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Lean and ERP: Can They Co-exist?

Lean and ERP post-3.jpgPull Systems Are One of the Tenets of Lean Manufacturing. Pull Systems Rely On:

  • Actual demand-driven replenishment
  • Visual management systems, such as Kanban signals, for replenishment
  • A signal from the downstream work center or resource of a need for production replenishment

Small production quantities are another tenet of lean manufacturing.  Of course, setup and changeover time must be reduced first in order to make small batch production cost effective.  One piece flow is considered ideal with repeated schedules to simplify the scheduling function.

So, you or your company embarks on its lean journey, and what is the first obstacle you encounter?  The ERP system.  Well, actually, not the entire ERP system, but the entity called a Work Order (or Shop Order, Production Order, or equivalent).  Why?

Work Orders are, by their very nature, push systems.  A planner or schedule creates the Work Order and pushes it to the shop. The first work center begins producing according to the first operation whether or not the second work center requires replenishment.  The first work center then completes its production and pushes the work-in-process to the second work center where, usually, it sits in queue.  Queues typify push environments.

These statements don’t make push systems or Work Orders inherently evil; in fact, a job shop with only make-to-order products made to customer specifications might not have enough repetition of demand to deploy pull systems.

Moreover, Work Orders Satisfy Other Business Requirements, Including:

  • Work Orders are the vehicle for capturing production costs and valuing Work-in-Process;
  • Work Orders build and retain the lot or serial traceability of products as they’re produced;
  • Work Orders, more specifically Work Order operations, are the items that the production scheduling algorithms use to sequence and schedule production.

So What is a Supply Chain Professional to do When Faced With This Conflict?

1. Determine your traceability requirements and best vehicle to accomplish the task. Typically, companies will resort to using lot or serial controlled inventory within the ERP system by default.  Often, that’s appropriate, but on occasion, it’s an overkill solution. If your chances of a recall or claim are slight and limited to selected products, consider using simple, manual, or offline solutions rather than the ERP solution to fulfill your traceability requirements.

2. If your organization will use Work Orders to fulfill the traceability requirement, you may still be able to deploy pull systems rather than the Work Order oriented push systems for the repetitive portion of your production environment.  Determine the degree of repetitiveness in your production environment. 

If you are a mixed-mode manufacturer with some elements of job shop and other elements of repetitive, separate them and apply different “prescriptions.” 

Apply traditional, Work Order based push for the job shop portion of your business. Then, apply pull systems with visual replenishment, such as Kanban Signals, for the repetitive portion.  In other words, create Work Orders in the repetitive environment, but don’t create them when the forecast-driven MRP module suggests, create them when a Kanban Signal is triggered.

3. Lastly, don’t overly rely on scheduling software, but don’t unplug it just because you hear bad things about scheduling software at a recent Lean Manufacturing symposium.

For the repetitive portion of your business, yes, feel free to minimize or turn off the scheduling software. Pull system signals should, most often, be fulfilled on a first-come/first-serve basis, so complex sequencing algorithms aren’t necessary. Also, in a one piece flow environment, the batch-oriented nature of scheduling software often falls apart.

But, scheduling software for the job shop portion of your production environment may be beneficial for a job shop dependent on Work Orders for cost capture or traceability reporting and full of batch processing. This type of system may benefit from scheduling software to identify potential bottlenecks, suggest more optimal sequences, and achieve overall better throughput.

So, when it comes to the “ERP or Lean” question, the best solution actually depends on the environment. I’ve seen Kanban-based replenishment systems work well in the right environments but result in excess inventory in the wrong ones. Same for ERP and Work Order based production systems. Be leery of consultants and professionals who are convinced that one way is good and the other is bad. They usually fall victim to the “if one’s only tool is a hammer, the world looks like a nail” syndrome.

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Scott Holter is the Director of Meaden & Moore’s Business Solutions Group. He has spent 20 plus years in manufacturing and technology consulting.

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