Around 1980 we were all just coming to terms with the seemingly-rigid and overpowering concepts of Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) with their myriad pieces of jargon and dependence on complex computer packages when we began to hear of manufacturers in Japan carrying no stock and giving 100% customer service without any of this MRP sophistication. Every steering column was assembled and fed onto a production line just as the car rolled up at that particular stage. Every brake drum casting arrived at the factory just as the machining centre which was to bore, drill and grind it was ready for the next piece of raw metal. What is more, the casting was fed straight into the machine shop – no goods inwards area, no inspection, no transfer to stores and no issuing to machining in a big batch dictated by the economics of set-up times.

This was all managed by something called a kanban, which apparently meant ‘visual signal’ or ‘tag’ or ‘trigger’ and was the mechanism by which the assembly line told the feeder areas that they wanted another component. The kanban was in most cases a yellow card attached to the side of a container – when the last item in the container was used the container was sent back to the work centre producing the item and its arrival authorised this work centre to make more. So the next batch was manufactured and the replenished container returned to the point of use. 

Sometimes the kanban may be a painted square on the floor between two work centres. This, when empty, provided this same authorisation for the producing work centre to make more of the item. As long as the square had components in it, the producing area could not continue to create inventory that would not be used in the short term.

The first Western visitors to study Japanese production methods came back to tell us that the kanban replaced MRP and was the key to Japanese success. Sadly, it took a while before this was publicly recognised as nonsense. And nonsense it is:

  • We could not send a container with a yellow card containing a part number to our traditional machine shop and expect the immediate return of a machined component. There were queues to contend with and without some indication of what was going to be required, the machine shop wouldn’t have the right material.
  • Even where the machine shop didn’t have a queue, most components spent more time moving around than being worked on. The shop was laid out functionally with saws by the entrance, milling machines and borers along the side wall, drills and lathes further over and some grinders around the corner.
  • We might only want one backframe for our industrial digger but the 3-hour set-up time and the way in which the machine shop superintendent was measured meant that he wasn’t going to machine in any quantity less than 20. If we sent a trigger for one variant now and another in one hour’s time the first may get an immediate reaction, but of course the machines were then busy making the other 19 of that item so the second would have to wait.
  • Our suppliers, of course, could not respond just like this either. We needed to give them some sort of indication, as MRP did, of the demand likely to hit them in the future.
  • Even with good forward indications of requirements our suppliers would only be able to meet our exact needs and eliminate all stock from the supply chain if there existed a spirit of partnership between us and if they were equally skilled at eliminating inventories and reducing lead times.
  • . . . and so on.

In time, of course, we learned that the kanban was the last improvement step of many, not the first. The conceptual goals of minimised lead times and inventories rated above all else. The Japanese aim was having everything only when required and in only the quantity required and this could only be achieved when the supporting disciplines were all in place.

We then learned that Toyota led the way in the development of what we now thought of as the Japanese approach. We heard of something called the Toyota Production System which was the model for all that had happened in Japanese manufacturing. We heard of Taiichi Ohno, the production engineer / manager responsible for this breakthrough to a new way of doing things, and we started to learn what had been done to enable Toyota to make this breakthrough. We also heard of Ohno’s seven definitions of waste (the “7 Ws”). These are described elsewhere on this site. <click here>

Within the Toyota Production System all the reasons for excess stocks were attacked. The list below is not exhaustive but highlights the key points, perhaps in the sequence that we recognised and understood what our Japanese counterparts had done.

1. Batch Quantities

    Making something in large batches has several negative effects. The first thing which Westerners recognised, perhaps, was that stock levels are partly a function of order sizes. We had a formula (the EOQ formula, which MLG consultants are delighted to explain since it allows academic demonstration of differential calculus!!!) for economic batch sizing in which the cost of changeover, or set-up, was offset against the cost of holding the stock. Our theoretical average stock level was half the order (or delivery) quantity plus whatever element of safety stock we had built into our plans so reducing the order size would reduce our average stock. 

