Lean and Erp - Can They Co-exist?

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PROACTION - Generating Best Practices. It is an• Poor Constraint Planning/Management-
excerpt of a paper originally written by George Miller,Set-Piece MRP, with Disconnected Resource Planning
Founder of PROACTION. It has been modified andfor Multiple Constraints
updated by Paul Deis, PROACTION CEO.• Failure to Manage Non-Recurring &
IntroductionNon-Production Activities
Some pundits have opined that ERP (Enterprise• Weak Document Management
Resource Planning) or ERM (Enterprise Resource• Hard to Extract Information
Management) is dead and that Lean replaces it. That's• Weak, Inflexible Workflows
like saying that the car chassis is replaced by the new• Lack of Lean tools such as KanBan, VMI,
engine. ERP is the backbone system of a modernetc
enterprise. Lean is a management philosophy, withEarlier ERP approaches had additional problems,
supporting tools and techniques to run a businesssomewhat better addressed now, such as:
much faster, cheaper-better. They are NOT mutually• Lack of financial systems integration
exclusive, but Lean ERP must differ from the traditional• Lack of support features, such as
approach. The chassis needs some design changes.maintenance, QA
Is ERP Obsolete? Points to be Made:• Lack of project management integration
• ERP has evolved considerably and hasWhat Have Vendors Done About This?
almost ceased to exist as we knew it years agoIn our experience, software usually lags the
• Lean and newer ERP can coexistdevelopment of new business philosophies and
• Lean still needs an IT infrastructure- ERPtechniques by a number of years. It took an infuriatingly
can help provide itlong time for even very basic JIT concepts to
• ERP is compatible with Lean, but softwarepercolate down into business software and corporate
vendors need to improve lean featurespractices. The job still isn't complete. Newer Lean
• Industry needs to learn to use ERP betterconcept implementation is still lagging. It takes years for
to support Leannew ideas to be understood and accepted. Then
Contentscompanies need to insist on their adoption and
• Lean ERP: Not an Oxymoronorganize planning and implementation activities.
• ERP Definitions and EvolutionSoftware companies need to discern customer
• EPADSIG Body of Knowledge Areasrequirements, even anticipate them, then provide
• Lean Definitionssoftware tools and support services for them. Finally,
• What are Customers Looking For?industry needs to learn and effectively implement the
• Lean Aerospace Initiativenew tools.
• Lean PrinciplesWHAT TO DO ABOUT IT
• ERP WeaknessesMore proactive companies aren't waiting for software
• ERP/Lean Enterprisevendors. They're devising manual approaches or
• Summary Functional Requirementswriting their own software. Some are advising their
• Conclusionssoftware vendors on what they need. A new
DEFINITIONSsub-industry of dedicated Lean software tools has
The evolving definition of ERP ...also emerged.
"An accounting-oriented information system forDon't wait for the ideal software. Move ahead to
identifying and planning the enterprise-wide resourcesdevelop and implement cost effective approaches
to take, make, ship and account for customer orders.early. Your ERP system can be extended by manual
An ERP system differs from the typical MRP IIprocedures, interfaces with other systems,
system in technical requirements such as graphicalhome-grown software, third party add-on software
user interface, relational database, use ofand/or enhanced functionality from ERP suppliers.
fourth-generation language, and computer-aidedEarly attempts can serve as prototypes for more
software engineering tools in development, clientelegant ERP enhancements later on. Try to develop
server architecture, and open system portability." -add-ons and modifications in a way that will not harm
APICS Dictionary 8th Edmaintainability and upgradeability of ERP software later
I always thought that was a very poor definition. Donon. Some of the add-on application vendors will
Frank agreed with me and offered a better one at anultimately be swallowed up by the enterprise software
EPADSIG (APICS Engineered Products andsuppliers, when they finally see how important these
Aerospace/Defense Specific Interest Group)applications are becoming.
presentation. It was subsequently adopted in newerIn selecting ERP software, add-on software or
APICS dictionaries.undertaking your own projects, look for the following .....
