LEAN ERP

It's been a long time (I was very surprised to see that it's been since December) since I blogged. I'm not usually that bad at keeping up with things. Certainly my goal of having enough posts to publish this as a book is going to fall apart if I don't post more often. Hopefully I can get back on the wagon now that the weather is nicer and I don't have to shovel or struggle through snow (although they say we'll get one more dump this year). The new laptop will help too because I can get 3+ hours of battery from it :-)

Lean ERP?

For a long time now I've been a player in the ERP marketplace in Ontario. Most of my experience is with Visual Manufacturing (also Infor Visual ERP) but as time passes I'm learning more about other ERP systems as well. Some of the knowledge I am gaining is through training and learning other systems, like Dynamics GP - while other information is gained from competitive analysis. What i do know is that the concepts (particularly in Manufacturing) for which ERP was designed have changed in the last 20 years.

Let's take Lean for instance. The developers who released the first version of the Visual ERP would have broken ground somewhere around 1991 or 1992. That was 19 Years ago. The first release that I know of was in someones hands in 1993 when my former employer purchased it. By the Fall of 1994 they were well into their implementation, fully live and I was furiously writing reports to try and help produce information for management and staff.

In 1992 the concept of Lean was new, and no ERP at the time was implementing or even talking about it. Today (notwithstanding the problems with their recalls) basically the entire world has come to realize that Toyota was on to something with their production system. TPS (Toyota Production System) is essentially the perfection of Lean. TPS is the idealized Lean implementation. It is the goal that all other Lean companies strive to achieve. How Toyota has designed their production and manufacturing processes is powerful. They have achieved incredible profitability in an industry that has seen giants brought to their knees.

So back to ERP. In 1992 no ERP vendor was considering Lean in their design. In fact ERP from that period had a decidedly "un-Lean" approach. They required extensive data entry at the front end in order to produce forecasted requirements and demand at the back end. They pushed information INTO the ERP, and it pushed production plans INTO the plant. there was virtually none of what we now understand is the essence of Lean - to PULL materials or information through the facility. PULL - as defined by a customer's requirement to receive a product - is not the primary design consideration of the older ERP technology.

Logically some might argue the best solution is to start over. Create a new ERP system that is fundamentally designed to be Lean. After all, if the old style is no longer of any use, then get rid of it.

In my opinion that would be a terrible mistake. There are a few reasons I say this:

First: ERP is consolidating. The technology is becoming simpler to understand and to implement, and fewer but larger companies are selling these solutions. If you want to be able to pull data through your ERP, you better be able to connect your ERP to your customers and vendors. Choosing a well established product with a large install base would be critical to achieving this.

Second: Just because Lean (TPS) is the ideal goal, doesn't mean you can leapfrog from your current systems to a "Lean" ERP with one Hail Mary. Companies that try and implement Lean without the nearly 60 years of supply chain improvements that Toyota executed can put themselves into a worse position than if they do nothing. Implementing Lean means massive fundamental changes to business. Choosing an ERP that would require those changes to have been made would be suicide if you are not ready.

Third: There is no reason that existing ERP systems can't become Lean. For any technology to be powerful, it needs to be flexible. We have specialized in designing ERP solutions that are Lean and "Bolt On" to the Visual ERP for years now. If we can do it what's to stop Infor, Microsoft or any of dozens of other ERP vendors from doing the same.

So what makes an ERP Lean anyway?

A core concept in Lean is that it's about PULL rather than PUSH. So what about an ERP can switch the model to PULL where in the old days it was PUSH.

In an ERP we believe this is all about the ERP pro-actively pulling information out of the stake holders in the process. EERM (Extended-Enterprise Resource Management) is a new term being coined that in essence is taking an ERP and extended tendrils out into your supplier and customer bases. EERM technology is not about data entry and forecast retrieval. It's about data entry and INFORMATION retrieval. EERM by it's nature reaches out to the different stake holders and pulls information into itself from them. It then allows other key individuals to pull information out of the system if required. However, EERM still supports the older forecasting and MRP models. Why would it do this if it's the new technology?

It does this because we can't throw the baby out with the bathwater (to use a euphemism). Until a business's supply base is as strong as Toyota's, they will still need the ability to forecast. Outsourcing to lower cost regions (which I'll discuss later as well) means that we have 5 to 7 week leadtimes (at best) to get materials if we don't want to give up 100% of our cost advantage to shipping.

Lean is not just Kanban and two-bin and poke-yoke. Lean is about measuring and adjusting. Measuring performance and adjusting processes when they are not generating the performance we expect. Kanban is a tool used to increase performance, but it took Toyota years to identify how to execute Kanban effectively, and trying to implement a cookie cutter approach is bound to fail. It's the measurements that Toyota implemented in their system, to track and understand every nuance of their manufacturing process that allowed them to invent Kanban, and know when and where to use it.

The Lean ERP measures the business in ways that older ERP were not able to. It generates score cards for executives so that they can respond to challenges before they become crisis. Older ERP can only provide you with a static view of what changed over some period. The Lean ERP shows you the RATE OF CHANGE. You can't necessarily see into the future, but if you can watch the TREND you can get ahead of it. That is the critical element in managing information and businesses - not the here and now - but the trend. If you're not ready for where that is taking you, things will fall apart.

So how does Lean ERP manage the Trends? Let's take a look at an example.

You purchase materials from China that go into a major assembly that you sell to your customers. In the traditional ERP world, you would implement a sales forecast which would generate an MPS. Weekly or monthly you might send the Chinese Supplier that MPS. As your sales begin to decline or your sales hopper begins to decline, reports need to be run and managed in order for users to identify that something is happening and to communicate to China to slow down their shipments. You can't do anything about the 5 weeks of goods on the water - but if you can slow down their deliveries...

The fact is many companies don't let the Chinese supplier know in time.

Now you change the model subtlety but critically. The Chinese Supplier has a vendor portal that allows them to see critical information from your Lean ERP that YOU WANT THEM TO SEE. Included in this are the total quoted items that use their products, the total on-order and the total on the water. The trend lines for all are shown to them.

A few weeks before you get back to them that maybe they should slow down their shipments, they're already there. They've looked at your sales and see the movement. Maybe they've picked up a trend that indicates some secondary product is picking up. They are managing themselves because they have the INFORMATION that's been bottled up in your system. You don't have to show them proprietary information. You don't need to show them other vendor information. You can show them product quality trends, rework costs, open quotes that would require their parts (just the quantities, no names or dollars). You can let them pull information out of your system instead of them having to wait to receive this information from you via a push.

To go further, you can pull information from that Chinese supplier so that you can see when they have shipped their parts The Lean ERP lets our customers see that we've got materials en-route from our supplier that are needed for their goods, and that they will be able to get them on-time. It allows us to communicate with each other in a more powerful and dynamic way. It may actually be the beginning of the Lean Enterprise - the interconnected business system in which the entire supply chain can become Lean.

Of course Lean ERP supports concepts such as vendor supplied inventory, kanban component and sub assembly manufacture, reorder point eKanBan and other essential tools required for Lean. The older ERP that needed to have hard core MRP in it to support manufacturing and production processes is dying. ERP needs to turn in a new direction. The extreme levels of sophisticated forecasting, MPS and MRP have been proven to fail when market conditions fail (just look at GM and Chrysler - who bet their companies on these technologies).

The next step beyond the current ERP, and what really constitutes the Lean ERP is EERM - Extended Enterprise Resource Management. I'll touch on that in a future Blog.

For more information on this visit our website at http://www.creativemfg.ca or http://www.sabreit.ca