    There were, however, other considerations. As noted above, a piece of plant cannot be immediately responsive to all demands upon it if it makes parts in greater quantities than are required at the time. Responsiveness, and hence service to our customers (whether they be external or simply the subsequent operations within our own plant) requires that we make in small batches. This plays no part whatsoever in the EOQ formula.

    A further consideration is the impact of component batches on the flow of work through our factories. We knew that smooth workloads make management of the manufacturing process far easier and had established smooth finished product plans with the adoption of Master Production Scheduling. However, no matter how smooth our final assembly plans, we still had lumpiness elsewhere.

    • Consider a plant making 100 finished products per week. Let us assume that the main housing for the product is made in 6 variants. The two most popular variants may be made in batches of, say, 60 and the others in batches of 25. If we work to weekly schedules then the number of components made per week will vary. Where we plan to make both of the popular items and one of the others our proposed production will be 145 units. At other times we may plan to make only 50. In this business, despite a smooth plan for finished products, demand in the component area is forever up and down. Until we could make these housings in exactly the quantities required of each variant we would never have a smooth workload in the machining area.

    The major contributor to parts being made in large batches is, of course, set-up times and these had been attacked in many ways. A quality consultant hired by Toyota had set about effectively eliminating set-ups. Shigeo Shingo had coined the term Single Minute Exchange of Die, or SMED, and revolutionised the way we thought about changeovers. In addition, the accounting conventions that led Western businesses to make great quantities of parts that may not be used – all in the name of ‘recovering overheads’ – were challenged and shown to be ludicrous.

2. Safety Stocks

    A major element of Western manufacturing’s inventory was that which we held in case of problems. We held safety to allow us to continue manufacturing should some of the components or raw materials in our stores be found to be defective. Ohno and his colleagues, ironically, had taken heed of the American quality gurus, notably W. Edwards Deming and Joseph Juran, who had advised Japanese industry as it struggled to its feet in the aftermath of World War II. Among the key concepts learned by the Japanese and neglected for many years in the West were:

    • Deming’s teaching that we cannot inspect quality into a product but must build it into the manufacturing process.
    • Juran’s definition of the internal customer. If we each give service to our internal customer, he taught, then we will ultimately take care of the end (‘real’) customer.

    By applying these teachings and aggressively hunting down and eliminating all sources of non-compliance the Japanese moved quality onto a completely different plane. Where the West continued to measure percentage defect rates our competitors were working in parts per million and accepting nothing less than single figure performance. When we realised that 1% translated as a figure of 10,000 we knew how far we had to go.

    As well as addressing the manufacturing processes, we learned that the JIT approach considered other contributors to improved quality. Is the component designed in such a way as to make it easy to make or can we simplify it and reduce the chances of a defect? We began to think of ‘design for manufacture’ and combining the previously separate functions of design engineering and production engineering.

    We heard about things called ‘quality circles’ where people in different areas of the business came together to investigate problems and work as a team to solve them – rather than follow our own approach of each area attempting to blame another. Perhaps most disturbingly we heard that inspectors were a thing of the past. All had now been trained as quality engineers and were in fact working as process improvement specialists so that their old function was no longer required.

3. Supplier Partnerships

    Another reason for safety stock, of course, was poor service levels on material and component supply, both within our own element of the supply chain and from external suppliers. Perhaps the most challenging concept within the Toyota model for many companies was that of working with suppliers as partners. Buyers who spent their lives playing one supplier off against others and switching from one to another to shave pennies here and there heard that their Japanese counterparts single-sourced in nearly all cases. What is more, large corporations such as Toyota sent out their own specialists in manufacturing improvement to help their suppliers. Where savings were identified then an amicable division of the benefits would be reached.

    The most readily-visible consequence of this was better service from the company’s suppliers. If we were working together on agreed plans and the supplier could set out manufacturing resources based around a stable long-term relationship then we might avoid a major problem that plagued us in the West – namely that just as we played off suppliers against each other, they played off their customers. They never knew what demand they may get so they sought more orders than they could, in reality, fulfil. They then reacted to screams and shortages and tried not to fall out too often with each customer. All of this, quite naturally, meant all customers holding safety stock to cope with the repeated failures.

