Lean and World Class Manufacturing and the Information Technology Dilemma-The Loss of Corporate Consciousness
Written By: Ron Crabtree
Published On: September 23 2005
Lean and world class companies, and those that are actively on the journey toward a world class level of performance are generally admired and used as a benchmark. Yet, many of these companies, in their quest to "get lean," have fallen victim to what we will call a loss of corporate consciousness, which results from manually implemented and supported lean and world class manufacturing methodologies. Is manually implemented and supported methodologies such a bad thing? Only when the company loses sight of the total dynamics of the business and loses its ability to quickly react to changes in the market place. When corporate consciousness is lost, so are some of the benefits that lean and world class manufacturing offers.
Deciding whether IT has a place in a lean and world class enterprise depends on the complexity of the environment. Does the company have a stable and low complexity operating environment or a volatile and complex operating environment? The following synopsis reveals the reasons why loss of corporate consciousness is occurring. Additionally, we will explore how an enterprise can incorporate information technology tools and lean and world class synergistically to help achieve and maintain market dominance.
Lean and World Class Purists Tend to be "Anti-Technology"
First we need to consider why there is tension and major differences of opinion between the IT, and lean and world class communities.
Many lean purists hold that traditional IT applications like enterprise resource planning (ERP) systems are, by definition, anti-lean, using push logic to populate the production system with inventories, rather than pulling material and value-added operations through the system, and basing calculations on physical consumption driven by actual customer demand. In many cases traditional standard costing and least total cost logic often will drive lot-sizing decisions that prove to be counterproductive and even directly opposed to the implementation of lean and world class manufacturing. Based on these beliefs, companies have taken a "ready, fire, aim" approach to implementing lean and world class manufacturing, without fully evaluating how and when IT tools play a part.
Many lean purists insist the legacy IT systems should be abandoned to free the organization of the paradigms of mass thinking and pursue new ones in lean thinking. In lean environments where variety, mix changes, and demand are relatively stable, an IT support, in the form of a traditional ERP system, is arguably of minimal value. However, one must consider the limited ability of human beings to manage complexity as companies move up the complexity continuum. As complexity and the rate of change increases beyond a certain level, IT tools can be used to make a difference in a lean and world class environment to move beyond "information barriers". Consider: When variety, mix, and demand are of increasing complexity, the value of IT "intelligent" support increases.
When a company is in a stable demand environment with low levels of product variation in the form of customization and design changes, the risk of losing touch with the physical reality from an IT database standpoint is very low. Likely the legacy planning, costing, quoting, and accounting system view of reality is pretty close to the actual reality after lean manufacturing is implemented. For example, in most automotive supplier plants where lines and cells are dedicated to producing a single part for a single vehicle line, there is good alignment between "what we think is happening" and "what is really happening" from a database point of view.
If changes in demand or design are expected to occur, a what-if scenario, using the existing IT infrastructure, is likely to provide a realistic view of the impacts on people, machines, materials, space requirements, cash, and the like. Simply exploding different demand patterns and planning routings and bills reflecting expected changes does work to provide some visibility. In this way many traditional ERP systems permit the management team to derive a global view of business from a costing and global capacity standpoint. Advanced planning systems (APS ) applications are available to supplement or replace this type of functionality in ERP systems.
Companies in low complexity environments often find that spreadsheets and manual tools are an effective means to support planning and execution. Models of demand can be built in spreadsheets and exploded against routings and bills of materials to make rudimentary line balancing decisions and calculate kanban (pull/replenishment signal) quantities. Spreadsheets and manual models are also useful for basic heijunka (mixed model) load balancing to smooth the demand for a given period over constrained resources and materials. A relatively simple spreadsheet can easily be created to demonstrate how this works. Figure 1 illustrates the dynamic of increasing shifts in demand combined with higher levels of product variation, in design and mix, create higher risk.
Figure 1. The Complexity Continuum
When Is There a High Risk of a Loss of Consciousness?
Problems can and do arise in the management of lean and world class businesses in more complex and dynamic environments that choose to use manual or spreadsheet-based tools. As explained in the context of low complexity entities, complex environments can perform forward-looking demand and mix/variation scenario assessments against the database to derive answers to what if questions. That is, it can be determined if the data in the system really reflects "what it takes" to make the products.
Loss of corporate consciousness occurs when the maintenance of the detailed (granular) "how we do it" information in manufacturing migrates to manual or spreadsheet tools in the quest to rapidly implement lean and world class. The "ready, fire, aim" approach of purists driven by the need for rapid results seldom leaves time or resources to update the data upon which corporate consciousness depends. As a result, the forward-looking functionality and relevance of ERP APS is weakened or severed entirely.
To add to the dilemma, the detailed granular information needed to do many of the tasks for lean-out processes may not be supported by legacy IT applications. Consider a process where fifteen components are assembled today at a work station by one person. As processes are leaned-out and rationalized, it may be discovered that many products should be built on a cell or line that has more people and a mix of equipment to assemble a large variety of products with fewer total machines, people, and space. Now the detailed steps for each part needs to be broken down, detailing the time, material, and equipment required to add each part to the assembly for each component.
Armed with this information, the lean/world class continuous improvement team in an organization can perform line-balancing calculations and balance the flow of work between people, machines, and tooling to eliminate wastes. The challenge then falls to someone to decide whether or not this detailed and granular information will be updated to the legacy IT system. Chances are the legacy IT application is incapable of defining all the new elements. If it does handle these details, it is probably so difficult to use and maintain, that the necessary updates will simply not occur due to a perceived or actual shortage of resources. In these cases the payback for maintaining the detailed data is difficult, if not impossible to measure.
