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Kanban Inventory System: Everything You Need to Know in 2024

4.5 minutes

In this article, we explain exactly how the kanban inventory system works and explore the pros and cons. We also provide a simple 7-step framework for implementing it, with real-world examples. Read on to learn more.

kanban inventory

What Is the Kanban Inventory System?

The kanban inventory system is a visual management method, originating from Toyota's production system, designed to control and optimize the flow of goods. It emphasizes just-in-time production and the reduction of waste. 

Example: Tech Widgets Inc. uses a basic kanban system to ensure they only produce 500 units of a particular widget when their inventory drops below 1,000 units.

Core Guidelines of the Kanban Inventory System

The kanban inventory system operates based on a few key guidelines as originally introduced by Toyota:

1. Visualization of Work

Use visual aids to represent work items and their status in the production process. This ensures transparency and clarity in the workflow.

2. Pull System

Production is based on actual demand rather than forecasts. This minimizes waste from overproduction.

3. Limit Work-In-Progress (WIP)

Restrict the number of work items in a particular phase of the process. This helps identify bottlenecks and ensures smoother flow.

4. Continuous Improvement (Kaizen)

Regularly evaluate and refine the system to optimize efficiency and eliminate waste.

5. Standardize Tasks

Ensure tasks are standardized and understood by all. This ensures consistency in processes and outcomes.

6. Flow Efficiency

Focus on reducing idle times in the workflow to ensure that work items move through the system as efficiently as possible.

7. Feedback Loops

Create mechanisms for regular feedback to address issues and make necessary adjustments. Feedback can be through regular meetings, kanban system reviews, or direct communication.

8. Collaboration and Communication

Encourage team collaboration and open communication to address challenges and share insights. This fosters a culture of collective problem-solving.

These principles form the backbone of the kanban system, promoting efficiency, flexibility, and continuous improvement.

kanban inventory system

Pros and Cons of the Kanban Inventory System

The kanban inventory system offers distinct advantages and potential pitfalls that businesses should look out for before integration:


The system offers several significant advantages. We list some of these below: 

Reduced Waste: By producing based on demand, resources are optimally used, reducing overproduction.

Flexibility: Adapts quickly to changes in demand, ensuring agile production.

Visibility: Provides a clear view of inventory and production processes, enabling quick identification of issues.

Reduced Stock Levels: Limits excess inventory, leading to reduced storage costs.

Enhanced Flow: Streamlines operations by highlighting bottlenecks and inefficiencies.


Despite its advantages, the system also has its drawbacks. These include: 

Dependency on Demand: Vulnerable to fluctuating demand, which can disrupt production.

Communication Errors: Misinterpretation of kanban signals can lead to issues.

Lack of Forecasting: A purely demand-driven approach may miss out on predictive insights.

Requires Discipline: Successful implementation demands rigorous adherence to principles.

Initial Setup Challenges: Requires time and effort for proper setup and staff training.

7-Step Framework to Implement a Basic Kanban Inventory System

For those who are keen to implement a basic kanban inventory system, it is important to understand the nuances of your own business operations. 

Here’s our simple 7-step framework for you to get started: 

Step 1: Identify Key Inventory Items

Divide your inventory into categories such as high-turnover items, seasonal items, and slow-moving items. Apply the Kanban system to high-turnover items first.

Example: A bookstore might categorize its stock as bestsellers, limited editions, and classics.

Step 2: Determine the Kanban Card Types

Use "Production Kanban" to signal the production of new items. Use "Withdrawal Kanban" to signal the movement of items from one stage of production to the next.

Example: A toy manufacturer might use Production Kanban for creating toys and Withdrawal Kanban to move painted toys to assembly.

Step 3: Calculate the Number of Kanban Cards

Use the formula: Number of Kanban Cards = (Demand * Lead Time) / Container Capacity.

Example: If a shoe factory has a demand of 700 shoes per week, a lead time of two weeks, and a container capacity of 100 shoes, they’d need 14 Kanban cards.

Step 4: Design the Physical or Digital Kanban Board

The board should have columns like "To Do," "In Progress," and "Done." Each card should contain key details like the item name, quantity, and source or destination location.

Example: A grocery store may have columns like "Stock Needed," "Stock in Backroom," and "Shelves Stocked."

Step 5: Establish a Pull System

Define clear trigger points for when the next item or batch should be produced or moved. Create avenues for team members to provide feedback on the system's efficiency.

Example: A café might decide to bake more muffins when only 5 are left on display.

Step 6: Continuous Monitoring and Iteration

Set periodic reviews of the Kanban system. Modify system elements based on real-world results and feedback.

Example: A car repair shop reviews their system every month to ensure parts' availability.

Step 7: Engage and Train the Team

Conduct Kanban workshops for hands-on practice. Offer refresher courses and introduce advanced Kanban concepts as the team gets more adept.

Example: A restaurant runs a simulation of a dinner rush to practice using their new Kanban system.

While the Kanban system is structured, it's also flexible. Tailoring it to your unique business needs is not just recommended, it's essential. 

what is kanban inventory

Case Study

NewLeaf Paper Supplies is a leading stationery provider. The company is facing challenges with stock overages and shortages. 

They decided to streamline their operations by following our 7-step process to implement a basic kanban inventory system: 

Step 1: Identify Key Inventory Items

NewLeaf segmented its inventory into three categories: daily-use items (e.g., A4 sheets), seasonal items (e.g., calendar planners for the new year), and slow-moving items (e.g., specialty crafting paper).

Step 2: Determine the Kanban Card Types

For daily-use items like A4 sheets, NewLeaf implemented both "Production" and "Withdrawal" Kanban cards due to their high turnover and multiple production stages.

Step 3: Calculate the Number of Kanban Cards

NewLeaf observed that they have a weekly demand for 10,000 A4 sheets, a lead time of one week for replenishment, and they store these sheets in boxes of 500. Using the formula, they determined they need 20 Kanban cards for A4 sheets.

Step 4: Design the Physical or Digital Kanban Board

NewLeaf set up a physical Kanban board in their main warehouse. The board columns are "Stock Needed," "Stock in Production," and "Stock Available for Dispatch."

Step 5: Establish a Pull System

For their A4 sheets, NewLeaf established a trigger point: whenever the stock in the "Stock Available for Dispatch" column dwindles to just 2 boxes (1,000 sheets), a signal is sent to start the production of new stock.

Step 6: Continuous Monitoring and Iteration

After the first three months, NewLeaf noticed a consistent surplus in specialty crafting paper. They adjusted the number of Kanban cards and the reorder point for this category, reducing unnecessary production.

Step 7: Engage and Train the Team

NewLeaf organized a one-day workshop for their staff to get acquainted with the new system. They also planned bi-monthly refresher courses and scenario-based training to help the team adapt to any changes in demand or production dynamics.

With the tailored Kanban system in place, NewLeaf Paper Supplies is now better equipped to meet customer demands efficiently, reduce waste, and maintain optimal inventory levels.

We hope you now have a better understanding of how the kanban inventory system works and how to implement it.

If you enjoyed this article, you might also like our article on specific identification inventory or our article on kanban inventory cards.

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