A Kanban system is a visual way to implement a pull system. The basis of the system are the so-called Kanban cards, which basically are work authorization forms. Only if such a Kanban card is issued (which happens due to demand), work on the next set of units is begun. Since the inventory kept can never grow bigger than the sum of Kanban cards in circulation, the system allows users to keep a definitive cap on the inventory.
By setting the right number of Kanban cards, one can adjust the inventory to the needs of the current demand structure. This corresponds with the idea of a pull system: Rather then having everybody in the process work as hard as possible and pushing the flow units forward, the demand pulls the flow units through the process via the Kanban cards. Action is only taken if demand is there, not because there is idle time to spend or flow units are arriving from some other station in the process. Kanban cards thus support a just-in-time production.
These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.