Why ERP planning negates LEAN when managing increased levels of CHANGE
Mike Liddell, CEO of Lean Scheduling International and Author of “The Little Blue Book On Scheduling”
In this article I hope to provide a clear explanation to those manufacturing executives and managers who are struggling to understand why their ERP (Enterprise Resource Planning) systems and their LEAN initiatives don´t work. This is especially true in situations where there is a volatile demand and a need to quickly and systematically react smartly to change.
ERP Limitations:
The problem is caused by certain limitations of ERP Planning and LEAN in situations where there is a need to understand the potential impact of change before making decisions. To be more precise, neither ERP Planning nor LEAN can predict the potential impact of time events (such as a delayed purchase order or a change in sequence).
ERP systems are unable to accurately manage time, nor able to create an accurate and synchronized plan of action. In order to compensate, ERP creates buffers of time and inventory at every step of the manufacturing process. This explains how ERP systems have had some success in the past when used in a make-to-stock environment but fail miserably the moment that management decides they want to reduce inventories and reduce waste. In other words, they have NO mechanism to calculate cause and effect.
Because this conclusion is somewhat controversial, the rest of this article provides a more thorough explanation of the problem while offering a logical solution.
LEAN Confusion:
The word LEAN is used in this article to include several techniques such as JIT, Six Sigma, Kanban and others. The fundamental purpose of LEAN is to reduce complexity and waste. As LEAN initiatives reduce inventories, ERP thinks there is a shortage and so it suggests that you replenish inventories. Sooner or later these mixed signals result in confusion and suddenly customers are calling in panic because orders are late. Expediters are sent out to rush these orders without any idea how this is impacting other orders in the plant and confusion spreads quickly. At this point many companies just throw up their arms, dismiss LEAN and go back to building even bigger buffers than before.
Mike Tyson says that, “Everyone has a plan until they get hit.” and he is right. Given enough time anyone can create a reasonably good plan or schedule. The problem is that in a world that is changing faster and faster, who has time? The ability to consistently react faster and smarter gives companies a competitive edge but how is that done? Obviously running around faster and trying to create an illusion of speed is not the answer so how do companies prepare for the future where the rate of change will almost certainly increase?
The Missing Link:
Advanced Planning and Scheduling (APS) software is the missing link that allows companies to systematically manage time. APS systems use a piece of technology called a “scheduling engine” which helps manage time accurately without using time buckets (the real enemy).
APS allows manufacturers to:
- Smartly schedule their plant in minutes or second
- Know where every order is
- Accurately predict potential problems before they happen
Without APS, manufacturers have no ability to calculate cause and effect or to easily evaluate multiple scenarios before making important decisions.
Most manufacturers need an ERP system and they need to implement LEAN. But unless they have a very simple product, and very predictable demand, this strategy can only work if you also have an APS system.
In the very near future it is quite possible that in some industries those companies who have not invested in APS software, will not be able to compete with those who have.
You can find more about this topic and others in Mike Liddell´s book “The Little Blue Book on Scheduling”. Or contact Mike at [email protected]