The ERP route to lean

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Magazine Article, Source : The Manufacturer
Zone : IT in manufacturing
Published : April 2005

At which station on the journey towards lean manufacturing does ERP software board the train? Brian Davis investigates

Though lean thinking has been around for a long time, lean practitioners often dismiss using specialist ERP software for this purpose. A straw poll of several lean manufacturing managers by The Manufacturer got a resounding “No!” on being asked whether they used ERP modules for their lean initiatives. However, some firms reckon IT offers significant competitive advantage as they move to the next level of lean deployment.

ARC consultant Simon Bragg maintains that lean initiatives often make rapid progress, then progress plateaus. “That’s where specialist ERP modules can play a role. But they are not a panacea for a failed initiative nor should they be adopted aggressively by a company that has little if any experience with lean operating principles.”

Some, but by no means all, ERP vendors have incorporated lean tools to help facilitate significant benefits, claiming to increase inventory turns by 50 per cent, reduce lead times by an order of magnitude, and improve suppliers’ on-time delivery by over 25 per cent. There are also benefits from roll-out across multiple plants by standardising best practice and processes.

Key vendors offering lean-based ERP modules include SAP, MFG Pro, SSL Winman, SSA Global, DemandStream, Oracle and recently-acquired Peoplesoft (which itself bought Demand Driven Manufacturing in 2003). The latter two vendors worked closely with the John Constanza Institute of Technology to incorporate lean principles around flow schedule elements, kanban, production line balancing, production schedules and better supplier integration around those schedules.

Bragg says there are five key areas where lean-centric software can support lean manufacturing initiatives: analysis and mapping tools, lean scheduling, supplier management, demand smoothing and lean accounting. Though most lean initiatives start with the analysis phase and value stream mapping to identify the main problems and identify quick wins, few lean managers rely on ERP value stream mapping modules to identify bottlenecks or lean accounting, for that matter.

Conventional lean initiatives use manual kanban to convert parts of production from push to pull. Performance improves dramatically initially, then improvement plateaus or even declines as kanban cards are lost or damaged, and traceability becomes time-consuming.

Software-driven kanban, however, can handle all aspects of kanban, including generating the replenishment signal for a bin by back flushing, resizing and sequencing to reduce the work in progress (WIP). To be effective, automation requires supplier integration through Internet-based portals to pass kanban information from the shopfloor to a supplier, as well as putting long-term forecasts up on the portal so suppliers know what is coming.

The UK market for lean manufacturing software solutions is still small, and systems are mostly under evaluation at a few reference sites.

Although kitchen manufacturer Magnet doesn’t speak of having a lean strategy specifically, the company is currently moving from ‘make-to-stock’ to ‘make-to-order’. “We produce a lot of rigid carcases and therefore store a lot of air! There’s also the cost of damage and handling,” says Aiden Phillipson, group IT manager. The Darlington-based factory initially intends to move to a JIT assembly process using existing stock from the summer, and then plans to achieve assemble-to-order by the time of the next January sale.

Magnet installed an IFS ERP system two years ago, mainly for material control on the shopfloor, producing worktool lists using IFS shop order functionality, to create production schedules for continuous manufacturing processes, and to optimise cutting of large hardboard sheets.

“We are now moving to the next level,” says Phillipson. “We have used traditional kanban for the last couple of years for replenishment of some components from bulk WIP stock to line-side locations. The plant now plans to move to assemble-to-order using more automated functions within the IFS Repetitive Manufacturing Module.”

Phillipson is also considering acquiring IFS/Demand Planning, which offers advanced forecasting algorithms to help improve efficiency by predicting and levelling load. “This was probably more relevant when we were assembling to order for the long-term stock plan. But it will be useful to import forecasts directly into the IFS master scheduling tool for make-to-order, taking into account historic and seasonal variables.”

Phillipson is also looking at the IFS constraint-based scheduler after a recent demo. “We have to make a lot more short-term decisions, so the constraint-based scheduler will help balance loads between assembly lines in a more timely fashion.”

