QMT Features: January 2010
Leveraging ERP and LEAN
How running ERP in a lean manufacturing environment can improve the bottom line. By Jean Thilmany, SearchManufacturingERP.com contributor

Any manufacturing plant can implement lean manufacturing principles, and nearly every manufacturer can see improvement to their bottom line by running ERP in a lean environment. For a process manufacturing plant that does not need a wide variety of supplied inventory because it makes the same product or slight variants of the same product, lean techniques of cellular manufacturing, called kanban, should be employed, says Salvatore Ganino, president of the manufacturing consulting firm ManufacturingETC.

Ganino likens the concept of cellular manufacturing to a special-purpose factory within a factory. Kanban dedicates equipment and machinery to a particular product or family of products and groups them into a cell. In Ganino’s analogy, the cell becomes the special-purpose factory. “No matter how many individual operations are within the cell, product moves only when the last operation is completed,” Ganino says. “Thus, the flow is one piece at a time with no work-in-process inventory between operations.” As in Henry Ford’s assembly line, inventory is delivered to each operation within the cell in small quantities at regular intervals several times a shift.

However, not every supplier will be able to supply inventory in small quantities several times a shift. That’s where ERP comes into play.

According to Ganino, a manufacturer’s ERP systems can provide the information needed about inventories for a lean manufacturing environment, including quantity required, the time at which inventory is required and lead-time to supplier delivery.
Like other manufacturing technology consultants, Ganino often is called upon to program a manufacturer’s ERP system to help advance lean principles. He also on occasion studies the way the ERP system could be used to drive lean throughout the organization, as well as the way the existing ERP system itself could be made to run leaner.

For instance, Ganino advises manufacturers that are embracing lean principles to reduce the amount of time they spend changing out their materials on their product lines. “Reducing the setup time reduces the lot size, and product will flow through an operation much faster,” he says. “Smaller lots reduce the amount of inventory on the floor.” Because setup time is tracked within the ERP system, in this instance, the ERP system manages the lean implementation, he says.

Another example of ERP being integrated with lean manufacturing occurs when a bill of materials is analyzed within the ERP system. This would allow manufacturers to coordinate the lot sizing of components, which would in turn help them avoid producing more goods than needed to satisfy the order.

Reducing setup time and coordinating lot sizes will reduce inventory, which Ganino calls “a major element of waste.” Managers at firms incorporating lean manufacturing principles should simplify the ERP system by reducing the number of transactions on the system, according to Drew Locher, managing director for manufacturing consultancy Change Management Associates. “Say I had a product that went through multiple work centres and, bringing in lean, I physically bring those centres those together in a cell,” Locher says. “Then I’ll need one cell in the ERP system to denote the operation. I won’t need five workstations within the system.”

Historically, these multiple work centres might encompass different machine processes or assembly processes. “So instead of defining those multiple work centres within ERP, I’d define them within one cell,” Locher says. “So we’re turning five or six workstation entities into one entity within the system.”

The goal, according to Locher, is to bring all of a manufacturer’s operations to this cellular system and to simplify ERP transactions accordingly.

In a traditional manufacturing environment, work orders flow between each work centre, which are individually defined in the ERP system. In an ERP system set up to run in a lean manufacturing environment, no more than one work order should be brought into a cell. Such steps, says Locher, will reduce the number of transactions in the ERP system.

In simplifying the ERP system in order to accommodate lean principles, a manufacturer can reduce by up to 75 percent the number of transactions run on the system, Locher adds. This will lead to the system returning more meaningful information, Locher says. “We’ll find that a manufacturer will be tracking work orders every step of the way. Why put all these transactions in there in the first place?” he says. “The belief is that they’ll have more control, but the reality is the more data, the lower the quality of that data… and the more the opportunity for error to be introduced and for a vital transaction to be missed.”

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