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Wanted: lean ERP and what to do about it
Selecting enterprise resource planning (ERP) software to support and manage a lean campaign can be a difficult task, and with good reason. But there are steps you can take to ensure effective evaluation of today’s systems.
Designed to accommodate the traditional computer-controlled manufacturing systems of nonlean manufacturers, a category in which the vast majority of U.S. manufacturers fall, ERP systems are for managing functional groups of the company, including sales, accounting, purchasing, manufacturing, inventory, planning, scheduling, shipping and receiving. A basic component of an ERP system is material requirements planning (MRP), a nonlean activity focused on recommending procurement of materials based on a time-phased demand to a job or to a forecast.
Lean manufacturing, however, circumvents the MRP function by providing the efficiency of a “pull system” and kanban inventory control, without the administrative overhead. The desirable byproducts of lean manufacturing are on-time delivery, improved quality and reduced inventory levels. The question becomes how well will lean manufacturing practices integrate with the host ERP system? And if lean doesn’t integrate well, how is an appropriate ERP system to be found?
Some believe that lean manufacturing is so simple that it will work within virtually any ERP system by disconnecting the MRP function, and by driving production and purchasing with visual signals or triggers. With MRP disconnected, manual interfaces are created to communicate to the system, such as kanban cards with procurement information. These are utilized to convert an MRP system-generated purchasing requirement to an essentially off-line purchasing requirement. There are many such manual links to the host system allowing lean manufacturing systems to function. The benefits of this manual interface process far exceed the negatives.
To better understand the relationship between a typical ERP system and a lean system, review the level of complexity of an ERP system pictured in Figure 1.
For a short-term thinking lean company all that is required is an average accounting package to manage the company’s financials with the details of manufacturing and procurement handled off-line.
For the long-term, however, things are different. Almost all ERP systems were designed for control and not for transaction efficiency. ERP systems were spawned from accounting logic to control all functions of the organization and to provide an audit trail to assure accurate cost accounting to the owner of the organization, chief executive officer or board of directors. As a result, the logic imbedded in the software is focused on monitoring and providing predictable and accountable cost impacting information from all functional groups within the organization, regardless of the overhead required to achieve this objective. This becomes the dominant philosophy of the entire ERP system, which includes the MRP component.
The basic creed of the lean charter is to reduce waste. The primary focus is on reducing waste in the manufacturing process by shortcutting the labor-intensive MRP component of the ERP software system. Thus, lean manufacturing is validated as a cost-effective alternative to MRP, and there are measurable issues that result from the lean campaign outside of MRP and within the ERP environment. A successful lean campaign makes manufacturing efficient. Perpetual inventory is reduced by 80 percent and the inventory turns increase from four to 20, freeing up working capital. These are actual obtainable goals of a successful lean campaign.
After a successful lean campaign, inventory turns are five times higher with improved cash flow. The question then becomes, how is the host ERP system going to manage five times more transactions in key areas such as purchasing, receiving and AP invoicing? Because the ERP system is designed for control, and not throughput, the existing staff in these departments becomes burdened with the additional workload.
For the long-term, the appropriate ERP software package should be evaluated and selected based on its net corporate throughput and capability to balance the additional transactions incurred through the lean campaign. This would result in a true win-win scenario. The ideal ERP system would be designed for a lean company to assure that lean concepts and net throughput were integral to the system’s design consideration.
For example, a lean ERP system should absorb all the additional transactions resulting from efficiencies gained in improved cash flow and freeing up working capital. A lean ERP system will convert those manual interfaces between lean manufacturing and ERP back into an integrated auto procurement system with lean terminology and functionality. Ideally, the ERP system should still support MRP functionality. Although MRP is a nonlean function, it still has value because it will manage procurement of customer-specific, or non-kanban, material based on actual demand.
A perfect ERP system would be a hybrid of lean principles for Kanban-controlled inventory and management of non-kanban material to be procured based on actual demand and customer ship dates.
General ERP system metrics The metrics below will assist in determining the net throughput of an ERP system. - Minimized clicks, an important unit of measure, are directly correlated with the workload of the user. Clicks are defined as the number of mouse clicks or keystrokes required to perform daily functions or for taking the user from a starting point to a finishing point.
- Navigation time is directly correlated with the workload of the user and is the time required for the user to find the necessary functions to perform daily tasks.
- Processing time, also known as waiting time, is the amount of time waiting for the software to perform a function.
- Net throughput amount for a typical function in all functional groups in a given workday is, in actuality, a combination of clicks, navigation time and processing time.
Lean software checklistWhen evaluating the software’s ability to adapt to lean functionality, consider whether the software has the ability to:- Efficiently manage two different purchasing disciplines: demand purchasing and off-line (kanban) purchasing
- Identify kanban inventory from make, buy or stock
- Identify the primary vendor for a product and store the established reorder quantity and price for replenishment for that product
- Effectively shortcut the MRP component of the ERP system for kanban inventory, while continuing to function for procurement of non-kanban material
- Backflush, preferably from the primary bin
- Support a dynamic two-bin system for kanban inventory
Due to the increased number of transactions through lean efficiency, the following functional groups should be reviewed for streamlined activities:- Lean Purchasing. Purchase orders should be created fast and efficiently and be designed for high-volume (lean) purchasing activities.
- Lean Receiving. The receiving function should be totally bar coded, and ideally the ERP system will support point-of-use (POU) put-away.
- Lean Invoicing. Processing vendor invoices should be an efficient streamlined process designed for high-volume receipts without compromising accuracy.
Finding an ERP system that will adapt to a lean campaign is a difficult task. But careful review of ERP systems for efficiency in the key areas identified within this article will enable you to select the best system candidates.
 | About the authorRobert W. F. Krause II is a manufacturing/ERP/Lean specialist with more than 30 years experience in the design and management of ERP/MRP computer systems. Responsibilities include operations, material control and information technology for various industries such as pharmaceutical, aerospace, electronics and metal fabrications. Visit www.lean-manufacturing-inventory.com to learn more. |
Copyright © 2010 Society of Manufacturing Engineers
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| October 10, 2007 Issue: |
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