Friday, June 19, 2009

Total Success by using Both Lean and ERP

There are those who feel that if Lean tools and concepts are implemented, there is no need for ERP tools and vice versa, but in fact, the two need to be used together in order for an organization to get the most out of each. Aberdeen Research recently released an article titled “… Reducing Waste in the Supply Chain”. This is an interesting combination of terms since “Reducing Waste” is typically associated with Lean tools and concepts and “Supply Chain” is often times embroiled in non-lean ERP tools and concepts. The truth is that BOTH sets of tools and concepts need to be used and integrated in order for the organization to go from “Doing Lean” to “Being Lean”.

In the study that is the basis for the Aberdeen article, Best-in-Class companies were achieving:

  • 96% Perfect Order Delivery
  • 3% decrease in Inventory Carrying Costs
  • 2% decrease in Inventory Write-off
  • 4% decrease in Customer Lead Times
  • 4% decrease in Manufacturing Cycle Times
Unfortunately for the lazy reader, Aberdeen saved the best part for the end where they discuss actions to combine the two schools of thought. Some of the ideas they present include:

Develop standardized information flows from the supply chain managers to the operation managers. The Sales and Operations Planning (S&OP) functions should be connected to the tactical execution functions via regular, collaborative meetings so that customer demand requirements and company supply capabilities are discussed and matched.

Establish bi-directional information flow between the supply chain and manufacturing functions. There is a need to compare monthly and weekly plans from S&OP activities to the weekly schedules and daily results of the execution activities. With this connection, the needs of the customer can be translated to what the plant needs to do (i.e. takt time) which leads to an execution plan to achieve what needs to be done.

Determine appropriate inventory buffers throughout the supply chain. Instead of keeping excessive WIP inventory, it is likely more effective and cheaper to keep finished goods to meet changes in demand patterns. Where keeping finished goods is not practical, such as with an engineer-to-order product, working to a planned inventory of semi-finished components may be a viable alternative.

Incorporate demand and production variability, inventory levels and supplier lead times as part of the level plan creation. In Lean, the goal is to eliminate all of this variability, but in many cases, this is not possible. ERP is a process of managing these variables. Using the two together can provide a compromise that satisfies the requirements of the specific business.

Develop Lean and ERP techniques that support pull concepts for both internal operations and suppliers. By combining Lean visual concepts of Kanban and other pull concepts with ERP software solutions that support non-visual processes such as time-phased predictions and advanced warning/alert tools, those who live in the hour-to-hour mode of operating will not be bogged down with the functions of “the system” and those who must manage the variabilities external to the execution processes will be connected to what is really happening.

Many times the supply process is longer than the delivery lead time demanded by the customer, so the key is to manage the process such that a minimal investment is made while still being able to manage the variations that exist and are uncontrollable. Lean can be used to manage the tactical processes that result in reduced waste, reduced work-in-process inventory investment and improved flexibility. ERP can be used to manage the longer term variables that are not controllable by Lean techniques. The integration of the two is what allows the organization to be successful.

Are you Best-in-Class?