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Lean and Erp - Can They Co-exist?

This article is also available on our
website: PROACTION - Generating Best• Failure to Manage Non-Recurring &
Practices. It is an excerpt of a paperNon-Production  Activities
originally written by George Miller, Founder
of PROACTION. It has been modified and•  Weak  Document  Management
updated  by  Paul  Deis,  PROACTION  CEO.
•  Hard  to  Extract  Information
Introduction
•  Weak,  Inflexible  Workflows
Some pundits have opined that ERP (Enterprise
Resource Planning) or ERM (Enterprise• Lack of Lean tools such as KanBan,
Resource Management) is dead and that LeanVMI,  etc
replaces it. That's like saying that the car
chassis is replaced by the new engine. ERP isEarlier ERP approaches had additional
the backbone system of a modern enterprise.problems, somewhat better addressed now, such
Lean is a management philosophy, withas:
supporting tools and techniques to run a
business much faster, cheaper-better. They• Lack of financial systems integration
are NOT mutually exclusive, but Lean ERP must
differ from the traditional approach. The• Lack of support features, such as
chassis  needs  some  design  changes.maintenance,  QA
Is  ERP  Obsolete?  Points  to  be  Made:• Lack of project management
integration
• ERP has evolved considerably and has
almost ceased to exist as we knew it yearsWhat  Have  Vendors  Done  About  This?
ago
In our experience, software usually lags the
•  Lean  and  newer  ERP  can  coexistdevelopment of new business philosophies and
techniques by a number of years. It took an
• Lean still needs an ITinfuriatingly long time for even very basic
infrastructure-  ERP  can  help  provide  itJIT concepts to percolate down into business
software and corporate practices. The job
• ERP is compatible with Lean, butstill isn't complete. Newer Lean concept
software vendors need to improve leanimplementation is still lagging. It takes
featuresyears for new ideas to be understood and
accepted. Then companies need to insist on
• Industry needs to learn to use ERPtheir adoption and organize planning and
better  to  support  Leanimplementation activities. Software companies
need to discern customer requirements, even
Contentsanticipate them, then provide software tools
and support services for them. Finally,
•  Lean  ERP:  Not  an  Oxymoronindustry needs to learn and effectively
implement  the  new  tools.
•  ERP  Definitions  and  Evolution
WHAT  TO  DO  ABOUT  IT
•  EPADSIG  Body  of  Knowledge  Areas
More proactive companies aren't waiting for
•  Lean  Definitionssoftware vendors. They're devising manual
approaches or writing their own software.
•  What  are  Customers  Looking  For?Some are advising their software vendors on
what they need. A new sub-industry of
•  Lean  Aerospace  Initiativededicated Lean software tools has also
emerged.
•  Lean  Principles
Don't wait for the ideal software. Move ahead
•  ERP  Weaknessesto develop and implement cost effective
approaches early. Your ERP system can be
•  ERP/Lean  Enterpriseextended by manual procedures, interfaces
with other systems, home-grown software,
•  Summary  Functional  Requirementsthird party add-on software and/or enhanced
functionality from ERP suppliers. Early
•  Conclusionsattempts can serve as prototypes for more
elegant ERP enhancements later on. Try to
DEFINITIONSdevelop add-ons and modifications in a way
that will not harm maintainability and
The  evolving  definition  of  ERP  ...upgradeability of ERP software later on.
Some of the add-on application vendors will
"An accounting-oriented information systemultimately be swallowed up by the enterprise
for identifying and planning thesoftware suppliers, when they finally see how
enterprise-wide resources to take, make, shipimportant  these  applications  are becoming.
and account for customer orders. An ERP
system differs from the typical MRP II systemIn selecting ERP software, add-on software or
in technical requirements such as graphicalundertaking your own projects, look for the
user interface, relational database, use offollowing  .....
fourth-generation language, and
computer-aided software engineering tools inWhat  to  Look  For  (High  Level):
development, client/server architecture, and
open system portability." - APICS Dictionary• Embedded Business Philosophies (Lean,
8th  EdSix  Sigma,  TOC,  JIT,  etc.)
I always thought that was a very poor•  Flexible,  Rapid
definition. Don Frank agreed with me and
offered a better one at an EPADSIG (APICS• Technology/Platforms (Open, flexible,
Engineered Products and Aerospace/Defenselow  cost)
Specific Interest Group) presentation. It was
subsequently adopted in newer APICS•  E-Business/Web-Enabled
dictionaries.