While the company can still do high-level decision support tasks, the process becomes too lengthy or costly to complete in a short period or requires frequent updates by manipulating the model to reflect the current reality in operations.
As a consequence, the validity of the planning system and management decision support tools break down rapidly due to a disconnect between what we think it takes to make products and what is really happening on the shop floor or in the supply chain. The reality in lean companies often changes, almost daily, due to the continuous improvement and kaizen activities. As consciousness decreases, the ability to quickly assess an enterprise based on the impact of a changing environment is lost, and with it, agility—a cornerstone of lean manufacturing—is lost. The resulting paradox has led many companies to abandon their pursuit of lean manufacturing or to settle for a sub-optimal mixed-mode approach. Thus the loss of corporate consciousness occurs, by default.
Consciously Weighing the Business Case for IT in Support of Lean and World Class
Building the business case for using IT tools to support the lean and world class enterprise should be a thorough and pragmatic examination of the facts and opportunities.
Let us assume that traditional approaches in implementing lean and world class with conventional manual and spreadsheet-supported approaches have already netted some positive gains for the business. What is needed to move to the next level is a way to break through the information barrier to attack wastes that remain.
Consider that even a leaned-out system still has considerable waste. This waste can take form of buffer resources that are added to handle expected variations in demand. It is very common for lean and world class purists to put in an excess of 10 percent or more in resources and inventory than what is really required to handle expected variations. If the variations are expected to exceed 10 percent, then the buffers must be increased. This is even more obvious in the inventories seen in the kanbans/pull signals which may have 30, 50, or even a 100 percent or more buffers beyond average expected lead-time usage built into the quantities.
The average inventory of a kanban might represent a one-week or a three-month supply—depending on how it was set up and which day of the month you happened to check it. In one plant, the materials manager would review the transaction history on the kanban cards periodically and adjust the quantity upward and downward "on-the-fly", based on his best guess, as no better information was available. Chasing the right quantity in the kanbans shows up as excessive inventory for oversized kanbans and premium freight for undersized kanbans.
Additional indications that the sizing of resources is problematic are the presence of "feast and famine" cycles of layoffs and short shifts alternating with sudden expenditures of overtime. These are not indications that a lean and world class approach is bad, but rather that information is either not flowing, or the ability to do something about it (like resize kanbans) is too large a task to perform frequently enough to match shifting customer demand.
All of these gaps are quantifiable as wasteful, and depending on the complexity of the environment, these can be substantial—in actual dollars and in the form of unhappy customers who do not understand or care about your problems.
Place a Value on the Gaps in Performance
A pragmatic assessment of the current state of performance is needed. What is the average inventory turnover? Obsolescence? Unplanned overtime? Expediting costs? Lost order opportunities? Angered customers? What about all of the people in the organization who are endlessly frustrated with feast and famine? How much are these wastes worth?
Put a value to these wastes in dollars or market share. The difference in performance between the current and possible performance is effectively the gap that IT can and should be tasked with closing. Wastes of information are to be avoided. All too often companies find themselves awash with data, yet still grasping for relevant decision support information. In many cases the data collected is the wrong data from a lean and world class perspective.
Create a Matrix of the IT Tools and Applications
To remedy this, one should create a matrix of the IT tools that are expected to attack waste. The depth of detail required for this matrix is great, and while the details of a matrix analysis are beyond the scope of this paper, it is important to recognize that each of these areas must be identified. I suggest performing an analysis as follows:
- Start with a thorough list of all functions that need information (timely and accurate) to support the lean and world class enterprise. Start with the customer and work backward to your suppliers.
- For each feature and function, spell out the rationale for the lean value it generates.
- For each, determine which of the eight lean wastes it attacks directly and indirectly:
Under-utilized human resources
There are bonus points for identifying the ninth lean/world class waste: information—which is specifically not data. Information is the relevant actionable facts and correlation in the data, or "the differences that make a difference". Information waste may be in the form of useless irrelevant data or missing or inaccurate data used for decision support.
- For each IT tool, a further correlation might be made to the lean metrics (credited to Toyota):
- S Safety
- Q Quality
- D Delivery
- C Cost
- P Productivity
- M Morale
- For each IT tool that makes "the cut", promising a tangible improvement in performance, prepare a list of possible solution sources needed. Candidates are ERP, APS, manufacturing execution system (MES), flow/lean software, custom developed applications, and others.
Assess Existing Infrastructure and Proceed with Selection and Implementation
An assessment of the existing IT infrastructure and operating parameters will identify where there are opportunities to leverage the existing investment and target improvements for the future support of the lean and world class enterprise's quest for eliminating waste.
Then and only then, should an IT implementation plan be developed. All IT interventions should be measured to verify effectiveness, to avoid the trap of "technology for its own sake". A pragmatic approach to scoping, defining, and scripting must be followed in defining new applications. These must be tested with each of the potential solutions and weighed for their short and long term value to the enterprise.
Information, and the appropriate application of technology to support the people of the organization literally touches every aspect of the business—and will become more so in the years to come. Reuniting lean and world class with IT can restore corporate consciousness, and permit the synergistic results made possible by leveraging the best of both approaches.
Recognize that lean, like many other continuous improvement tools including Six Sigma, fall prey to not having access to information (specifically data), or, the differences that "make a difference". Each company must consciously weigh the importance of having appropriate, accurate, and timely information—to all of those who need it to drive lean and world class success.
About the Author
Ron Crabtree, CPIM, CIRM, is a director at large for the Greater Detroit Chapter of APICS, and president of RSC Consulting. He consults, speaks, and writes for a multitude of professional organizations on operational excellence, and as well as on lean links to ERP and IT systems. He can be reached on his cell phone at (248) 568-6484, or by e-mail at email@example.com