OPPOSITES ATTRACT: LEAN MEETS ERP

The story is told about the owner of a manufacturing firm who went to Japan to learn about Lean. He was shown Lean techniques in action and was duly impressed with the results: extraordinary productivity levels, scant inventories, very visible control of quality, throughput at light speed, and great customer service. "This is for me," he said. "But tell me how this ties in with my MRP system." His host replied, "It doesn't. Go home and turn it off."

I doubt that owner actually scrapped his manufacturing system, but the story illustrates the dilemma faced by companies with legacy Manufacturing Resource Planning (MRP) or Enterprise Resource Planning (ERP) systems that are also in the throes of a Lean journey. Is there a role for over-arching systems in the Lean environment? If so, what is that role? Are there full-blown systems designed for Lean adopters? What about "bolt-on" applications designed to support Lean techniques? Are there Lean-friendly, stand-alone applications with links to a back room ERP?

I want to attempt to answer these questions and suggest a rational approach to combining the performance improvement potential inherent in Lean and contemporary Information Technology (IT).

DIFFERENT DIRECTIONS
Some of the fundamental differences between Lean and MRP/ERP are illustrated in Table 1. Given these divergent thrusts – and a sprinkling of professional jealousy – it is no surprise that Lean has evolved under a cloud of anti-computer bias that has been further fueled by the fact that many of the promised benefits of IT solutions turned out to be smoke and mirrors. These failures typically owe to flaws in implementation rather than inherent problems with the technology. At any rate, thousands of companies have spent millions of dollars on MRP/ERP implementations – only to be disappointed. Too often these efforts have actually added costs while doing little to improve inventory turns or customer service, which are the main reasons for buying the system in the first place.

Lean techniques, on the other hand, have a demonstrated ability to deliver improved performance. One's first impulse might be to follow the Japanese host's suggestion to "turn off the computer." Just do the Lean thing, right? Not really.

A FOUNDATION FOR RECONCILIATION
To understand why abandoning one's computer-based manufacturing system is a very bad idea, we need to examine the underlying objectives of both IT and Lean techniques. Figure 1 is the model of a truly world-class company that represents the business state to which both IT and Lean proponents would move us. This is the ultimate goal of all improvement activity. Each faction might suggest that their solution could best close the gap between our reality and this perfect set of characteristics. In fact, neither IT nor Lean alone will drive the improvement necessary to reach the lofty intent that this model implies.

Companies that assume this profile will learn and apply a wide range of improvement strategies and techniques. Figure 2 offers a model that captures an array of these tools which, in combination, have a time-tested ability to enable world-class performance. Each quadrant of The Competition Quad represents a specific set of techniques and strategies which, when properly applied, contribute to major operating improvements. Customer Focused People are developed through human resource initiatives that foster the skills, attitudes and behaviors necessary to effectively deploy technical aspects of world-class operations. The ultimate objective is to have a workforce with an abiding commitment to doing a first-rate job for their customer; where the "customer" is both the external (end) user and the internal recipient of work done by another person or group. This commitment, coupled with technical know-how, is the foundation for a successful improvement process.

Systems and Resource Management (SRM) provides a set of techniques for positioning capacity and/or inventory in a manner that insures 100 percent on-time delivery at the lowest possible cost. Being chronically late is definitely not world class. The tools of SRM provide first, for realistic delivery commitments based on capacity or inventory available to promise; and second, they provide the means by which production schedules can be effectively executed.

Six Sigma quality techniques are used to drive errors and defects out of business processes throughout the enterprise. These are high-powered diagnostic and statistical tools with the potential for reducing defects to less than ten occurrences per million opportunities. A reduction in defects to the Six Sigma level is, of course, accompanied by major reductions in the cost of quality and near perfect end item quality.

Lean Business Practices reduce or eliminate non-value added work (waste) as a means of increasing productivity, reducing inventory and other buffers, speeding throughput and making quality issues more visible. In addition, Lean techniques allow production and delivery of small lots of material at frequent intervals, a growing demand in most industries.

