ERP is needed to sustain the gains of lean programs

Faced with tough competition from China, Thermofab , a Shirley, Mass.-based thermoplastic moldings manufacturer, set itself some specific performance improvement goals: reduce lead times, improve on-time delivery rates, and slash work-in-process inventory.

But Thermofab didn’t have a clear-cut plan for meeting these goals until the company president saw a presentation on the EasyLean software solution offered by Infor, which happened to be Thermofab’s ERP supplier.

A few weeks later, Thermofab went live with the application, and was on its way to a lean transformation.

As it turns out, Thermofab joins a growing number of manufacturers that are on lean journeys propelled by software from ERP suppliers. Industry analysts say this is still a relatively new phenomenon since most lean practitioners can figure out the appropriate sizes and replenishments for kanbans without IT, as Toyota did more than 30 years ago.

But IT can make these processes less labor-intensive. It also makes sense for a company to tap into lean functionality from its current ERP supplier, if for no other reason than simplified systems integration.

The question that must be answered, however, is: How good are the lean capabilities from your ERP vendor?

Thermofab President Tom King has no complaints. Before adopting Infor’s EasyLean solution, Thermofab’s typical order lead time was six to eight weeks, and King says the company’s on-time delivery performance was “dismal.” Post-implementation, lead times have been cut by 50 percent, and the on-time delivery rate is 97 percent.

Inventory levels have remained constant—but on the other hand, points out King, sales have doubled. “Customers just don’t complain about our delivery performance anymore,” he adds.

Colin Masson, a director for manufacturing operations at Boston-based AMR Research , thinks examples such as Thermofab are relatively rare. The perceived wisdom is a company should get lean first—and buy software second. “Typically, the lean sensei within an organization resists the use of software until lean principles have been established manually,” Masson notes.

That approach could be a mistake over the long term, as evidenced by a recent AMR survey on the use of lean manufacturing practices at 208 manufacturing companies. “While the companies we interviewed realized 40-percent to 50-percent inventory savings with their manual lean processes, the most mature lean practitioners admit that technology is needed to scale beyond a single line or plant, and to provide the enterprise with visibility as to inventory and job status,” observes Masson.

Few good choices

Masson concedes it can still be difficult for manufacturers to find software that adequately supports lean.

“While many software vendors offer some kind of kanban capability, lean planning and execution is a different story,” Masson says. “There’s very little software out there, and even the best [vendors] have only 50 or so customers actually using their systems.”

In short, software vendors—and ERP suppliers in particular—haven’t done a good job of adapting their technology to tenets of lean, charges Masson. “What they haven’t done,” he stresses, “is take something like the Toyota Production System and build from the ground up around that—incorporating lean techniques such as value stream mapping, line balancing, cellular production, and inventory planning as required.”

One vendor singled out for praise by Masson is Oracle Corp. While it doesn’t offer as deep a capability as that achieved by some niche lean vendors, he observes, Oracle goes well beyond the basics.

Manish Modi, Oracle’s VP of manufacturing and PLM development, says Oracle combines a lean execution capability that also embraces mixed-mode manufacturing with a suite of lean modeling tools.

“The idea is to provide customers with modeling resources that allow them to simulate the lean environment around which they want to base their lean execution capability—including line balancing, optimized product flows, and heijunka sequencing,” says Modi. “We not only support kanban right back from assembly to the supplier base, but include tools so that customers can look at historic demand and optimize the number and size of kanban cards in the system.”

It’s a powerful combination. At Minneapolis-based Thermo King , a manufacturer of temperature control equipment, notes Modi, the combination of lean modeling and lean execution—including mixed-mode manufacturing—yielded an increase in plant production and capacity of 30 percent while simultaneously reducing inventory by 23 percent.

Attention to detail

SAP is another vendor boasting above average lean capabilities. The SAP offering—dubbed xLPO, which stands for extended lean planning and operations—was built to emulate the Toyota Production System. But SAP acquired the solution from Factory Logic, a former SAP partner that had developed connections for the application to run on SAP’s NetWeaver technology stack. SAP acquired Factory Logic in late 2006.

“Traditionally, ERP vendors have ignored the detail of plant-floor scheduling because there was more money to be made elsewhere—such as supply chain management,” says Allan Wilson, former CEO of Factory Logic, and current VP of SAP’s lean manufacturing operation.

In focusing on the supply chain, Wilson charges, ERP vendors often overlooked the link between the factory floor and what happens in the supply chain.