•  Ease  of  Integration
APICS  newer  definition  of  ERP:
•  Support  Lean  Operations
A method for the effective planning and
controlling of all the resources needed to•  Support  Lean  Finance/Costing
take, make, ship and account for customer
orders in a manufacturing, distribution or• Support Lean Product/Process
service  company. - APICS Dictionary 10th Ed.Development
That definition is very valid for a Lean• Support Industry Oriented Application
environment. What isn't valid is the designSavvy
of most ERP software and management systems
to  utilize  it.What  to  Look  For  (General):
Lean  Definition  1:•  Easy  to  Set Up, Flexible to Change
Lean Production-A philosophy of production•  Basic  Structure/Discipline
that emphasizes the minimization of the
amount of all the resources (including time)•  Simple  to  Extract,  Process  Data
used in the various activities of the
enterprise. It involves identifying and• Able to Define and Control
eliminating non-value-adding activities inStraightforward  Processes
design, production, supply chain management,
and dealing with the customers. Lean• Supports Needed (and Required)
producers employ teams of multiskilledBusiness  Processes
workers at all levels of the organization and
use highly flexible, increasingly automated•  Simple  as Possible to Learn and Use
machines to produce volumes of products in
potentially enormous variety. It contains a• High Quality Software, Documentation,
set of principles and practices to reduceSupport
cost through the relentless removal of waste
and through the simplification of all• Strong Future Product Plan to Stay
manufacturing and support processes. Syn:Competitive
lean, lean manufacturing. - APICS
Dictionary,  9th  Ed.•  Best  and  Better  Practices
Lean  Definition  2:What  to  Look  For (Set-Up, Implementation):
A systematic approach to identifying and•  Rapid  Implementation  Tools
eliminating waste (non-value-added
activities) through continuous improvement by•  Guided,  Template  Set-Ups
flowing the product at the pull of the
customer in pursuit of perfection. - The•  Vertical  Market  (A&D)  Versions
MEP  Lean  Network
•  Model  Implementation  Plans/Set-Ups
Lean  Definition  3:
•  Simple  Table/Parameter  Setups
Perform in the Optimum Value-Added Manner
Each Step of the Delivery Process for a•  Template  Data  Maintenance
Product or a Service to Optimize the Total
Value  Chain." - Dr.  Dan  Shunk,  ASU• Simple, Flexible Report/Inquiry
Writing
Lean  Definition  4:
• On-Line, Context-Sensitive Help,
Set Up and Run Processes to Minimize Defects,Tutor
Time, Cost/Investment, While Optimally and
Profitably Serving Target Markets. - George• Easily Customized Workflow, Screens,
Miller,  PROACTIONOptions
Lean is a business philosophy, not justWhat  to  Look  For  (Operations):
techniques. Lean means doing things as simply
and cheaply as possible, while providing•  Flow  Manufacturing
superior quality and very quick service. An
old joke about this is that you can pick any•  Cellular/Line Support/Line Balancing
two. But, that's no longer acceptable. The
organization needs to absorb thinking Lean to•  Kanban/Pull
be Lean. It needs to embed it in its culture,
metrics, policies, procedures and finally,•  VMI  (Vendor-Managed  Inventory)
its  tools.
• Minimal Transactions Needed, Simple
Some worry that Lean can't be built upon ERP.Data  Entry
The real problem is that the vast majority of
companies have not even successfully embraced•  Near  Real  Time  Scheduling
ERP yet, so they would be building on very
shaky foundations. I smile to myself after•  Cycle  Time  Management
visiting some company claiming to have a
"certified Class A ERP system." Then I talk•  Exception  Management
to the workers and start hearing the real
story, namely that the Emperor isn't wearing•  Quality/Process  Management
any clothes at most of these companies. Some
companies may try to leapfrog ERP, but they•  Constraint  Management
will first need to master the basic
disciplines of an organized system. No• Cross-Contract Planning (with Soft
shortcuts  there.Pegging/Allocation)
LEAN  CHANGES  TO  ERP• Non-Recurring and Recurring
Activities
While our fathers' ancient MRP-centric ERP is
largely obsolete, an evolving Enterprise• Rapid/Efficient Transaction Input,
System approach definitely lives on, mutatingDefaults,  Automation
and adapting to a new world of shrinking:
cycle times, budgets, non-value-added• Interface/Integration With Process
activities  and  headcounts.Control  Systems
Some companies are implementing Lean toolsWhat  to  Look  for  (in  More  Detail):
manually. Some are modifying ERP software,
or incorporating third party Lean add-onEngineering/BOM/Routing:
software/systems to enhance functionality.