Note that the tools of the Competition Quad include computer-based solutions, particularly in the SRM quadrant. The information provided by a fully integrated, functionally complete business system is absolutely necessary for managing resources in a complex manufacturing environment. We can't imagine running a manufacturing business without order entry/order management capabilities, item masters, BOM files, inventory and routing files and integrated financial modules. You may never use the MRP function to explode a BOM, but you must maintain certain data in order to run the business. The real question is not whether or not to use MRP/ERP software. The correct question is: How do I set it up and augment it to support the Lean initiative?

With this premise in mind, may we state the obvious? The computer is here to stay. So let's get over it! The challenge, yet to be completely met, is to develop IT tools that support perfectly the objectives of Lean.

OVERCOMING ERP/MRP SHORTFALLS
A very basic issue for aggressive Lean adopters is finding a way to adapt off-the-shelf software to support a shop floor execution environment that is driven by visual pull systems and rate-based planning. Software suppliers have just not been able to provide the functions required to easily support Lean.

In Figure 3, we suggest a way to run the Lean factory using information provided by the ERP system. But here, we also use concepts and report formats that are linked to a shop configuration and organization designed around Lean principles. To understand the approach, it is useful to first consider the capabilities of a Lean production management system. These capabilities are as follows:

1) Maintain the best possible data on sales driven production requirements.
2) Express production requirements as a Takt time or rate associated with the cells, lines and shared resource (functional) departments defined by a Lean enterprise model.
3) Produce schedules by cell, line or department based on absolutely valid due dates.
4) Be able to measure performance to rate and schedule on a daily basis.
5) Have accurate, real time visibility of load vs. capacity to enable delivery promising based on available capacity; i.e., the ability to quote variable lead times based on how sold out the capacity is.

An ERP environment that is adapted or augmented to accomplish the following functions supports this capability:

Sales, Production, Inventory (SPI) Planning
? Tailored spreadsheets with embedded algorithms and data capture for performance measurement

Scheduling and Daily Production Monitoring
? Flawless date management
? Rate-based, due-date driven (usually FIFO) schedules

Order Promising
? Stand-alone order promising model with real time updating

Daily Performance Measurement
? Performance board and supporting data capture capability

Automatic ERP Updates
? Completions
? Shipments
? Backflushing
? Inventory files
? Other updates as required

We know of no ERP software that includes an effective SPI planning module, so this capability will need to be "bolted on." The importance of a first-rate SPI planning process cannot be overstated. All other planning, execution and performance measurement depends on the quality of this planning.

Other adaptations of the ERP system involve the definition of routings, item mapping to cells and lines, capturing completions, measures of output, back scheduling from delivery due dates, defining transaction points, and collection of cost data. The trick is to satisfy the ERP system's need for transaction-based data in a Lean environment where transactions are properly defined as non-value-added (or waste). We visualize the business as a set of value streams through which we flow work. The system then becomes a tool of value stream managers to help measure progress, performance and cost with an absolute minimum number of systems transactions. And at the same time, we enjoy the vital support of the ERP system in managing non-manufacturing functions of the business.

Software suppliers currently do not offer truly Lean compatible ERP solutions, but the data capture, manipulation and reporting capability is certainly available. It remains for the manufacturing community to create the demand that will drive development of better software. In this regard, the software industry should be challenged to get outside their tightly circumscribed world and explore the needs and opportunities outlined in this and other articles. Basic MRP software logic has not changed significantly since its invention over 40 years ago. An ERP package completely redesigned to support the Lean environment is long overdue.

WHAT THE FUTURE HOLDS

The marriage of Lean techniques with IT solutions that help to drive waste out of our business processes holds out an enormous promise. Aggressive practitioners are currently developing, and will continue to develop and adopt these tools. Those who cling to the archaic notion that Lean and IT are incompatible will eventually be left behind. In a competitive environment that demands extraordinary performance just to stay in the game, the creative combination of Lean and IT might well be the edge you are looking for.

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Dave Dixon is the executive vice president of Technical Change Associates, Inc. and a registered professional engineer with more than 35 years of experience in Lean manufacturing, Six Sigma and other improvement initiatives. For more information, call 801-621-8980 or visit www.technicalchange.com.