Deploying Lean Principles to ERP Implementation Projects

The competitive environment that both Manufacturers and Distributors alike have experienced in recent years in the era of Globalization, Currency Fluctuation, and Market Pressures has given rise to the business impetus to run a leaner operation to remain competitive. These issues have trickled down to the IT department. IT Professionals are at times facing an enormous obstacle. They are expected to align the organization’s IT infrastructure with the strategic and operational components of the Business to improve upon Service Delivery. The other part of the issue is to reach those goals with fewer resources. Many IT Managers have had to adopt techniques to run a lean IT shop and extend that to the principles of the IT projects that are under development.

An ERP project is an ideal area to utilize lean concepts to further understand how this can be achieved, but we must first understand the basic principles of lean and how they relate to an ERP project implementation.

Lean Definition
Lean Principles have evolved from the Lean Production Philosophy which has its origin in the set of business philosophies developed in post-war Japan known as T.P.S. (Toyota Production Systems)— which has as its core philosophy cost reduction through elimination of waste (muda Japanese).The principles deployed in Lean made Toyota the pre-eminent auto-manufacturer in the world and by extension helped shape Japan into an economic power.

The concepts outlined in Lean Manufacturing evolved into a series of principles which evolved into a business concept known simply as Lean which can be applied across several disciplines i.e. Project Management, IT Deployment, etc.

The Organization known as APICS (American Production Inventory Control Society) has defined Lean as “A Philosophy of Manufacturing based on planned elimination of waste and continuous improvement of productivity.”

How ERP & LEAN Work Together
One of the ways in which ERP & Lean complement one another is in areas such as: Machine Setup Time, labor costs, and materials handling.

During Machine setup, time is lost due to the time the machine operator must setup or take down and change tooling. At other times the employee must spend valuable time looking for tools or preparing for many delays related to machine setups as a result of constant changes to the production schedule at the same work station. One of the core values of Lean Manufacturing is known as the “5S Method.”

  • Sort - Eliminate  all unnecessary tools, parts, instructions

  • Simplify - A place for everything and everything in its place

  • Shine - Maintain a tidy and organized work environment

  • Standardize - Document the rules for maintaining the first 3S instructions

  • Sustain - Operations carried out in sequence, eliminating waste

Execution of the” 5S Principles” meant that resources were planned in ahead, tools were in place and readily accessible, and (where possible) production jobs were scheduled to run in a sequence that minimized machine set-up. When the “5 S Principles” were applied to an ERP environment they looked like this:

  • Sort - Use only parts of the ERP system which benefit the company

  • Simplify - Use ERP to enable integrated business processes  i.e. inventory control

  • Shine - Ensure that you work with accurate and timely data

  • Standardize - Document and standardize, business processes

  • Sustain - Business Processes executed by ERP executed on a consistent and timely basis

The results achieved by the ERP system deployment have resulted in cost reductions and improvements in efficiency meant that work in process has to be managed closely to ensure that no bottlenecks in production occur, The tools within ERP such as Capacity Planning and Costing Modules to define direct vs. indirect labor now mean that only the time the job runs in production are calculated as direct labor.

The efficiencies gained by the ERP implementation produced reduction in set-ups, and other shop floor time management processes, means direct labor costs are also maximized. Through the use of data collection devices, you can account for time spent “on the clock” and nonproductive time spent while a work-order is in queue. This way, non-productive time no longer figures as a basis for calculating direct labor. Finally, as ERP itself evolves with the use of BI tools, along with lean techniques and philosophies such as lean pull-production principles, you will achieve business gains as you introduce JIT (just-in-time), resulting in greater capacity to monitor inventories, manage more efficiently, and align your suppliers to lean-pull production techniques. In the lean ERP model, especially where cellular production techniques in manufacturing are introduced, there is going to be less handling of materials. Once a production job begins on the shop floor, production raw materials flow through the plant rather then sitting idle waiting to be used in Production.

As a result of lean ERP being used in the organization, inventory moves from work station to work station in a continuous flow through the plant—and as a result, return on investment is accomplished through the use of improvement in efficiencies and reduction in inventory investments.
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