Here's how Kanban works:

Let's say one of the components needed to make widgets is a 42" stem-bolt and it arrives on pallets. There are 100
stem-bolts on a pallet. When the pallet is empty, the person assembling the widgets takes a card that was attached to
the pallet and sends it to the stem-bolt manufacturing area. Another pallet of stem-bolts is then manufactured and
sent to the widget assembler.
A new pallet of stem-bolts is not made until a card is received.
This is Kanban, in it's simplest form.
A more realistic example would probably involve at least two pallets. The widget assembler would start working from
the second pallet while new stem-bolts were being made to refill the first pallet.
If this was a high volume widget manufacturing facility, each widget assembly station might empty a pallet of stembolts in just a few minutes, and there could be 15 or 20 widget assembly stations. Thus there would be a continual
flow of cards going back to the stem-bolt manufacturing area that would cause a continual flow of pallets of stembolts to be sent to the widget assembly stations.

to achieve objectives that include:

reducing costs by eliminating waste/scrap
try to create work sites that can respond to changes quickly
facilitate the methods of achieving and assuring quality control
design work sites according to human dignity, mutual trust and support, and
allowing workers to reach their maximum potential.

Disadvantages of Kanban:
1. It is less effective in shared-resource situations. Suppose the upstream
station made several parts. Then a request to make more of the part needed
by the downstream station will have to wait if other parts have to be made. A
buffer is needed to ensure the downstream station doesn't run out
meanwhile. And, because each part needs a separate signaling card, the
system becomes more complex than if the resources were dedicated.
2. Surges in mix or demand cause problems because kanban assumes stable
repetitive production plans. It is less suited to industries where mix and
volumes fluctuate.
3. Kanban in itself doesn't eliminate variability, so unpredictable and lengthy

down times could disrupt the system; poor quality in terms of scrap and
rework also affect its good functioning.
4. Kanban systems are not suited for manufacturing environments with short
production runs, highly variable product demand, poor quality products, and
a multitude of product types.
5. A breakdown in the kanban system can result in the entire line shutting
down.
6. The throughput of a kanban system is not managed but is instead a result
of controlled WIP and known cycle times.
Advantages of Kanban
1. Optimize inventory and reduce product obsolescence.
Since component parts are not delivered until just before they are needed,
there is a reduced need for storage space. Should a product or component
design be upgraded, that upgrade can be included in the final product ASAP
(As Soon As Possible). There is no inventory of products or components that
become obsolete.
This fits well with the Kaizen system on continual improvement. Product
designs can be upgraded in small increments on a continual basis, and those
upgrades are immediately incorporated into the product with no waste from
obsolete components or parts.
2. Reduces waste and scrap
With Kanban, products and components are only manufactured when they
are needed. This eliminates overproduction. Raw materials are not delivered
until they are needed, reducing waste and cutting storage costs.
3. Provides flexibility in production
If there is a sudden drop in demand for a product, Kanban ensures we are not
stuck with excess inventory. This gives us the flexibility to rapidly respond to
a changing demand.
Kanban also provides flexibility in how our production lines are used.
Production areas are not locked in by their supply chain. They can quickly be
switched to different products as demand for various products changes. Yes,
there are still limits imposed by the types of machines and equipment, and
employee skills, however the supply of raw materials and components is
eliminated as a bottleneck.
4. Increases Output
The flow of Kanban (cards, bins, pallets, etc.) will stop if there is a production
problem. This makes problems visible quickly, allowing them to be corrected
ASAP.
Kanban reduces wait times by making supplies more accessible and breaking
down administrative barriers. This results in an increase in production using
the same resources.
5. Reduces Total Cost

The Kanban system reduces our total costs by:

Preventing Over Production
Developing Flexible Work Stations
Reducing Waste and Scrap
Minimizing Wait Times and Logistics Costs
Reducing Stock Levels and Overhead Costs
Saving Resources by Streamlining Production
Reducing Inventory Costs
6. Improves Flow
7. Prevents overproduction
8. Places control at the operations level
9. Improves responsiveness to changes in demand
i.e. Synchronization of supply and demand
10.
11.
12.
13.
14.
15.

Lead time is kept to a minimum

Totally customer driven demand
Better machine utilisation
Reduced or eliminated queues
Limit the spaces for WIP to hide.
Quickly improve factory control and WIP reduction efforts.