Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Kanban

What it is:

Kanban is a Japanese term that refers to the  "just-in-time" inventory method's signal to a supplier to send more inventory

How it works (Example):

Just in time (JIT) is an inventory management method whereby materials, goods and even labor are scheduled to arrive or be replenished only exactly when needed in the production process. Toyota Motor Company developed JIT in the 1950s. JIT is often referred to as a "pull" system, whereas traditional inventory methods are often referred to as "push" systems or "just-in-case" management.

The goal of JIT and kanban is to improve product quality by keeping only enough inventory on hand to meet immediate production needs. In order to effectively employ JIT, a company must accurately forecast demand. JIT's encouragement of planning, simplification and standardization is aimed at reducing production errors and, by extension, encourages the limitation of the number options a product has. These methods rely on kanban communication, but eliminate the expense of housing idle materials, and lower the costs of defective products, wasted space, extra equipment, overtime, warranty repair and scrap.

Why it Matters:

Kanban speeds the production process, thereby eliminating long lead times and improving delivery performance. It works best for companies using repetitive manufacturing functions.

Possible indicators of a company's use of kanban methods are high inventory turnover ratios and high asset turnover ratios. Low inventory balances mean a company's choice of inventory accounting methods has minimal impact.
 

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...