There are those that say that once a business goes lean it should eliminate its ERP system. That is not true. At most, the business’s ERP system can be simplified – but not eliminated. A company still has to run its business: take orders, plan, purchase and receive material, ship product and manage financials. To explain this we must first look at the difference between the ERP and lean:
The process of changing the way a business thinks and achieves goals is called a lean transformation. During a lean transformation, the methods used to run the business are transformed and become more efficient. Typically the lean transformation starts at the most basic level of services before being implemented in other functional areas. The benefits it offers are many:
- Waste/Non-value add
- Lead times (all disciplines)
- Process steps
- Technical complexity
- Missed order dates
- Floor space/Facility requirements
- Work in progress (WIP)
- Inventory and inventory costs
- Reduced scrap
- Value add
- First pass yields
- Market share
- Response to customer
- On-time delivery
- Quality and reliability
The Effects of Lean on a Company’s Planning and Control System
Forecasting and Demand Planning
The lean transformation results in a reduction of lead times, elimination of waste and non-value-added steps, and the improvement of value-added steps within the value chain. Due to decreased lead times, forecasting and demand planning become easier and more accurate. Shorter cumulative lead times also give a business increased flexibility to respond to changes in customer demand over a shorter planning horizon.
Material Requirements Planning (MRP)
The use of MRP changes in a lean environment. With the flattening of the bills of material (BOMs), decrease in lead times, and increase in throughput time and capacity, traditional multilevel time phasing of material moves to bucket scheduling. Back-flushing material when the item is completed is desirable due to the shortened production lead times.
Scheduling is a process of deciding how to commit resources between a variety of possible tasks. Traditional production scheduling (back-scheduling from a projected future need date) transforms to a daily final production schedule based on actual customer orders.
Supplier KANBANS are set up for material replenishment (replacing traditional purchase orders). Typically, blanket purchase orders are put in place with suppliers and a system-generated KANBAN signals replenishment in the exact quantity needed to support production. Commonly used items are changed to floor stock with vendor-managed resupply on a daily or weekly schedule.
Supply Chain Management
An immediate emphasis is put on procurement to reduce the supplier base and reduce cumulative lead times in support of the increased throughput and capacity of the production floor. A move is made to develop strategic relationships with suppliers and qualify local supplies to reduce logistical costs. Emphasis is focused on efforts to lean the total supply chain from supplier to end-user.
Production Activity Control
The greatest change takes place on the production floor. Visual work cells are set up utilizing TAKT Times and KANBANS to control the flow of material through the manufacturing process. This transformation eliminates the need for traditional capacity planning, operational scheduling and dispatching and input/output queue reporting. The increased throughput results in a faster consumption of backlog.
Sales and Marketing
With the reduction in lead-time and increased throughput and capacity, sales takes on new business and better serves the existing customer base. The increase in productivity and efficiencies gives added flexibility to respond to customer demand.
ERP and lean can work together. In fact many of the functions of ERP are simplified as a result of the lean transformation. If you are implementing a new ERP system, lean can make the implementation an easier task. The key to working ERP in a lean environment is to select the ERP features that work best with lean and discard those that don’t. If you are using an existing ERP system, the lean transformation can simplify the use of that software and reduce overall cost. Learn more about lean manufacturing and ERP by scheduling one of Panorama’s three-day “Lean Manufacturing, Six Sigma and Supply Chain Management” workshops.
Blog post written by Harry C. McClintock, CPIM, CSCP, a project manager at Panorama Consulting Group.