Can you Go Lean with your ERP?

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Lean and ERP – “A shotgun wedding”or “A happily ever after”?

For many large and mid-size corporates the challenge of integrating their corporate ERP solution with lean initiatives can be a nightmare. ERP software is as ubiquitous today as machine oil in the 1970s

Why is “Lean” so popular across industries? Lean delivers what companies really need in today’s highlycompetitive world - shorter lead times, improved quality, reduced cost, increasedprofit, improved productivity and better customer service. Lean is a western adaptation of Toyota production system. Seeing the remarkable success of Toyota many manufacturing industries implemented “Lean” concepts within their organizations and have been able to realize their economic dreams. Eliminating waste and fostering continuous improvement are what Lean is allabout. Such a simple concept in theory is very difficult practice in reality because it takes a change in perception and focus that at times may be seen counterintuitive. With this blog I would like to highlight how ERP systems can help achieve a company’s dream of becoming lean.

It has been a common fallacy that Lean methodology was suitable for manufacturing industry. The argument seems to be true to a certain extent, after all an Aviation industry is much more than some kind of widget-making assembly line, putting one piece onto another every 10 seconds!However, Aviation industries have been able to use the concept of “Lean” very intelligently. They have streamlined their processes while improving quality, becoming nimble while responding quickly to customer demand and empowering employees while increasing profits. For example consider the example of assembling a 737. According to an estimate Factory employees must take 367,000 parts, an equal number of bolts, rivets and other fasteners and 36 miles (58 kilometers) of electrical wire then put them all together to form an airplane. The evolution from “Fat” to “Lean” stems from the fact that production methods were evolved in such a way that instead of the aircraft being assembled in one spot (static production bays) they are now on a moving assembly line similar to that used in car production. This is where ERP solutions can play a crucial role.

IT systems in the form of ERP software’s have played a vital role in helping aviation industries achieve its “Lean” objectives. This doesn’t means that one has to look out for lean ERP software in order to become “Lean”. One has to understand the fact that one cannot run a service industry (or as a matter of fact any industry) without a dedicated business application. Introducing the principles of lean manufacturing to an organization means training employees as well as laying out production lines anew. However, huge part of the business has to go on, whether it is lean or not.You still have to do general ledger and accounts payable, and you have to purchase and receive things and take customer orders. The sensibility lies in the fact one has to leverage ERP systems to become lean.

The role of ERP solution in becoming lean lies from the fact it helps in analyzing existing business practices and potentially restructuring them to operate in a lean environment through continuous industry specific customizations. After all the only way to find the areas of improvement and then make those improvements can be done by tracking and analyzing current business processes, which can be easily done through ERP software. It won’t be wrong to say that an ERP system provides all necessary information in an organized manner such as that of products, production, facilities, resources and demand which is required to implement lean principles. On top of that having all these organized information at a single place of reference is very valuable.

ERP software is no magic tool; it supports lean but does not necessarily drive lean. Consider the assembling of Boeing 737 which I have stated earlier. As a part of lean principles, inventory will be supplied to the assembly line in small but fixed regular intervals in a shift. However a supplier will not be able to supply inventory in small quantities several times a shift. This is where ERP solutions comes into play. Let us consider one more example which will give you a better idea of how lean principles can be integrated with ERP systems. Sizing of lots or rather optimizing the size of lots is very important as it determines the amount of inventory on floor. It is no brainer that lesser the size of lot, less will be the setup time required for changing out materials on the Boeing assembly lines. Applying lean principles to optimize the size of lots by tracking the setup time which is maintained in ERP systems can really streamline operations near the assembly lines. Another instance of lot sizing is analyzing bill of materials in ERP systems. It will help shop planners to coordinate the lot sizing of the parts so that they can avoid ordering more goods to satisfy an order on assembly line thus reducing wastage and saving time.

Overall, enterprise systems – ERP software, Customer Relationship Planning (CRM), Supplier Relationship Management (SRM), Supply Chain Management (SCM) – provide a source of information for mapping out Lean strategies, a mechanism for implementing new and more effective processes, and a measurement system to track progress and document gains.Lean can transform yesterday’s business practices into tomorrow’s industry leadership. Good enterprise system support is an essential component of virtually any Lean initiative.