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Lean and Erp - Can They Co-exist?

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




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