# Making Your Organization Lean Using Kanban

So you are in the midst of your Lean implementation, and you are ready to implement an effective kanban system for managing production. But where do you start? For sure, Lean tells us that we need to keep inventory low, therefore the number of kanban cards needs to be kept to a minimum, right? Well, yes and no, and the number you need in order to sustain your operations may be more than you expect. Here we will discuss the basics of kanban, and how to effectively implement it.

The "Ultimate" Lean Production Concept is Single-Piece Flow

The "holy grail" of Lean production is the concept of single-piece flow. Single-piece flow ensures that the waste of overproduction is eliminated.

Take for example the following production line (1 Day = 8 Hours): *(Click on diagram to enlarge.)*

Line 1:

Machines 1, 2 and 3 produce more than one part, and one of each part is required in each subsequent machine’s operation. Notice that Line 1 has inventory held between the stations. Let’s analyze this situation.

First, let’s convert the production rate to pcs/minute, then take the difference between daily demand and production rates then divide by the production rate. This gives the number of minutes available per day for changeovers.

The machine 1 production rate is: 3700/8 = 462.5/hr; 462.5/60 = 7.7/min

Machine 1 Demand = 3600/day, therefore there are (3700-3600)/7.7 or 12.9 minutes left over each day for changeovers. Now do the same for Machines 2 and 3. When complete, the minutes left for changeovers each day are as follows:*Machine 1: 12.0 minutes
Machine 2: 36.9 minutes
Machine 3: 6.6 minutes*

So what are the implications of this? Looking at the changeover time for machines 1, 2, and 3, it looks like we are far away from achieving single-piece flow. In order to achieve it, you need to have changeover times as follows:

*Machine 1: 0.2 seconds (1/(3600/12.0/60))*

Machine 2: 0.6 seconds

Machine 3: 0.1 seconds

If it is possible to achieve this kind of changeover time in this production line, it would be possible to operate in a single piece flow scenario, eliminating all waste of overproduction due to building inventories. However, to be able to do this, most likely an enormous cost would be involved. So, the key to proper kanban planning is

Machine 2: 0.6 seconds

Machine 3: 0.1 seconds

*to ensure that it is possible to operate at the planned kanban levels*. If it is possible, then the main task becomes managing the kanban system. If it isn’t possible, then most likely there will not be enough inventory to buffer changeover time and downtime—the main purpose of having inventory in the first place, in that case let the fire-fighting begin!

As we’ll see, the real art of planning kanban min-max levels comes down to understanding our operations and planning for success. Let’s look at a full-scope example.

Practical Kanban Planning

Let’s begin our discussion on the planning of a kanban system. In this section we’ll begin our step-by-step walk-through of what’s involved, and throughout we will follow an example from start to finish.

Kanban System Planning Step 1—Find the Ratios

The whole foundation of kanban planning hinges on stable demand and stable processes. The elements of processes and demand form a chain that is linked with inventory. The goal is to keep the least amount of inventory needed on hand to maintain the integrity of the process/demand chain, without breaking it. Instability of the demand side of the chain can cause a whipsaw effect through the kanban system that is difficult to react to, since the system will likely not react fast enough to correct itself.

Let’s consider the following example:

We are running a machine that produces three different types of widgets as follows, with weekly demands listed:

*Widget A: 21,000 pcs/wk or 4200/day*

Widget B: 14,000 pcs/wk. or 2800/day

Widget C: 7000 pcs/wk. or 1400/day

Widget B: 14,000 pcs/wk. or 2800/day

Widget C: 7000 pcs/wk. or 1400/day

Overall, we need to make 42,000/wk or 8400/day.

Sure, we can run 21,000 As, run 14,000 Bs and finally run 7000 Cs on our process, but what if demand changes? Say that mid-week, the order for A is changed to 30,000 pcs, and demand on B goes down to 5000 pcs? How do you react? Only 21,000 pcs of A have been made, and now the process is working on orders for B—so time was wasted in changing over to B, not enough A has been made, and the number of B’s may be overproduced! Is there waste here? Absolutely!

