Kanban, also known as just-in-time manufacturing, is a methodology aimed primarily at reducing times within the production system, as well as response times from suppliers and to customers.  The origin and development of this system is generally attributed to Japan, largely in the 1960s and 1970s, and to Toyota in particular.  More recently, the concepts developed through Kanban have become known as lean manufacturing.

While a number of actual and potential benefits have been attributed to the adoption of lean manufacturing, the primary focus has been on cost reductions through improved efficiency and lower inventories.  It is not a coincidence that Kanban originated in the auto assembly industry with its increasingly complex and extensive supply chain.  When appropriately established and operating smoothly, lean manufacturing can lead to significant efficiency and cost gains.

Obviously, lean manufacturing is highly vulnerable to both short and long term supply chain interruptions.  Currently, manufacturers are being adversely affected by chip shortages, Covid-19 and now, a blockage in the Suez Canal.

Investors should be aware of the importance of supply chain management and the implications for financial results.  For example, Ford has been announcing production schedule declines for many of its vehicles, including its highly profitable F-150 line of pickup trucks, and corresponding reductions in 2021 sales and earnings guidance.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®