concept challenges enterprise resource planning.
would have imagined that enterprise resource planning and its
forerunner, manufacturing resource planning -- the core of
manufacturing information systems for the last three decades --
would one day be viewed as the enemy of streamlined production?
It's true. Pitted against each other in a battle on the plant floor
Enterprise-resource-planning (ERP) software --
installed at tens of thousands of manufacturing companies during
the last decade.
Lean manufacturing --
increasingly popular concept pioneered in
Japan by Toyota Motor Corp. and since
embraced in the U.S. by thousands of firms.
With traditional manufacturing resource planning (MRP II, the
planning engine in most ERP systems today), manufacturers base
production levels on sales forecasts. In contrast, lean
manufacturing -- also called flow -- ties production levels to
actual customer demand.
Nor does the conflict end with production levels. Lean emphasizes
getting the manufacturing process right and then continually
improving it; with ERP the emphasis is on planning. The former has
the goal of eliminating all wasted time, movement, and materials;
the latter seeks to track every activity and every piece of material
on the plant floor. Lean is action-oriented; ERP is data-dependent.
One has workers doing only things that add value to the product; the
other has them recording data and bar-coding to keep track of
inventory and labor.
"ERP gives information, but it does not necessarily add value to the
bottom line of a company," says Stephen McMahon, director of the
lean-manufacturing business unit at Coleman Consulting Group,
San Francisco. "You can spend more time
bar-coding than manufacturing products." Adds senior manufacturing
analyst Tom Grace of AMR Research Inc., "Companies get no shop-floor
productivity out of ERP."
Adding fuel to the ERP bonfire is skepticism on the plant floor and
in corporate offices about the reliability of MRP data. "Most people
don't even believe the reports they get," says Stacy Alexander,
process manager at Greencastle Metal Works Inc., which scrapped MRP
to adopt a lean approach. "When we did MRP, we'd find 30
transactions that were incorrect."
For these reasons, many manufacturing plants often have trouble
swallowing the corporate IS dictum that they will use ERP. "It's no
surprise plants resist implementing ERP; one step forward for IT may
overturn years of streamlining operations," Grace writes in a
February 1999 report entitled, "ERP and Flow: The Status Quo Meets
Some say the two concepts can coexist in the same plant; others
disagree, viewing them as oil and water. "Sales-forecast systems are
a waste of time and are usually wrong," says Tom Briatico, vice
president and general manager of Maytag Co.'s Cleveland Cooking
Products division in
Tenn. "I think ERP is a waste of
money. We're staying away from ERP. We want to eliminate MRP because
it doesn't work. You want to fix the process -- spend all your time
there." Adds consultant McMahon, "To do both ERP and lean
jeopardizes the success rate of either."
On the plant floor, ERP often becomes a liability. The problems it
introduces -- or perpetuates from the days of MRP -- include complex
bills of material, inefficient workflows, and unnecessary data
collection. The introduction of lean to a plant suffering from these
MRP-induced ailments offers a much-needed antidote. "Flow replaces
ERP on the shop floor and also cures IT headaches that ERP inspired
in factories," writes Grace in his report.
That's because some manufacturers spent millions of dollars putting
in company-wide ERP systems without first redesigning their
manufacturing processes. It would be the same as putting the sled in
front of the dog team, experts say. By contrast, says McMahon, "I'd
attack lean first, and then, once you've removed all the wasteful
processes, you can standardize it with ERP."
A classic example is streamlined line design, which is especially
important for lean manufacturing to work. Why rush to
institutionalize a wasteful process by laying an ERP system over it?
Yet many manufacturers did -- and are still doing -- just that,
consultants say. Asked how many clients bothered to redesign their
processes before installing ERP systems, Roger Sherrard, marketing
and communications manager with IBM Global Services, responds,
"None. Not a one."
Some companies that have fully embraced lean-manufacturing precepts
have found it beneficial simply to disconnect MRP altogether. "We
were using MRP before, but we turned it off because it creates a lot
of non-value-added transactions," explains Greencastle's Alexander.
"We do no inventory transactions or labor reporting -- nothing. We
use no software except Microsoft Excel for the bill of materials to
keep parts going to the floor." The Chambersburg, Pa., manufacturer of
continuous-production-line equipment has gone to a complete
demand-flow operation. "If you have your process correct, there's
nothing to track -- it's moving too fast."
