Can Lean and ERP Work Together?

April 12, 2012
For more, read Lean vs. ERP: Toyota's concept challenges enterprise resource planning.

For many large and midsize manufacturers, the challenge of enabling the corporatewide enterprise resource planning (ERP) system to mesh with their lean initiatives on the plant floor requires a delicate balance.

Implemented by the vast majority of manufacturing firms over the past two decades, ERP is as ubiquitous today as machine oil was in the 1950s. Over the same time, tens of thousands of manufacturers have adopted the tenets of lean management based on the Toyota Production System.

This shotgun wedding between lean's employee-driven mantra of continuous improvement on the production line and the corporatewide materials planning software has put manufacturers in a bind.

"When we first implemented our lean initiative, we felt we were stuck between a rock and a hard place," says Amar Randhawa, general manager at Durabuilt Windows and Doors, an Edmonton, Alberta, manufacturer of doors and windows for commercial and residential buildings. "ERP and lean are quite conflicting. For example, the workflow on our production floor was set for ERP, and we had to make changes to the ERP to enable us to do lean."

A prime conflict between lean and ERP lies in materials planning and production scheduling. ERP, with its top-down approach, depends on sales forecasts for materials planning. Conversely, lean adheres to a pull-based production-scheduling mantra, with inventory kept to a minimum via an in-plant kanban system that replenishes materials and parts as needed. In effect, it's the classic clash of "push" vs. "pull" manufacturing.

A Durabuilt employee records data into the company's proprietary ERP system on a finished product being prepared for shipping to the customer.

Despite these differences, manufacturers are finding creative ways to enable their lean initiatives and ERP systems to coexist, and even work together. Some manufacturers, for example, have found it useful to utilize ERP primarily as a records system, recording orders processed, materials consumed, and finished products shipped, all the while keeping ERP outside the plant. Others are using "middleware" to bridge the gaps between lean and ERP. One company has succeeded in marrying ERP and lean by ordering a customized ERP and then tweaking it to work with lean on the production floor.

For their part, many ERP software firms have incorporated lean functionality, including support for flow manufacturing, electronic signaling of kanbans to suppliers, and sequencing. But the attitude among manufacturers that lean and ERP are estranged is so prevalent that software vendor Ultriva, based in Cupertino, Calif., has found a thriving niche by positioning its supply chain software as the bridge between lean on the plant floor and ERP.

"We have about 150 plants now using our software with SAP and other ERP systems," says Ultriva CEO Narayan Laksham. "Several ERP vendors have tried to retrofit their software for lean, but their demand forecasting drives their system, whereas actual demand is what drives lean."

Keeping Lean and ERP Apart

Adopting a strategy of keeping ERP largely outside lean-driven plants has worked successfully for TRW's European Foundation Brakes Division, which comprises eight plants in five countries. The division manufactures brake calipers, drums, boosters, antilock braking systems and electronic stability-control systems, as well as various suspension components.

Looking inward within each plant, the TRW brake division in Europe depends on its lean initiative. But when it comes to dealing with customers and suppliers, ERP provides the information.

"Everything inbound to and outbound from the plant is fed into ERP," says Michel Berthelin, portfolio director, Foundation Brakes.

The reason TRW has adopted this approach is simple.

"These systems tend to conflict," Berthelin explains. "ERP is based on MRP, which works with infinite capacity and ignores the issues we humans have."

As a result, "We are basically running our ERP for anything outside the plant.

"The ERP reflects the orders from the customers," Berthelin says. A logistics planner in each plant, aided by an automated calculation, takes the customer-order data from the ERP and manually levels the demand to produce a similar number of parts of every product every day. This demand leveling is done once a week, reflecting new demand data and projecting a new average production for the upcoming weeks.

"We level demand over four weeks for our internal processes and our supply base, so that no one sees the spikes in the demand," Berthelin adds. In this way, the ERP provides the raw information about customer orders, but each plant builds its own level calculation of demand from that customer-driven data. The level demand, in turn, determines what the plant builds daily.

