IT needs to get lean on manufacturing

Traditional ERP systems don't have all the answers, says Ephraim Schwartz

IT a roadblock to progress? Never, you say. How can that be when IT lives and breathes innovation? Who else but IT dared to usher open source, XML, SOA and cloud computing out of the high-tech labs and into production systems? Nevertheless, there is one aspect of technology where all of that daring doesn't seem to be in play. Lean manufacturing systems, which turn traditional planning and forecasting — as found in the MRP (manufacturing resource planning) components of SAP and Oracle ERP systems — on their ear, are not something most IT people want to deal with, says Narayan Laksham, CEO, president, and founder of Ultriva. If you haven't guessed, Ultriva offers a software solution, Lean Execution System, that enables lean.

Manufacturing has traditionally been a push system. Up until lean, business analysts would forecast demand, and manufacturers would ship products to market based on those forecasts. Unsold goods would sit in the warehouse or distribution centre, either waiting to get into the pipeline or never to be sold due to a missed forecast. "Unfortunately, there is a gap between planned orders versus actual demands from customers," Laksham says. "As the shop floor adjusts to real demand, the MRP schedules are no longer in synch. On every MRP run, these schedules are readjusted, and supplier orders are changed, causing whiplashes across the supply chain." More than a decade ago, Toyota created Kanban, a system that builds to demand rather than forecast. It is a pull system based on what the market currently needs. Demand doesn't have to be just from a downstream customer; that is not the only "market" recognised by Kanban. If a product ships from a distribution centre, the system recognises that the centre needs more of that product, as Kanban is continually sending pull signals to an upstream work centre.

Whereas traditional ERP MRP uses a min-max system, Kanban uses "consumption-driven replacement". Rather than trigger a maximum-replenishing order when the available inventory has slipped below a predetermined minimum, Kanban systems push out alerts when things like bins inside the factory or pallets coming from a supplier needs to be replenished (move one out, move one in). Traditional MRP systems are not built to work that way: SAP or Oracle MRP are a problem because they cannot set up an "execution" system to perform based on lean principles. Ultriva's Laksham doesn't say SAP and Oracle are irrelevant; both are good planning tools, he says, but planning is batched-based and does not involve real-time execution. Ultriva customers typically trim back on their ERP systems. It is still the system of record, but they tend to turn off the MRP function. "One of the things MRP does is to take a forecast into a consideration of how we order," says John Young, materials and supply chain leader at Trane Residential Systems, a manufacturer of HVAC systems and subsidiary of Ingersoll-Rand. "In a Kanban environment, we basically throw that away."

Young says that he still pays attention to the forecast as a planning tool, but because of Kanban, everything is "replenishment"-based. It is this new concept that is the biggest stumbling block for IT in terms of adopting lean manufacturing. Most major companies have invested multiple millions in their ERP system, and it's IT's job to run the system. On top of that, these software-acquisition decisions for the major ERP systems are made by the CEO and CIO, who don't understand the shop floor. If IT views itself as a cost centre that just says, "Yes, sir, we can do it", then nothing changes. If, however, IT decides it has something of value to contribute and suggests there is a better way, someone upstream might just listen. Bottom line, manufacturers are struggling, and all IT is saying right now is, "Don't worry, we're going to put an Oracle system in place, and in three years, all your problems will be solved." Trouble is, the manufacturer may not be around in three years. Think about it.

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Tags managementultrivalean manufacturing

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