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Lean and Erp - Can They Co-exist?

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



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