Importance of Demand Leveling

"This leveling stage is extremely important to make our pull-based kanban system within the plant communicate with ERP, which contains the customer orders," Berthelin says. "By doing this, we are balancing our production schedule with the customer takt time."

In other words, by aggregating orders across a month, TRW brake-division schedulers at each plant are able to flatten out the workload over time. This eliminates demand spikes that otherwise could wreak havoc on the lean effort, which functions best when there is a smooth flow of materials and a relatively flat production schedule.

The leveling also ensures that parts are being made at the right time to meet customer demand.

"We try to make the need for order sequencing not a problem for us, because we are building parts at the same pace that customers need those parts," says Berthelin.

Aside from the order process, ERP comes into play again at the end of the production process, as brake parts are finished and ready to be shipped to customers.

"When finished goods are taken and put onto a truck bound for the customer, they are barcoded to tell the ERP system that these components are going to the customer," adds Paul Ridealgh, TRW European Foundation Brakes Division logistics senior manager.

TRW's European managers believe the kanban-driven lean method of operating plants, combined with ERP to communicate with suppliers and customers, is an optimal approach to enabling lean and ERP to coexist.

"Using demand leveling and kanban cards, mixed with ERP, is a very successful way to monitor the use of working capital," says Berthelin.

Berthelin recommends that manufacturers utilize ERP-based materials planning with care.

"ERP needs to be monitored closely and constantly checked, because it can be quite unreliable -- sometimes customer orders, for example, may not be consistent. "Also," he says, "the boundary between the two systems [lean and ERP] needs to be clearly identified to avoid confusion."

Ridealgh adds: "If you're serious about your lean initiative, you're going to have lean and ERP coexisting. We've never seen a manufacturer succeed with both lean and ERP within the plant."

Making ERP Support Lean

Another manufacturer that found a creative solution to the lean-ERP mismatch is Durabuilt Windows and Doors, which operates a 180,000-square-foot plant staffed by 450 employees.

Durabuilt uses a proprietary version of Cantor, an ERP system developed by Helsinki-based Glaston Corp. Durabuilt calls its customized version Duraquote 360. The company has been using the ERP system since 2008 and has been practicing lean management principles for three years.

One of the first things Durabuilt's IT staff of four had to do was to adapt the ERP system to support the plant's adoption of lean-management principles.

"We had modified our assembly line to a single-piece flow, and we had to configure the ERP to support that," says Randhawa, the general manager. "Even the workflow on the floor was set for ERP -- we had to produce 50 or 100 boxes before we could go on to the next order," he says. Now, instead of having batches of parts sitting around in boxes waiting for hours to be used, the parts are brought to the line when needed.

Randhawa is quick to assert that ERP is essential to the company's lean effort.

"If we didn't have an ERP system, our lean initiatives wouldn't work," he says. Before Durabuilt had an ERP system, the company had sent paper documents to purchasing to order materials and then to receiving to wait for the materials to come in.

"Now we have no transfer of papers, and the order for materials goes straight to the supplier," he says, with some going electronically and some via fax. "It's a faster process, and we're not missing anything due to human error. And now we have materials lead time built into the system, so we can provide an accurate delivery date to the customer up front."

Typically, orders are entered into the ERP system by salespeople. The orders go to the scheduling department, where a team of 17 schedulers can batch the order to be made all at once if it's time sensitive or in phases if it's a subdivision that only needs a certain number of doors and windows every few weeks or so.

Building the Production Schedule

Schedulers then use the Durabuilt 360 ERP system to create and adjust the production schedule, fine-tuning it daily, taking into account the capacity of each manufacturing line and the various orders, their complexity and their time sensitivities. Finally, schedulers must weigh in the transport schedule for Durabuilt's fleet of trucks that deliver windows and doors throughout the region.

For Durabuilt -- as with many manufacturers trying to balance the conflicting capabilities and demands of lean and ERP -- it's a delicate balance.

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