By Marianne Bradford, CPA,
For the past decade, organizations have spent billions of dollars and countless worker-hours installing huge integrated software packages known as enterprise resource planning (ERP) applications. Now many manufacturing companies are realizing that the infrastructure they spent years creating is deficient on their plant floor. The ERP systems of the 1990s have become a liability for many manufacturers because they perpetuate some of the legendary material requirements planning (MRP) problems such as complex bills of materials, inefficient workflows, and unnecessary data collection. A new manufacturing model has emerged that’s taking the place of the traditional MRP model. It’s called Lean, Flow, or Demand-Pull.
Lean manufacturing, a concept with roots in the production processes of Toyota, aims at improving efficiency, eliminating product backlogs, and synchronizing production to customer demand rather than a long-term (often incorrect) forecast. According to a recent study by AMR research, companies are implementing Lean methodologies primarily to improve customer service, reduce procurement and plant-floor costs, and enter new markets. Tom Greenwood is director of the University of Tennessee’s Lean Enterprise Forum, which has conducted more than 40 implementations worldwide. He says, “The Lean enterprise methodology is essentially a growth strategy for increasing sales by trimming the company’s product delivery system into a competitive weapon. The primary goal is to make it easy for customers to get what they want, when they want it, by creating alignment across the business enterprise from customer through distribution, sales, engineering, production, and supply.”
Until recently, the major ERP vendors had all but turned their backs on client demands for support of this new model. Now that smaller, more agile software houses are tapping into niche areas like Lean manufacturing, the major ERP vendors are also beginning to offer solutions aimed at bridging the gap between the shop floor and ERP. These solutions come in the form of modules or add-on components that support Lean initiatives and include features such as design of flow lines, demand-smoothing logic, mathematical models for synchronizing daily production rate to demand, the ability to quickly address engineering changes on the line, Kanban replenishment calculations, graphical method sheets, and backflush and exception reporting.
These new solutions are promising, but many companies are stuck with their current ERP system for the time being due to large investments in the technology and lack of top management support for Lean tools. In its present state, there’s a debate over whether ERP can exist with Lean in the same company. Some say the two concepts can coexist, while others view them as contradictory. Lean philosophy emphasizes the continual improvement of production processes, while ERP emphasizes planning. Also, ERP creates many nonvalue-added transactions by making companies track every activity and material price in the factory. This is counter to Lean philosophy, which aims at speeding up and smoothing production.
Lean requires a significant change in conducting business that can run counter to the structure of the ERP system. Yet some companies that have invested in a massive ERP installation are trying to make the two work together on the plant floor. This is just what Cincinnati Machine, a global manufacturer of machining and turning centers, is doing. According to Roger Miller, director of materials at Cincinnati Machine, “Once we put our pull mechanisms in place, we had to systematically ‘turn off’ all of the logic and reports that ‘push’.”
Many companies, however, don’t want to configure an ERP system to work with Lean. Instead, they’re demanding Lean functionality packages. Experts warn that numerous ERP vendors talk about Lean functionality, but few offer the full package. For some ERP vendors, Lean simply means their system supports a pseudo just-in-time (JIT) way of providing mass customization of products. A common mistake that companies make when they are implementing a Lean program is the same mistake software vendors make when marketing Lean packages—they pick one tool from the toolbox and assume they have developed a Lean software system.
So what functionalities should a package have to support Lean thought, and what offerings are currently available from ERP vendors? We interviewed the directors of product management at some of the top ERP vendors to find out. We asked about manufacturing strategies, material and capacity planning, scheduling, Kanban, and supply chain. The results are shown in the chart on pp. 32 and 33.
Not every company uses a single business strategy in its operations, so many modern ERP software systems allow users to configure more than one business strategy according to industry-specific standards. As shown in the Manufacturing Strategy Support portion of the vendor chart, there are seven strategies. Most ERP vendors can support six of the seven configuration strategies. The engineer-to-order strategy currently is supported by less than half the ERP vendors surveyed.
Most of the ERP vendors we surveyed use some form of MRP to generate and execute the Master Production Schedule. Many also support an “auto-release” function for scheduling orders based on specific promise dates. It’s important that all packages have the capability to turn off this feature so that parts that are on pull aren’t part of an auto-release (push) system. Many of the vendors also provide some capability to develop mixed-model schedules, which is the ability of companies to make any item in any sequence in a lot size of one while simultaneously reducing cycle times and inventory. Mixed-model manufacturing is ideal for both middle-market companies and enterprises in all industries, and it reduces some of the risks of producing in large batches.
PRODUCTION, AND LINE DESIGN
and Capacity Planning
To say that exact customer demand can be predicted months ahead is a fallacy. Nothing is that certain. Therefore, many ERP systems are employing heuristics, genetic algorithms, and even simulation to estimate the uncertainty in demand and effects of constraints on the shop floor. Understanding this variation allows organizations to place bounds (operating parameters) around material and capacity plans. These planning bounds have a higher variability months ahead of planned production, but, as the plan gets closer to execution, the bounds around the forecast get tighter. Modern ERP systems must understand this uncertainty in demand so they can help suppliers plan for the future.
Most of the surveyed vendors provide some form of materials and capacity planning. The vendors that provide significant planning capabilities include Damgaard (now Navision), Demand Management, Inc., American Software, I2, Infinium, JD Edwards, PeopleSoft, SAP, QAD, and Oracle. Each of these vendors gives users options including flex bounds, variable boundaries for materials planning, and other flexible options.
Businesses’ information systems must stretch through the supply chain to enable communication between every link in the chain. One weak link affects every supply chain partner. That means companies must integrate their ERP system throughout their complete value stream to meet customer demand and bring products and services to market in a timely manner.
Vendors are addressing some of the challenges and issues surrounding the supply chain. Eight of the 14 vendors we surveyed can be configured to run as a distribution scheduler, which is integrated with the shipping and transportation planning of the organization. The scheduler permits synchronization of the transportation system and manufacturing floor to help ensure customer-requested delivery dates are met. All but four vendors can obtain demand data, explode it to share point-of-sale data with suppliers, and provide supplier forecasts.
There a Fit?
However Lean functionality is implemented, the time has come for vendors to address real shop floor needs. It’s crucial for companies to pick the right solutions and implement them correctly. The benefits of a Lean implementation are real, and an ERP package doesn’t have to stand in the way.
Marianne Bradford, CPA, Ph.D., is an assistant professor at Bryant College in Smithfield, Rhode Island.
Tony Mayfield is a Ph.D. candidate at Nova Southeastern University. He can be reached at firstname.lastname@example.org.
Chad Toney is a Ph.D. candidate at the University of Tennessee.
Original URL: http://www.strategicfinancemag.com/2001/05g.htm