“Typically, a lot of money has been spent on complicated systems that attempt to drive the supply chain with forecasts rather than with real demand,” he says. “The opportunity that has been missed is to impose lean principles on the supply chain, starting with the real demand on the shop floor for the items in question, and based on replenishing that demand in smaller and smaller quantities on an increasingly frequent basis—thus reducing inventory, and driving the order-to-cash cycle faster and faster.”

At Milwaukee-based automotive manufacturer Johnson Controls , some 13 of the company’s 70-plus North American plants have junked their Excel spreadsheets and switched to xLPO, says Dale Raar, advanced supply chain engineer and a Johnson Controls executive. Of the solutions examined, he notes, xLPO was “the only one that supported all levels of the entire value stream, and had the flexibility to adapt as we continued to evolve and learn.”

Meanwhile, personnel at Johnson Controls’ multi-plant European operations, centered in Burscheid, Germany, have worked with ERP vendor QAD to codevelop some specific lean functionality.

Gordon Fleming, chief marketing officer for QAD, says the Johnson Controls initiative produced a just-in-time sequencing application that QAD can offer to other manufacturers, while a soon-to-be-released heijunka scheduling program was developed in conjunction with Freudenberg-NOK , a Plymouth, Mich.-based automotive manufacturer (see the May 2007 Manufacturing Business Technology cover story, Tough decision at Freudenberg-NOK ). And over the past year, QAD’s lean experts have spent almost a half of their time in Japan, studying lean in practice, and refining the company’s lean road map.

For other vendors, lean capabilities take on a distinct flavor of continuous improvement.

CDC Software , for example, has augmented the ERP capabilities of its Ross Enterprise suite with the recent acquisition of MVI Technology , a vendor of real-time performance management applications.

“For manufacturers, a major barrier to lean is attaining the visibility on the shop floor to drive continuous improvement at the pace that competitive pressures demand,” says Beth Berndt, CDC’s director of product management. “By embedding continuous improvement into software and real-time performance metrics, you’re making it both enforceable and durable.”

Infor has augmented its EasyLean application with a lean-flavored preventive-maintenance capability, explains Marty Osborn, Infor’s director of industry and product marketing for enterprise asset management. “Even as manufacturers reduce waste, work-in-process and lead times, they’re putting more pressure on their assets,” he notes. “There aren’t the buffers of time and inventory in place that there used to be. Shop-floor assets need to be performing reliably, available when required, and producing to specification.”

Typically, Osborn adds, manufacturers are less than 40-percent compliant to their own preventive-maintenance schedules, which jeopardizes their ability to run as lean as they wish.

Meanwhile, SYSPRO USA concludes that while there are areas of overlap, there are disparities as well. Lean’s emphasis on visual management, for example, runs directly counter to the financial and operational reporting focus of ERP.

“While lean initiatives will eventually fail without attention to specific aspects of ERP, other lean initiatives and specific aspects of ERP functionality have little in common,” stresses Joey Benadretti, president of SYSPRO USA. “What you can say, though, is that without good information systems that ensure consistent and routine execution, the process improvements achieved through lean initiatives are unlikely to be permanent.”

Best-of-breed lean supplier continues to thrive

By any standard, Ultriva is small vendor. Founded in 1999, its development team totals just seven engineers. But the company, formerly known as eBots, boasts a kanban capability that draws praise from Boston-based AMR Research’s Colin Masson, and a growing list of well-known manufacturers as customers.

St. Louis-based industrial conglomerate Emerson, for example, has deployed Ultriva across 23 plants.

“For ERP vendors, kanban is just one feature—another tick in the box,” says Ultriva Chief Executive Ashley Stirrup. “But we’re very focused on it, and have built sophisticated tools to maintain lean production while helping to predict and avoid stock-outs.”

A lot of would-be lean manufacturers, Stirrup believes, haven’t realized the impact that even a 3-percent stock-out rate across kanbans can have on achieved lead times and on-time performance.

When American Water Heater Co. , a division of Milwaukee-based A.O. Smith, deployed Ultriva’s kanban capability, points out Stirrup, it cut order-to-ship lead times by 50 percent, outgrew its competition by almost fourfold, increased on-time shipment from 99.5 percent to 97 percent, and inventory turns by 20 percent.

Yet as with most lean implementations, Stirrup adds, the biggest challenge lies in the mind-set of the manufacturer, and the leap of faith that lean represents.

“You can explain the basics of kanbans and pull-based scheduling, and everybody nods,” says Stirrup. “But when you say, instead of placing a new order or a forecast on a supplier this week, place the order based on consumption—well, a lot of companies aren’t ready for that leap.”

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