Limitation of the floor space forced the Japanese workers to view the other business entities for better ideas during the 1940s and the 1950s. Kanban is a JIT or a Just-in-time system wherein the inventory level is reduced by keeping a close watch over it on a real time basis. A cutback on the level of inventory added to saving over the cost of production. A JIT system which is first said to be used by the Ford Motor Company is said to have gained popularity in the 1950s on the adoption of the system into the production channel by the Toyota Motor Corporation.

The word Kanban stands for Kan- card, Ban- signal, and is a system which historically used cards to denote the need for further inventory. The company stores the materials in three bins, each located at three different locations like the shop floor, store and the supplier with the card which contains the details of the material in the bin and other relevant information. Once the bin in the floor is being used, the card and the empty bin can be sent to the supplier to replenish the requirements further, thereby ensuring a continuous supply of inventory resulting in lesser need for storage. The details and quantity is generally based on the historical data of the company. The usage of the past data can lead to a delay in the supply of the required material if there is a sudden demand by the customer leading to an interruption to the production. With this in view the companies keep a spare bin to meet the immediate emergencies. Electronic kanban systems are being implemented to avoid the errors caused by manual entry of data on the cards.

Kanban is of two types on the basis of the information on the card, namely, transport Kanban and production Kanban. The transport Kanban gives information on the origin and destination of the part or the component. The production kanban defines the operations that need to be carried out by a specific work station on the production line.

The kanban system enjoys many advantages. Being an integrated JIT process the kanban provides quick and accurate information on the requirements and limits wastage to a large degree by reducing the quantity of work in progress and stock of finished goods. As JIT considers inventory as one of the seven wastes in the production line, reduction of the buffer to a lower limit adds to profit margin. It is easier to have control measures on the system as it provides quick and accurate information. With the decisions made on the past performance it reduces the chances for over production. The kanban system gives great importance to the individuals in the team as they believe that it is the people who are responsible for the changes in the organisation and not the systems as this process is people dependent.

Though the system has been adopted in many countries, it is said that the system has been successfully and fully launched only by the Japanese manufacturing units.