Assessing IT's role in lean environments
Ledalite is a small manufacturer who has adopted Lean and also makes extensive use of ERP technology to run their businesses.
By: Jacob Stoller
(As Published in Plant Magazine)
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It's easy to make things difficult, but it's difficult to make things easy." This ancient Chinese proverb, cited by Andy Anderegg of Ledalite, sums up the relationship between IT and lean manufacturing. Ledalite is one of a small but growing group of manufacturers who have adopted lean principles and also make extensive use of ERP technology to run their businesses. As the proverb indicates, the combination of IT and lean has its challenges.
IT has imposed more than its share of undue complexity on organizations. Lean, on the other hand, is fundamentally low-tech, and as such requires a conservative approach to IT. As a philosophy, lean does not require software intervention, because lean is about working smarter by reducing unnecessary steps and waste. From that perspective, it is not a software-driven methodology by any means. But today's more modern software facilitates the use of lean because it makes information more accessible and available to those people who have to make decisions. Software makes it easier to access information, and see a summary in real time.
One client has found this two-pronged approach works well. "I really believe in ERP but once we get into the building, we like to keep it really simple and try to minimize intervention with the ERP system. We try to stick to a visual system, and then the basics to keep our inventories in check and keep track of some basic schedules."
Lean And IT
There's a lively debate among lean consultants as to where and when software should be used in lean operations. On the shop floor, IT is frequently considered out of bounds. Lean traditionalists tend to favour low-tech approaches-for example, the use of a flipchart instead of a computer screen. Some of this is hard to argue with. A blinking icon on a screen is hardly a match for the powerful cues you get in a visual shop, such as the absence of inventory within a painted square on the floor. In a demand-driven environment, the chore of collecting data to feed an IT system can be a losing battle, a distraction and a waste.
Some of the anti-IT sentiment may be a bit dated. A lot of the tools that have been developed in software and electronics are there to reduce the time lag between something happening and the information being available. We're probably heading towards the same thing from both sides-that we need to respond immediately when there's a need, and the software side is saying there's a whole bunch of electronics out there that can do that. The big battleground for this debate is ERP.
The essential problem with ERP systems in lean environments is that they are conceived on a push model where you operate off a fixed plan and continually make adjustments as you go. Lean, conversely, operates under a pull model, where you simplify operations in order to rapidly respond to demand. This difference is not easily reconciled.
Managing Production Schedules
You should not depend on ERP to manage production schedules. Production schedules should be managed based on customer demand. There's a subtle but critical difference between the two. People who are lean typically have a hybrid system that's kind of half visual system on the production floor and half dependent on software.
Once you start using your IT system to run your processes, that's when you get into trouble. Because an IT system can't react as quickly. If you're really building to demand, the IT system actually becomes redundant, because you're reacting to a pull, not a push, and you tend on an IT system to be pushing.
In our connected economy, however, ERP systems are here to stay. The need to communicate instantaneously with partners requires a high degree of speed and processing power. Some people have 1,000 or 2,000 suppliers. And you need to be able to get information to them, sometimes instantaneously.
To get all those folks and to get your bill of materials out there, purchased and delivered on time, you need a sophisticated system in a lot of cases to handle that. Internally, you should make your flow as simple as possible, and be able to do it more visually, and manually. You'll find it more accurate, a lot less expensive and more flexible.
Managing Inventory Using Kanban
The factory wall may not be the only determinant-some companies like electronic controls manufacturer Omnex, have complex scenarios where even lean methods can use some IT horsepower. They are trying to close the gap by automating their kanban process. They have a complicated product line with a large number of active bills of materials. Products are built from components, put into housings, sub assembly, and final product assembly. With the complexity of electronics and the high volatility of components in the supply chain, it becomes a management dilemma using manual tools to define kanban quantities.
One complicating factor is that the process has to be sustainable over the life of the product. If you look at the expected growth curve, from introduction to end of life-your kanban or your inventory position on that is going to have to move with the curve. You're not going to be very lean if you're supporting a product at full production numbers with kanban cards when the product is at end of life. The paradigm for lean, Toyota, is based on plants making tens of thousands of cars that are for the most part very similar.
You have to bear in mind the automotive industry works differently from many other industries. If you're making all kinds of stuff that's not a mass consumer product, maybe the Toyota model isn't the one you should be adopting. And the Toyota model certainly has a lot more regularity to it than other industries.
How ERP and Lean Interact
Lean, therefore, may only apply to some aspects of a company's operations. Part of the trick is to find these value streams that do have regularity to them and treat them according to the Toyota model, or some sort of waste-free model (continuous flow). How ERP and lean interact may depend on which the company adopted first. For Omnex, it was the former. You can't just blow the ERP system out, because you have so many hooks into the other functions of your organization - engineering through accounting. You can't pull away from there and then have to have these multiple accounting systems to deal with your products. You end up using that as your foundation layer, and then you build upon it.
Retrofitting an existing ERP system to support new processes is no small undertaking. Manufacturer or third-party bolt ons are the easiest route, but it can be difficult to find a product that fits your process closely enough. Integrating a customized module into the ERP system can be expensive and time-consuming, and can create significant support overhead. In a rapidly growing company, however, the pain may be justified.
One of the models worked with in guiding the growth of the company, is to say there's a cost of doing it, and there's a cost of not doing it'. Make sure you measure both of those and understand. More often than not, it's the not doing it that will be the real deciding factor.
Those without an ERP system should go Lean first
Don't put a system on top of a current state that has not been leaned out. You will be bringing in a system in to cover all those waste areas. Remove the waste first and become lean, and then decide on the ERP system that you need. It will be much smaller, but it will be a heck of a lot more effective. You may not need the $50-million solution; you might only need the $2-million solution. ERP is not the only kind of software that's used in lean environments. A number of planning and modeling tools are available that purportedly help with lean processes.
Some question the value of these tools. There is software specifically designed to facilitate some of those tools as problem-solving software. Those things do exist. I can tell you that most world-class lean companies don't really use those things. That is not the point of lean manufacturing.
Consultants may use them for problem solving at a client site. If you go and talk to the most powerful most experienced lean person at Toyota, he is not using software to do lean. It tends to be a North American approach to use software to do problem solving.