APICS newer definition of ERP:What to Look For (High Level):
A method for the effective planning and controlling of• Embedded Business Philosophies (Lean, Six
all the resources needed to take, make, ship andSigma, TOC, JIT, etc.)
account for customer orders in a manufacturing,• Flexible, Rapid
distribution or service company. - APICS Dictionary• Technology/Platforms (Open, flexible, low
10th Ed.cost)
That definition is very valid for a Lean environment.• E-Business/Web-Enabled
What isn't valid is the design of most ERP software• Ease of Integration
and management systems to utilize it.• Support Lean Operations
Lean Definition 1:• Support Lean Finance/Costing
Lean Production-A philosophy of production that• Support Lean Product/Process
emphasizes the minimization of the amount of all theDevelopment
resources (including time) used in the various activities• Support Industry Oriented Application Savvy
of the enterprise. It involves identifying and eliminatingWhat to Look For (General):
non-value-adding activities in design, production, supply• Easy to Set Up, Flexible to Change
chain management, and dealing with the customers.• Basic Structure/Discipline
Lean producers employ teams of multiskilled workers• Simple to Extract, Process Data
at all levels of the organization and use highly flexible,• Able to Define and Control Straightforward
increasingly automated machines to produce volumesProcesses
of products in potentially enormous variety. It contains• Supports Needed (and Required) Business
a set of principles and practices to reduce costProcesses
through the relentless removal of waste and through• Simple as Possible to Learn and Use
the simplification of all manufacturing and support• High Quality Software, Documentation,
processes. Syn: lean, lean manufacturing. - APICSSupport
Dictionary, 9th Ed.• Strong Future Product Plan to Stay
Lean Definition 2:Competitive
A systematic approach to identifying and eliminating• Best and Better Practices
waste (non-value-added activities) through continuousWhat to Look For (Set-Up, Implementation):
improvement by flowing the product at the pull of the• Rapid Implementation Tools
customer in pursuit of perfection. - The MEP Lean• Guided, Template Set-Ups
Network• Vertical Market (A&D) Versions
Lean Definition 3:• Model Implementation Plans/Set-Ups
Perform in the Optimum Value-Added Manner Each• Simple Table/Parameter Setups
Step of the Delivery Process for a Product or a• Template Data Maintenance
Service to Optimize the Total Value Chain." - Dr. Dan• Simple, Flexible Report/Inquiry Writing
Shunk, ASU• On-Line, Context-Sensitive Help, Tutor
Lean Definition 4:• Easily Customized Workflow, Screens,
Set Up and Run Processes to Minimize Defects, Time,Options
Cost/Investment, While Optimally and ProfitablyWhat to Look For (Operations):
Serving Target Markets. - George Miller, PROACTION• Flow Manufacturing
Lean is a business philosophy, not just techniques. Lean• Cellular/Line Support/Line Balancing
means doing things as simply and cheaply as possible,• Kanban/Pull
while providing superior quality and very quick service.• VMI (Vendor-Managed Inventory)
An old joke about this is that you can pick any two.• Minimal Transactions Needed, Simple Data
But, that's no longer acceptable. The organizationEntry
needs to absorb thinking Lean to be Lean. It needs to• Near Real Time Scheduling
embed it in its culture, metrics, policies, procedures and• Cycle Time Management
finally, its tools.• Exception Management
Some worry that Lean can't be built upon ERP. The• Quality/Process Management
real problem is that the vast majority of companies• Constraint Management
have not even successfully embraced ERP yet, so• Cross-Contract Planning (with Soft Pegging
they would be building on very shaky foundations. IAllocation)
smile to myself after visiting some company claiming• Non-Recurring and Recurring Activities
to have a "certified Class A ERP system." Then I talk• Rapid/Efficient Transaction Input, Defaults,
to the workers and start hearing the real story, namelyAutomation
that the Emperor isn't wearing any clothes at most of• Interface/Integration With Process Control
these companies. Some companies may try toSystems
leapfrog ERP, but they will first need to master theWhat to Look for (in More Detail):
basic disciplines of an organized system. No shortcutsEngineering/BOM/Routing:
there.• Coding to Promote Group Technology
LEAN CHANGES TO ERPSourcing
While our fathers' ancient MRP-centric ERP is largely• Model the Manufacturing/Service Process
obsolete, an evolving Enterprise System approach• Facilitate Alternate Config.'s, Process Def.'s
definitely lives on, mutating and adapting to a new• Reduce Defects Through Accurate, Timely
world of shrinking: cycle times, budgets,Configuration and Process Spec.'s, Release and
non-value-added activities and headcounts.Change Management.
