What Is Kanban in Small Business Supply Chain?

Warehouse worker lifting a pallet of boxes
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Kanban is a scheduling system that is used in lean processes and Just-In-Time inventory replenishment programs to help companies improve their production and reduce their overall inventory. Kanban was developed by Toyota after World War 2 (“kanban” means “signboard” or “billboard” in Japanese) but did gain wide acceptance in the west until the 1970s.

In traditional kanban, employees use visual signals to tell how much to run during a production process. Visual signals also let them know when to stop or change over. The process replaces forecasted usage with actual usage so that there is very little work-in-progress (WIP) material, thus reducing inventory.


Kanban is used to achieve efficiency – also a concept of Six Sigma. The work or production job enters the process and proceeds through it smoothly and continuously. The process reduces WIP, reduces re-work, and any other delays in the manufacturing process.

Because of kanban’s real-time, visual signaling, each area on the production line pulls just enough components or raw material and the correct type of components that the process requires, at just the right time.

The trigger for doing this “pull” is the kanban card. This can be a physical card or some kind of electronic signal or other visual signals. To eliminate manual errors and lost cards, in today’s world many are electronic. Barcodes are scanned instead of the use of physical cards. 

The Two Most Important Types of Kanbans

Production (P) Kanban: A P-kanban authorizes the work center to produce a fixed amount of product. The P-kanban card is carried on the containers that are associated with it.

Transportation (T) Kanban: A T-kanban authorizes the transportation of the full container to the downstream workstation. The T-kanban card is also carried on the containers that are associated with the transportation to move through the loop again.

When the bin on the factory floor is empty (because the parts in it were used up in a manufacturing process), the empty bin and its kanban card are returned to the factory store or warehouse (the inventory control point).

The factory store replaces the empty bin on the factory floor with the full bin from the factory store, which also contains a kanban card.

The factory store sends the empty bin with its kanban card to the supplier (usually electronically these days).

The supplier's full product bin, with its kanban card, is delivered to the factory store; the supplier keeps the empty bin.

This is the final step in the process. Thus, the process never runs out of product—and could be described as a closed-loop, in that it provides the exact amount required, with only one spare bin so there is never oversupply. This 'spare' bin allows for uncertainties in supply, use, and transport in the inventory system.

Calculates Just Enough Cards for Each Product

That’s the key to an efficient kanban system – constant calculation and re-calculation of kanban bin sizes (number of units in each kanban) and also the number of kanban bins. 

An example of a simple kanban system implementation is a "three-bin system" for the supplied parts, where there is no in-house manufacturing. One bin is on the factory floor (the initial demand point), one bin is in the factory store or internal warehouse (the inventory control point), and one bin is at the supplier. 

When the factory floor kanban bin empties, the kanban system sends a signal to the factory store or internal warehouse for kanban replenishment – which signals the supplier to do the same. In some high volume operations, a kanban size might be a single production run, while the supplier is mandated to have two or more kanban bins available. This also happens if the supplier has a long lead time for their replenishment of the bin.

Most optimized supply chains have kanban within their core processes. Kanban needs an accurate inventory in order to be effective, so other tools like cycle counting and physical inventories need to be integrated. It's also helpful to learn about agile supply chain