An isolated few are still trying to do• Coding to Promote Group Technology
homegrown applications. Cultural change,Sourcing
education and leadership are also needed to
help alter how organizations are run. Lean• Model the Manufacturing/Service
tools are gradually being incorporated intoProcess
standard ERP offerings, but are lagging
behind the pace of the overall Lean movement.• Facilitate Alternate Config.'s,
Some ERP vendors are now addressing it moreProcess  Def.'s
through white papers than product
development. As mentioned previously, third• Reduce Defects Through Accurate,
party vendors are helping to fill the gap.Timely Configuration and Process Spec.'s,
Some of these may be ultimately acquired byRelease  and  Change  Management.
the  enterprise  software  vendors.
•  Manage  Documents,  Workflow
Some vendors, to differentiate themselves
(and confuse us all) are now referring toProgram/Contract  Management:
themselves as "Supply Chain," "eBusiness" or
even  ERPII  suppliers.•  Support  Timely,  Accurate Estimates
Major things needing to be incorporated into• Support Competitive, Profitable
most current ERP systems to improve LeanPricing
support:
• Record, Flow Down, Contractual
•  Rapid  system  implementationCommitments
• Flexible business modeling and system•  Tight  Tie-in  To  Program Schedules
configuration
•  Operations,  Finance  Integration
•  Very  simple  operation
• Comprehensive Budget Definition and
• Built in process mapping, help andTracking
training
• Timely Identification/Correction of
• Very rapid response processes, fromProblems
marketing, proposals and design, through
order processing, planning, procurement,• Ensure that Proper Configuration Used
production  and  shipping.
• Efficient Transaction Processing for
•  Strong  quality  assurance  supportHigh  Volume  Environments
• Tools to slash administrative,Planning:
material  and  production  costs
•  Group  Requirements-  Same,  Similar
• Facilitate integration with other
systems-  internal  and  external• Consume Excess, Alternates,
Substitutes
• Fast and simple information
visibility•  Time-Phase-Granular
•  True  built-in constraint management• Optimize Constraints- Time, Material,
Labor,  Equipment,  Manpower,  Technical
• Integrated product and process design
management  tools•  Respond,  Adapt  Quickly
•  Lean  accounting  and administration• Reduce Related Administrative
Indirect  Costs
Some  Lean  tools  needed by many businesses:
•  Ensure  Proper  Configuration  Used
•  Flow  scheduling
• Help Manage Inventory, Production
•  Cellular/focus  factory  supportResource  Usage  and  Disposition
• KanBan, consignment, point-of-useProcurement:
inventory
•  Improve  Sourcing
•  Rapid  supply  chain  management
• VMI, POU (Point Of Use), KanBan,
•  Supplier  management,  VMI,E-Business
•  Near  real time, flexible scheduling•  Speed  Up  Procurement  Process
• Six-sigma tools for quality planning,•  Highlight  Requirements,  Specs.
monitoring,  improvement
•  Facilitate  Competitive  Pricing
•  Standardization/group  technology
• Reduce Defects Through Sourcing,
• Project management for production,Requirements,  Metrics,  Communication
capital  and  development  projects
• Administer PO's, Contracts, Releases,
•  "Control  panel"  metricsOutsourcing,  Processing
Although some of these can be supported by•  Reduce  Related Administrative Costs
software, these approaches first need to be
built into an organization's overall• Help Manage Supplier Partnerships,
management system. Even if software wasIncluding  Supplier  Certification/Evaluation
ready for Lean, we still need to get most
companies' management, employees andQuality  Management:
implementation support ready for it. The
rarest and most important resource needed for• Define/Deploy Quality Requirements,
changes of this magnitude is still executiveQuality  Plan
leadership and management support-it's not
really  about  software.•  Support/Track  Certs.,  Inspection
LEAN  OBJECTIVES• Track all Defects, Reduce Process
Variation
To understand what Lean is about, we first
need to fathom what it is supposed to• Quickly Identify and Highlight
accomplish.Actionable Exceptions, Highlight Corrective
Action
To understand what Lean attributes we need or
don't need in ERP, first start with• Ensure that Tooling, Personnel
stakeholder  expectations  ....Qualifications, Documentation, Materials,
Processes,  are  Correct
What  Are  Customers  Looking  For?
• Maintain Traceability, Accountability
• Fast Turnaround, for inquiries, order
processing and delivery, changes, informationOperations:
requests, new designs, engineering changes
and  other  great  customer  service.•  Schedule,  Control  Activities
• High Quality- very low defects in• Accurately, Efficiently, Track
product, process and administrativeMaterial Movement, Storage, Usage- VMI, POU,
activities.KanBan,  E-Business
• Good Price- Not just low unit price,• Help Ensure That Proper Items
but low total cost, considering unit price,Configuration  are  Used
other landed cost factors, cost of quality,
cost of development, changes, maintenance,• Help Manage Release, Issue, Staging,
support,  procurement-related  costs.Management of Work Flow and Needed Resources
(Material, Labor, Equipment, Tooling,
• Easy to Work With- Simple,Documentation/Specs./Instructions)
straightforward service, no endless waiting
on hold and convoluted voice mail menus, no• Record Work Performed, Configuration,
runaround,Processes  Used.