Some companies are implementing Lean tools• Manage Documents, Workflow
manually. Some are modifying ERP software, orProgram/Contract Management:
incorporating third party Lean add-on software• Support Timely, Accurate Estimates
systems to enhance functionality. An isolated few are• Support Competitive, Profitable Pricing
still trying to do homegrown applications. Cultural• Record, Flow Down, Contractual
change, education and leadership are also needed toCommitments
help alter how organizations are run. Lean tools are• Tight Tie-in To Program Schedules
gradually being incorporated into standard ERP• Operations, Finance Integration
offerings, but are lagging behind the pace of the overall• Comprehensive Budget Definition and
Lean movement. Some ERP vendors are nowTracking
addressing it more through white papers than product• Timely Identification/Correction of Problems
development. As mentioned previously, third party• Ensure that Proper Configuration Used
vendors are helping to fill the gap. Some of these may• Efficient Transaction Processing for High
be ultimately acquired by the enterprise softwareVolume Environments
vendors.Planning:
Some vendors, to differentiate themselves (and• Group Requirements- Same, Similar
confuse us all) are now referring to themselves as• Consume Excess, Alternates, Substitutes
"Supply Chain," "eBusiness" or even ERPII suppliers.• Time-Phase-Granular
Major things needing to be incorporated into most• Optimize Constraints- Time, Material, Labor,
current ERP systems to improve Lean support:Equipment, Manpower, Technical
• Rapid system implementation• Respond, Adapt Quickly
• Flexible business modeling and system• Reduce Related Administrative/Indirect
configurationCosts
• Very simple operation• Ensure Proper Configuration Used
• Built in process mapping, help and training• Help Manage Inventory, Production
• Very rapid response processes, fromResource Usage and Disposition
marketing, proposals and design, through orderProcurement:
processing, planning, procurement, production and• Improve Sourcing
shipping.• VMI, POU (Point Of Use), KanBan,
• Strong quality assurance supportE-Business
• Tools to slash administrative, material and• Speed Up Procurement Process
production costs• Highlight Requirements, Specs.
• Facilitate integration with other systems-• Facilitate Competitive Pricing
internal and external• Reduce Defects Through Sourcing,
• Fast and simple information visibilityRequirements, Metrics, Communication
• True built-in constraint management• Administer PO's, Contracts, Releases,
• Integrated product and process designOutsourcing, Processing
management tools• Reduce Related Administrative Costs
• Lean accounting and administration• Help Manage Supplier Partnerships, Including
Some Lean tools needed by many businesses:Supplier Certification/Evaluation
• Flow schedulingQuality Management:
• Cellular/focus factory support• Define/Deploy Quality Requirements, Quality
• KanBan, consignment, point-of-use inventoryPlan
• Rapid supply chain management• Support/Track Certs., Inspection
• Supplier management, VMI,• Track all Defects, Reduce Process
• Near real time, flexible schedulingVariation
• Six-sigma tools for quality planning,• Quickly Identify and Highlight Actionable
monitoring, improvementExceptions, Highlight Corrective Action
• Standardization/group technology• Ensure that Tooling, Personnel Qualifications,
• Project management for production, capitalDocumentation, Materials, Processes, are Correct
and development projects• Maintain Traceability, Accountability
• "Control panel" metricsOperations:
Although some of these can be supported by• Schedule, Control Activities
software, these approaches first need to be built into• Accurately, Efficiently, Track Material
an organization's overall management system. Even ifMovement, Storage, Usage- VMI, POU, KanBan,
software was ready for Lean, we still need to getE-Business
most companies' management, employees and• Help Ensure That Proper Items
implementation support ready for it. The rarest andConfiguration are Used
most important resource needed for changes of this• Help Manage Release, Issue, Staging,
magnitude is still executive leadership andManagement of Work Flow and Needed Resources
management support-it's not really about software.(Material, Labor, Equipment, Tooling, Documentation
LEAN OBJECTIVESSpecs./Instructions)
To understand what Lean is about, we first need to• Record Work Performed, Configuration,
fathom what it is supposed to accomplish.Processes Used.
