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The Principle-Customer Pull and Replenishment

Taiichi Ohno and his associates were fascinated by the importance of the supermarket to daily life in America in the 1950s. It captured the imagination of retailers in Japan and was imported there, where Ohno studied it close up.

Though Ohno recognized from the start that in many cases inventory was necessary to allow for smooth flow, he also recognized that individual departments building products to a schedule using a push system would naturally overproduce and create large banks of inventory. In a push system, the production of goods is based upon a plan (schedule) that’s been made in advance, which means production and purchase orders are initiated by projected customer demand. The operation keeps building to the schedule and creates waste. But customer demand can change on a dime and things can go wrong. What becomes of the schedule then?

Most mass production departments will try to minimize the equipment changeovers that are necessary for making different types of products with the same equipment. As a result, a specific department may make all of the largest-volume items early in the week before it changes over. Since each department is making what it wants to over the week, there will not be any real coordination between departments. To keep the downstream departments busy, there will be inventory buffers between departments. So the departments working according to independent schedules will be pushing material into these inventory buffers.

As a compromise between the ideal of one-piece flow and push, Ohno decided to create small “stores” of parts between operations to control the inventory. When the customer takes away specific items, they are replenished. If a customer does not use an item, it sits in the store but it is not replenished. There is no more overproduction than the small amount on the shelf and there is at least some direct connection between what customers want and what the company produces. But since factories can be large and spread out and suppliers of parts are a distance away, Ohno needed a way to signal that the assembly line had used the parts and needed more. He used simple signals—cards, empty bins, empty carts called kanban. “Kanban” means sign, signboard, doorplate, poster, billboard, card, but it is taken more broadly as a signal of some kind. Send back an empty bin—a kanban—and it is a signal to refill it with a specific number of parts or send back a card with detailed information regarding the part and its location. Toyota’s whole operation of using kanban is known as the “kanban system” for managing and ensuring the flow and production of materials in a just-in-time production system.

Even today in the world of high-speed electronic communications, you can walk into a Toyota factory making and using thousands of different parts and you’ll see cards and other types of kanban moving about the factory triggering production and delivery of parts. It is remarkable, simple, effective, and highly visual. Now, throughout the world, companies are learning the power of the kanban system. They are turning away from sophisticated computer schedules for many parts of the process. While it can seem like taking a step backward, it has been repeatedly demonstrated that this is a step forward because a company’s inventory goes down while the frequency of having the right parts goes up. And all those complex systems for tracking inventory accuracy become unnecessary—waste.

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