What  Are  Stockholders  Looking  For?•  Record  Costs,  Variances
• Profits- Competitive return onFinancial/HR:
investment.
• Manage Funding, Billing, Collection,
•  Equity  Growth-  Short/Long  term.Disbursement
•  Security  of  Principal• Keep Timely, Accurate
Books-Enterprise, Business Unit, Cost Center,
• No Legal, Ethical Hassles- NoProgram, Project, Part, Cost Element, for
"Enrons."What  are  Employees  Looking  for?Budget  and  Actual
• Security of employment, income,• Quickly, Efficiently, Track Costs and
benefitsVariances  for  Products  and  Processes
• Interesting, worthwhile work, sense• Manage Assets, Cash,
of  purposeInvestments-Improve  Cash  Flow
Lean Aerospace Initiative Objectives, as• Manage Human Resources- Skills,
promoted  by  The  Lean Aerospace Initiative:Benefits, Payroll- Improve Employee ROI,
Employee  Satisfaction
• Promote a lean leadership at all
levelsUniversal  Requirements:
•  Continuously  focus  on the customer•  Effective  Leadership,  Commitment
• Development relationships based on•  Effective  Plan
mutual  trust/commitment
•  Data  Integrity
• Optimize capability and utilization
of  people• Excellent Education, Training,
Support,  for  Qualified,  Motivated  People
• Make decisions at lowest possible
level• Effective "Upstream" Systems:
Forecasting,  Engineering,  Sales
•  Nurture  a  learning  environment
•  Streamlined,  Flexible  Processes
• Implement Integrated Product/Process
Development  (IPPD)•  Metrics
• Identify and optimize enterprise flowIMPLEMENTATION  CONSIDERATIONS
• Ensure process capability andSoftware is maybe 20% of the equation. A
maturation"system" is an organized way of accomplishing
and  objectives  and  may  consist  of:
• Maintain the challenge of existing
processes•  Mission
•  Assure  seamless  information  flow•  Leadership
• Maximize stability in a changing•  Goals,  Objectives
environment
•  Metrics
Lean  Principles  (Generic):
•  Organization/people
We put these together based on experience and
exposure  to  Lean  thinking:•  Policies
•  Identify  Product  Value  Stream•  Procedures
• Rapid Response to Customer Needs,•  Education
Competition,  New  Tools  and  Technology
•  Training
•  Flow-  Single  Piece
• Tools, such as software, hardware and
•  Pullother  technologies
•  Eliminate  WasteSuccessful Lean implementation often requires
all of the above for success, although some
•  Lean  Product  and  Process  Designsuccess can result with only some of it.
Many Lean improvements can be accomplished
•  Responsiveness  to  Changewithout any software and computers, but these
are required for best results and integration
•  Continuous  Improvementwith other systems in more complex
environments. In the meantime, significant
•  Elimination  of  Defectsimprovements can be made through adoption of
Lean philosophies and techniques, with manual
• Standardize- Eliminate Processor semi manual systems. But if a company's
Variationcompetitor already has Lean IT systems and
the company doesn't, it's like knives vs.
•  Visual  Management/Control  Systemsguns. An outstanding knife fighter may
prevail over an inept gunslinger, but why
WHAT'S  WRONGrisk  it?
What  "They"  Hate  About  Traditional  ERPOther  Points
Those who badmouth ERP raise some validThe sun does not rise and set on Lean.
points which must be addressed. Here are theAlthough its principles are widely
most  common  complaints  we  have  heard.applicable, they tend to revolve around
operational matters. Marketing, Development,
• Proliferation of Screens,CRM and Human Resources are equally pressing
Transactionsareas  needed  for  success.
• Cumbersome Transactions/ReleaseLean is simplicity. It is much less
Procedurescomplicated than almost any other philosophy
of running a business. Yet some people, more
•  Batch  Process  Orientationspecifically, certain vendors, consultants
and academics, are trying to make it more
• Fixed Lead Times, In Day or Longercomplicated. They are developing complex new
Incrementsalgorithms, new terms and techniques at a
dizzying rate, in a frantic attempt to gain
• Poor Constraint Planning/Management-"traction" and visibility. Resist this. Keep
Set-Piece MRP, with Disconnected Resourceit SIMPLE, keep it LEAN.
Planning  for  Multiple  Constraints



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