To understand what Lean attributes we need or don't• Record Costs, Variances
need in ERP, first start with stakeholder expectations ....Financial/HR:
What Are Customers Looking For?• Manage Funding, Billing, Collection,
• Fast Turnaround, for inquiries, orderDisbursement
processing and delivery, changes, information requests,• Keep Timely, Accurate Books-Enterprise,
new designs, engineering changes and other greatBusiness Unit, Cost Center, Program, Project, Part,
customer service.Cost Element, for Budget and Actual
• High Quality- very low defects in product,• Quickly, Efficiently, Track Costs and
process and administrative activities.Variances for Products and Processes
• Good Price- Not just low unit price, but low• Manage Assets, Cash, Investments-Improve
total cost, considering unit price, other landed costCash Flow
factors, cost of quality, cost of development, changes,• Manage Human Resources- Skills, Benefits,
maintenance, support, procurement-related costs.Payroll- Improve Employee ROI, Employee Satisfaction
• Easy to Work With- Simple, straightforwardUniversal Requirements:
service, no endless waiting on hold and convoluted• Effective Leadership, Commitment
voice mail menus, no runaround,• Effective Plan
What Are Stockholders Looking For?• Data Integrity
• Profits- Competitive return on investment.• Excellent Education, Training, Support, for
• Equity Growth- Short/Long term.Qualified, Motivated People
• Security of Principal• Effective "Upstream" Systems: Forecasting,
• No Legal, Ethical Hassles- No "Enrons."WhatEngineering, Sales
are Employees Looking for?• Streamlined, Flexible Processes
• Security of employment, income, benefits• Metrics
• Interesting, worthwhile work, sense ofIMPLEMENTATION CONSIDERATIONS
purposeSoftware is maybe 20% of the equation. A "system"
Lean Aerospace Initiative Objectives, as promoted byis an organized way of accomplishing and objectives
The Lean Aerospace Initiative:and may consist of:
• Promote a lean leadership at all levels• Mission
• Continuously focus on the customer• Leadership
• Development relationships based on mutual• Goals, Objectives
trust/commitment• Metrics
• Optimize capability and utilization of people• Organization/people
• Make decisions at lowest possible level• Policies
• Nurture a learning environment• Procedures
• Implement Integrated Product/Process• Education
Development (IPPD)• Training
• Identify and optimize enterprise flow• Tools, such as software, hardware and
• Ensure process capability and maturationother technologies
• Maintain the challenge of existing processesSuccessful Lean implementation often requires all of
• Assure seamless information flowthe above for success, although some success can
• Maximize stability in a changing environmentresult with only some of it. Many Lean improvements
Lean Principles (Generic):can be accomplished without any software and
We put these together based on experience andcomputers, but these are required for best results and
exposure to Lean thinking:integration with other systems in more complex
• Identify Product Value Streamenvironments. In the meantime, significant
• Rapid Response to Customer Needs,improvements can be made through adoption of Lean
Competition, New Tools and Technologyphilosophies and techniques, with manual or semi
• Flow- Single Piecemanual systems. But if a company's competitor
• Pullalready has Lean IT systems and the company
• Eliminate Wastedoesn't, it's like knives vs. guns. An outstanding knife
• Lean Product and Process Designfighter may prevail over an inept gunslinger, but why
• Responsiveness to Changerisk it?
• Continuous ImprovementOther Points
• Elimination of DefectsThe sun does not rise and set on Lean. Although its
• Standardize- Eliminate Process Variationprinciples are widely applicable, they tend to revolve
• Visual Management/Control Systemsaround operational matters. Marketing, Development,
WHAT'S WRONGCRM and Human Resources are equally pressing
What "They" Hate About Traditional ERPareas needed for success.
Those who badmouth ERP raise some valid pointsLean is simplicity. It is much less complicated than
which must be addressed. Here are the mostalmost any other philosophy of running a business. Yet
common complaints we have heard.some people, more specifically, certain vendors,
• Proliferation of Screens, Transactionsconsultants and academics, are trying to make it more
• Cumbersome Transactions/Releasecomplicated. They are developing complex new
Proceduresalgorithms, new terms and techniques at a dizzying
• Batch Process Orientationrate, in a frantic attempt to gain "traction" and visibility.
• Fixed Lead Times, In Day or LongerResist this. Keep it SIMPLE, keep it LEAN.