    Moving to the partnership approach brought other benefits in that if we worked as true partners then we would not need to spend so much effort in continuously expediting. We could leave behind the ludicrous situation where we had to keep asking “is that order going to be on time?” and if we didn’t then we had no chance of getting the items anything like on time. We could also expect our suppliers to warn us of problems in advance. If their key piece of plant broke down and they told us now of the impact this might have in a week or two, then perhaps we could set our own plans to work around the problem.

4. The Elimination of Variety

    Variety was recognised for its cost impact in that it complicated the manufacturing process. A sunroof on every Toyota Corolla was not only a marketing ploy but a practical manufacturing improvement as having to make two different types of roof and two different types of headlining introduced potential problems. Not only did it require a changeover on the press tool producing the basic item, it meant that there was the risk of defectives whilst the first of the new variants was produced and the process settled down.

    Further, it meant that the work content on the headlining finishing line and on the main assembly track would vary depending on the model mix. This contradicted the goal of a smooth workload throughout the manufacturing plant which was central to keeping stock and WIP levels at a minimum.

5. Shortened Cycle Times

    One point which we all understood was that our overall cycle times for our product dictated the level of WIP. If we have an average lead time of four weeks for the components going through our machine shop, or welding department, then we will have an average WIP level of four weeks’ worth of production. 

    The Japanese had addressed this in a number of ways, primarily in a fundamental re-design of factory layout and process flow. We learned that rather than have one area of the plant for presses, another full of lathes, another drills, and so on, they had switched to what became termed ‘focussed factories’ where each area of the plant made a particular type of component. The unit making drive shafts had saws, followed by milling, followed by turning, drilling and so on. These focussed units, or cells, then brought the opportunity for multi-skilling and teamwork which helped to provide productivity improvements – as well as significantly reducing the movement of materials through the factory.

6. Culture

    Few of the Japanese ideas for change in manufacturing were totally new. Frederick W. Taylor and Henry Ford had promoted many of these same ideas at the start of the Twentieth Century. Where the Japanese did, however, have much to teach us was in the total commitment of everybody to these new ways of working. We began to hear of stock levels being reduced to the point that every slightest problem immediately caused a major hold up, and this was actually treated as a reason for celebration. “A problem is a pearl,” we heard, meaning that finding a problem in a process was a good thing. Why? Because the problem was there before and we didn’t know about it, but now we do, so we can fix it.

7. ‘Pull’

    The kanban was then the final piece in the jigsaw. It worked when all the issues preventing immediate response had been addressed and was the mechanism by which a build up of stock could be prevented. The yellow card attached to the container, or the floor space between two work benches, was the trigger to initiate production of more of the item. If the assembly line stopped, then the sub-assemblies ceased being used and no more triggers were generated. This contrasted markedly with the position in Western plants where an assembly line problem quickly led to a massive pile-up of inventory with items being mislaid and damaged.

    One point must be made about kanban. As noted in the introduction, it was at first promoted as the replacement for complicated computer systems like MRP. Whilst this was not true, we should recognise that one of the major benefits of kanban is that it is very simple. It is also quite visible to all concerned and its logic is transparent. This contrasts very sharply with the standard planning and control approaches. For example Material Requirements Planning can be very sophisticated with complicated options for variable order sizes, yield allowances and safety stocks. Capacity Requirements Planning, similarly, performs all its calculations based on set-up, run, queue times, move times, efficiencies and utilisation. Advanced Planning and Scheduling packages combine elements of the two and enable desktop simulation of the integrated plan, based around finite capacity loading. All very clever – but often misused because people at the coal face don’t really understand the tools they have been given.

    And the irony of all this? Today’s major packages such as SAP, Oracle Manufacturing and BPCS all offer kanban functionality with all sorts of clever calculation. The fundamental key benefit was its simplicity and elimination of complexity and the term has now been hijacked by the ‘techies’