Proper sequencing of the orders could help solve the problem. To sequence, find the ratios of demand of A, B and C. For this example, the ratios are:

*Widget A: Widget B: Widget C = 3:2:1*

So ideally, each production cycle should consist of three As, two Bs and one C. This cycle is repeated until the orders are filled. When demand or mix changes, simply change the ratios in order to maintain the right production mix.

Can a change over after only three As or one C be economical? Probably not, but with effective kanban min/max level planning, we can come as close as economically possible.

Kanban System Planning Step 2—Gather Operational Statistics

In order to plan a kanban system effectively, the operational characteristics of the process need to be known. The primary characteristics we’re concerned with are as follows:

- Available time/Day: How many minutes the process is available per day.
- Effective Output: How many parts per day that can be produced taking into account downtime.
- Changeover Time: How much time it takes to change over to a new part.

Let’s say for the process we’re discussing, we have gathered the following information:

Available Time/Day = 450 minutes (8 hours – 30 minute lunch break)

Effective Output = 48,000/wk or 9600/day

Changeover Time = 10 minutes/job

Kanban System Planning Step 3—Calculate the Min/Max Levels

Now comes the bulk of our calculations: setting up realistic min/max levels so we can operate the kanban.

As was done in the beginning of our discussion, let’s calculate the time remaining per day for changeovers on our process.

Taking our daily production rate of 9600/day, convert it to pcs/minute:*9600/8/60 = 20/minute*

The demand for the process is 8400 per day. Now, let’s calculate the time remaining per day for changeovers:*(9600-8400)/20 = 60 minutes*

Now, what should our part runs be in order to "fill-up" the available changeover time per day? We know that we should be running in a 3:2:1 ratio for part A: part B: part C.

We have 60 minutes available for changeovers per day, and we have three jobs, so that means we have:*60/3 = 20 minutes per job/day for changeovers*

We are in good shape here, since we have more than enough time to cycle through all of our jobs each day—*but*—to get one step closer to single piece flow (reducing batch sizes), we need to optimize by changing over more often. How much more often? We know that we have 20 minutes available for each job per day for changeovers, and actually it only takes 10 minutes to changeover. So:*20 minutes available/10 minutes actual = 2 times more often*

Therefore, we need to changeover twice per day per job. Knowing this, we can now calculate our lot sizes (or max-min difference).

For Part A = Demand is 4200/day, so the max-min difference should be 2100 parts

For Part B = Demand is 2800/day, so the max-min difference should be 1400 parts

For Part C = Demand is 1400/day, so the max-min difference should be 700 parts

Now we know what the difference should be between the max level and min level for each job in our kanban system, based on operational characteristics of our process.

Kanban System Planning Step 4—Implement the System

Now we can implement our system, but although we know our max-min differences for each job, we need to establish min levels. Min levels should be determined based on risk assessment of the operation. Some questions to ask are:

- How valid are the assumptions used to make our calculations? The more the effort put into gathering the assumption data, the better the risk scenario, and the lower the min level.
- How stable is demand? If demand fluctuates or is somewhat unpredictable, then it is necessary to add to the min level.

Given the technique shown here, it should be possible for the kanban to operate by itself.

Kanban System Planning Step 5—Maintain the System

Maintenance of the kanban consists of constantly monitoring the ratios of product and maintaining the kanban min-max levels in the proper ratios.

Consider performing the min-max level calculations above once per week to begin with and increase or decrease based on where you see the need. Operating a kanban is a very fluid process that needs constant attention.

Also, consider creating a spreadsheet that does the calculations for you. This will help management of the system dramatically.

Kanban System Planning Step 6—Continuously Improve

By now it should be clear what needs to be continuously improved in order to drive improvement in your overall production system. Focus on these elements:

- Effective Output—Increase effective output, and the required min-max level will be reduced, which brings the operation closer to single piece flow.
- Changeover Time—Decrease changeover time, and the required min-max level will also be reduced, again heading toward the goal of single piece flow.
- Summary—Implementing kanban is a complex process which requires a considerable amount of thought and attention. The maintenance of the system also requires on-going calculation of min-max levels to assure functionality over the long-term.

Happy kanbanning!