The system will also help Magnet’s factory planner make better use of space. The group currently manufactures 20,000 carcases a week, and half the factory is devoted to keeping common components in stock. Lean will help take these components out of stock faster, optimise space usage and improve customer service. “By planning to manufacture as required, we can guarantee the customer will get their units faster, on time and undamaged, giving us a big competitive advantage,” he remarks.

Automotive component manufacturer Magal Engineering was established in a management buy-out from Aura Automotive in 2002. The new owners sought to replace a legacy ERP system (SSA Global Technology’s BPCS) and install a pull-based system with true kanban functionality.

The company has five plants with headquarters at Woodley near Reading. Martin Blackburn, group IT manager, sought quotes from six ERP vendors and found most burst his £150,000 budget. At the eleventh hour he read that SSL Winman offered kanban at the right price and level of functionality and invited it to tender along with Pegasus. Both gave demonstrations on the same day and SSL Winman won.

“SSL Winman demonstrated exactly what we wanted with kanban functionality for a true pull system not simply minimum order quantities,” he says.

Magal Engineering plans a staged deployment, first installing a raw material kanban, then shopfloor kanban and subsequently a finished goods kanban. First, it installed a raw material kanban using an out-of-the-box Winman solution in November 2002. The shopfloor kanban is visually projected into the works area using overhead projectors at the former Adwest Engineering plant. The group subsequently acquired a further four companies in 2003 and rolled out Winman in three of them (not France) between March and September – in Western Thomson Controls, Magal Cables and Magal Metallifacture.

Installation of the finished goods kanban is well underway. “We want to take our customer order book into the system, run it though a level load system, then prime the finished goods kanban in line with customer requirements,” says Blackburn. He finds the system very user friendly, and most users are fully functional within 24 hours without external training.

The lean system delivers inventory reduction across the board. Western Thomson Controls has reduced inventory by 50 per cent and is targeting even greater savings. “We’ve flattened out all BOMs with lean, one-piece flow and moving towards right first time. Obviously the improvements are not simply due to the ERP system, but good production planning, level load production and a single piece flow environment help us achieve our goals.”

Magal lean specialist David Male confirms, “The kanban system is now dynamically based on customer demand. We’re currently trying to automate the level load process, so we have a continuous material flow from our suppliers. This is a challenge as we are not just catering for high running, high volume parts.” Stock-out has been reduced to zero, from two or three stock-outs a week. Inventory has fallen by 60 per cent and stock turns have doubled in two years.

Shrewsbury-based engine maker Caterpillar (formerly Perkins Engines) began introducing lean manufacturing in 2001, and is moving from individual work bookings to repetitive bookings using MFG-Pro lean modules. The company has operated an MFG Pro ERP system since 1994, but the lean ERP modules were only introduced recently and some are still being evaluated. “It’s more important to follow the principles behind lean than to rely on lean-based modules,” says Luke Henry, senior IT analyst at Cat. “Generally we analyse people’s processes, then apply the lean functionality available in MFG-Pro to that process.”

The company recently deployed the MFG Pro repetitive manufacturing module to process work orders more efficiently. The supplier customer schedules module is used to speed up order processing with five internal Cat suppliers and four external suppliers via EDI. But most suppliers still receive schedules by automated fax.

Key suppliers can also use the self billing module. Cat doesn’t currently use the vendor managed inventory module. But it has written some programmes in house to identify stock levels by value, which runs on the MFG Pro system.

Henry admits he has spent recent months trying to get his head around the kanban modules in MFG Pro. “We hit a few problems initially when we introduced some of the service packs into MFG Pro. We weren’t expecting to introduce such big changes to the system, and are trying to figure out how it will work.”

He makes the point like many lean practitioners, “Lean is really a methodology which is not reliant on lean ERP modules. We’ve done quite well by using lean techniques, with significant inventory reduction but not much impact on WIP yet. The lean ERP modules will help us get to the next level, but the key challenge is understanding what these modules can really do. We’re still evaluating them.”

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