The competitive environment that both Manufacturers and Distributors alike have experienced in recent years in the era of Globalization, Currency Fluctuation, and Market Pressures has given rise to the business impetus to run a leaner operation to remain competitive. These issues have trickled down to the IT department. IT Professionals are at times facing an enormous obstacle. They are expected to align the organization’s IT infrastructure with the strategic and operational components of the Business to improve upon Service Delivery. The other part of the issue is to reach those goals with fewer resources. Many IT Managers have had to adopt techniques to run a lean IT shop and extend that to the principles of the IT projects that are under development.
An ERP project is an ideal area to utilize lean concepts to further understand how this can be achieved, but we must first understand the basic principles of lean and how they relate to an ERP project implementation.
Lean Principles have evolved from the Lean Production Philosophy which has its origin in the set of business philosophies developed in post-war Japan known as T.P.S. (Toyota Production Systems)— which has as its core philosophy cost reduction through elimination of waste (muda Japanese).The principles deployed in Lean made Toyota the pre-eminent auto-manufacturer in the world and by extension helped shape Japan into an economic power.
The concepts outlined in Lean Manufacturing evolved into a series of principles which evolved into a business concept known simply as Lean which can be applied across several disciplines i.e. Project Management, IT Deployment, etc.
The Organization known as APICS (American Production Inventory Control Society) has defined Lean as “A Philosophy of Manufacturing based on planned elimination of waste and continuous improvement of productivity.”
How ERP & LEAN Work Together
One of the ways in which ERP & Lean complement one another is in areas such as: Machine Setup Time, labor costs, and materials handling.
During Machine setup, time is lost due to the time the machine operator must setup or take down and change tooling. At other times the employee must spend valuable time looking for tools or preparing for many delays related to machine setups as a result of constant changes to the production schedule at the same work station. One of the core values of Lean Manufacturing is known as the “5S Method.”
Execution of the” 5S Principles” meant that resources were planned in ahead, tools were in place and readily accessible, and (where possible) production jobs were scheduled to run in a sequence that minimized machine set-up. When the “5 S Principles” were applied to an ERP environment they looked like this:
The results achieved by the ERP system deployment have resulted in cost reductions and improvements in efficiency meant that work in process has to be managed closely to ensure that no bottlenecks in production occur, The tools within ERP such as Capacity Planning and Costing Modules to define direct vs. indirect labor now mean that only the time the job runs in production are calculated as direct labor.
The efficiencies gained by the ERP implementation produced reduction in set-ups, and other shop floor time management processes, means direct labor costs are also maximized. Through the use of data collection devices, you can account for time spent “on the clock” and nonproductive time spent while a work-order is in queue. This way, non-productive time no longer figures as a basis for calculating direct labor. Finally, as ERP itself evolves with the use of BI tools, along with lean techniques and philosophies such as lean pull-production principles, you will achieve business gains as you introduce JIT (just-in-time), resulting in greater capacity to monitor inventories, manage more efficiently, and align your suppliers to lean-pull production techniques. In the lean ERP model, especially where cellular production techniques in manufacturing are introduced, there is going to be less handling of materials. Once a production job begins on the shop floor, production raw materials flow through the plant rather then sitting idle waiting to be used in Production.
As a result of lean ERP being used in the organization, inventory moves from work station to work station in a continuous flow through the plant—and as a result, return on investment is accomplished through the use of improvement in efficiencies and reduction in inventory investments.
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I think you are making quite a stretch to equate one of the tools utilized in a lean environment to something as diametrically opposed as an ERP system. 5S is intended to simplify and standardize the lean manufacturing environment, allowing simple visual control to manage the shop floor, whereas ERP is all about putting into place complex data structures, detailed transaction reporting, etc. A true lean manufacturing environment has little use for most, if not all, of the shop floor execution functionalities embedded in most ERP systems.
To The Devoted Readers of My Blog Post:
I am always delighted to have comments both positve and negative to an individual posting or subject matter. Thanks both Tina and Tim for your contributions I am curious to know in which industry you are in and more importantly how has the concepts related to Lean Principles made a difference in your workspace. Have you been able to become more efficient and improve on throughput in your manufactturing operation? AS you both probably know Lean is a philosophy not just a tool related to improve manufacturing efficiencies,I was trying to link Lean Concpts like “Five S” in a manner that could be applied equally to reducing waste and redundent processes within technology deployment whether it be ERP,BI or other Tools to improve visibilty within an organization.Once again I thank-you for your contributions and look forward to hearing from you and others that want to weigh in on this or any topic of interest.
Good one on lean ERP systems.
The ERP implementation project itself need to be “lean” considering the current economical situation….
Anything that increases the value of information for shop floor decision making, and in so doing increases the quality of shop floor decisions, has to be good.
So, perhaps a better example of how ERP can utilise lean principles would be to link a Kanban system to both a predictive production schedule and human resource management. Such is not easily achieved with the low tech Kanban approaches we often see in factories.
The goal is not to replicate Lean Techniques, it is to improve them. In this regard, IT will continue to have a valuable role to play
In the broad sense, I have to agree with comments of Tim Lyons here. In my work with Lean (and dating myself now by also mentioning JIT and even before that with the US adaptation of the predecessor to Kaizen - Quality Circles), the waste created in a mfg operation that is alsready fairly far along on a Lean journey via the insertion of ERP in is greater than any additional waste that can be eliminated.
That said, I have learned over the years that this does not apply to the whole business environment. ERP is a tool which can assist in reducing waste throughout an enterprise. So in balance, the enterprise may be enabled to become more Lean even when mfg itself is incurring additional waste from dealing with ERP.
Happy New Year to all readers of our of our blog forum,I would like to thank you once again for your timely and intelligent responses. To Prasad:Excellent point deals can be obtained as we are in a sluggish economy the question though is which vendors have invested for the long haul and provide good value and quality support to both their customers and by reinvesting money into delveloping the software that is often an overlooked component when selecting a software vendor. The question being: What is the percentage of GP Gross Profit reinvested into product development,perhaps the more stable the product less investment is required but it should always be a proportional amount to a portion of the annual marketing budget. To Dr.Woodhead you have raised an excellent point have you ever considered MES Manufacturing Execution Systems there are a number of quality vendors out there in our TEC showcase one vendor Asprova comes to mind. It is my view that where ERP ends MES carries on as you are enabled to drill down to each work center change priorities,schedule your labor and material resources while obtaining the levels of efficiency by work station,by operator and monitor this in real time below please find their link .http://www.asprova.com To Jack It sounds like the ERP solution that you refer to did not address your organizations needs,where was the due dilligence in terms of the RFP process and reviewing the functional needs of the organization. In my experience at TEC I have seen how certain vendors if not challenged by the clients to review the non standard or custom criteria if unchecked can sell an organization a system that only partially can address the needs of the business. If any of you have similar horror stories or at the same time glory stories of the Good ,The Bad and the Ugly ERP Implentation experiences no not the movie featuring Clint Eastwood