply as the full bin from the supplier is transported, the third bin is constantly in transit or awaiting internal movement to the work area. This does increase the total inventory or WIP within the system as there are now three bins rather than two.

Although there are some different methods to manage the replenishment the basics of kanban remain. A signal is used to trigger the replenishment method. Whether you use the cards and visual board, a bin system, a combination or any other method the basic principles are the same.

Many organizations struggle through the implementation of kanban due to a misconception that once implemented, a kanban system no longer requires management. Just like any other system, it will require monitoring, measurement and management as discussed earlier. This is an important concept to understand; resources must be made available. Another reason businesses struggle is the lack of planning and understanding of the system setup.

Kanban System Setup

For any system there are certain requirements that will ensure the optimum results. With kanban these requirements are largely the calculations as discussed below.

As in everything else, there are almost as many formulae for kanban calculations as there are lines of inventory. I am a believer in keeping things simple, so with this approach I give you the simple kanban calculation.

Daily Demand x Lead Time (Days) x Safety Factor
                                  Container Size

Daily demand is simply the average daily usage of the part. If you use the item sporadically, take a total over a month or even quarter and divide by the number of days to determine the daily demand.

Lead time is the time taken for delivery (from either internal or external supplier) from the day the kanban is triggered until physical parts are available on line for use. This is measured in days to enable easy calculation with daily demand.

The safety factor is a measure of your confidence in your systems, processes and suppliers. The standard is 1; if you have very low confidence this may be a 2. In between 1 and 2 provides the levels of confidence.

Container size is the number of parts in each container. This may be 1 or as high as you like. This enables you to talk in containers rather than total quantity of parts.

To give the formula some substance here it is again with some data around it:

Daily Demand = 25 units

Lead Time = 5 days

Safety Factor = 1

Container Size = 25

For the above data, the formula would look like this:

25 x 5 x 1       


The result would be 5 containers or 125 units. This is the total amount of parts within the kanban system for this particular part. Where these are situated within the system is negotiated between you and the supplier. They will be either;

1) In your store

2) At your supplier

3) In transit

4) At a 3rd party

We can change the data used to make in more interesting:

Daily Demand = 30 units

Lead Time = 3 days

Safety Factor = 1.4

Container size = 15

30 x 3 x 1.4


This results in 8.4 containers or 126 units; we will round-up the containers to the next whole one. Never round-down! This will result in 9 containers or 135 units in the system. As we work with the supplier and gain more confidence in their performance the safety factor can reduce which will result in a reduction of the total quantity to a minimum of 6 containers or 90 units (3 days inventory). Remember, this inventory is not all within your system as roughly 1/3 will be in process with your supplier, 1/3 in transit and 1/3 in stock.

I have intentionally used a simple formula to both aide comprehension and simplify the explanations. I use the same formula in every business I work with and have for more than ten years. There are many more complex formulae used by many practitioners and I’m sure some do have some benefits however in my experience the more complex the system, the more problems will be met along your journey.

A kanban system should be easy to use, easy to determine when it is working on track and even easier to determine when it is off track! That is the beauty of kanban, you shouldn’t need a PhD to setup the system or use the system. An effective system can be setup and managed by just about anyone and everyone in the business should be able to determine whether there is a problem or not.

After setting up and running your kanban system you may find there are some issues with either excess inventory or out of stock. Don’t panic and throw out the system. This just means your calculations are a little (or a lot) off. As you gain experience in setting up kanban systems you will reduce these errors; remember though, the kanban system isn’t a set and leave system. It is a dynamic system that will require updates in line with demand, product changes and supplier performance.