One way to get the process right is to use one of the simulation
products on the market today that help companies figure out how to
optimize their manufacturing lines. Tecnomatix Technologies Ltd.,
U.S. offices in Novi, Mich., offers a family of sophisticated
computer-aided production engineering systems. These include its
AnyPlan module, a workplace- and layout-design system that simulates
the effect of redesigned or new assembly lines. "We have a number of
customers that do lean manufacturing and use our tools," says Gadi
Becker, vice president of marketing at the Herzeliya, Israel-based
Greencastle's improvements as a result of the shift to flow
manufacturing are remarkable yet typical for lean converts. "We had
two facilities before, and we're now in one," Alexander recounts.
The company has about the same sales with less than half the
square-footage of production area, 31,000 sq ft today versus 75,000
sq ft two years ago. The work area was completely redesigned. For
example, one work cell that used to take up 1,128 sq ft today fits
into 484 sq ft.
Parts now flow in a U-shaped pattern, instead of back and forth
several times among the same areas. "Extra space means there's a
place to lay a part down," Alexander says, sounding like the
proselytizer she has become for the flow concept. "You can bet it's
going to get laid down if there's space, and if someone is laying it
down, it's waste -- it's not adding value."
Most dramatically, Greencastle is getting set to remove the biggest
symbol of the old inventory-laden days: the racks and shelves that
used to contain parts. "We're getting ready to pull all the racks
and shelves on the floor out," she says triumphantly. Instead,
production workers in each weld cell now are responsible for
ordering the parts they need. "The ownership and control of these
operations are spread to everybody," Alexander explains.
As a result, inventory was reduced by $1 million to $170,000, with a
further reduction expected this year, she adds. The order-to-ship
cycle, formerly three to four weeks, today is down to five days.
Last year's sales were up almost 7% as the company operated in the
black once again. "And we're looking better for 1999," she adds.
Perhaps the most difficult part of the transformation to lean is the
impact on workers. At Greencastle, for instance, the workforce was
reduced, from 150 in May 1998 to 109 a year later. And those who
remained had to be retrained in the new lean culture. "You're asking
these people out on the floor to run your system," Alexander says.
"The labor employees are handling the customer orders. The planners
and others whose positions were not needed anymore were offered a
chance to go into labor or to overhead positions."
Some took the labor route, others went to the office, and some were
laid off, she says. "Ultimately we ended up with a leaner
workforce." Her own department of master schedulers and planners,
which had 22 people to start, now has two employees. Since the
workforce was trimmed, employee turnover plunged, from about 40% in
1997 when the company lost money, to 4% as of May.
The dramatic shift to lean, Alexander says, was prompted by a loss
the company incurred in 1997. "It became real clear that if we were
losing money, as a $12 million-a-year privately owned company we
couldn't go too many years. . . . Keeping jobs was a big incentive
Part of the problem is that ERP is top-down and lean is bottom-up.
The solution, says one consultant, is compromise at the management
level. "Companies almost always put a stone wall between the two
initiatives," says Edward Frey, vice president in consultant Booz,
Allen & Hamilton Inc.'s San
Francisco office. "People in management are
the only ones with the authority and perspective to bridge the gap."
Both parties within a company -- its lean proponents and those
sponsoring ERP -- should articulate their needs better. "They can
work together," Frey adds. Booz Allen offers its clients an
eight-point plan to help them integrate ERP with lean.
Certainly, in many companies lean and ERP do coexist, if only out of
necessity. On one hand, ERP has been implemented away from the plant
floor, primarily to manage accounting, human resources, and
corporate-level planning. Meanwhile, factories have been able to
continue to implement lean concepts under the same corporate roof.
Some companies that have tried to use both, though, lament the fact
that most ERP software companies have all but turned their backs on
the lean concept. "Baan, J.D. Edwards, Oracle, and SAP are going to
have to recognize that, while their traditional tools served people,
they are going to have to move on to the next paradigm," says Eric
Kulikowski, general manager of the Westminster, Colo., operations of
Pittsburgh-based Respironics Inc., a manufacturer of life-support
equipment. "The market is completely untapped a this point."
ERP software companies generally have been slow to connect their
systems with those inside the plant. "There isn't really standard
software for lean manufacturing," says analyst Grace. "ERP vendors
have refused to acknowledge that users need additional flow-related
functionality. Standard tools could institutionalize consistent
flow-manufacturing practices across the entire business, but such
products are just hitting the market."
In the U.S., the
flow-manufacturing concept was pioneered by the John Costanza
Institute of Technology Inc. (JCIT), Englewood, Colo., which is one of the few organizations
to offer software that supports it. Others include American Software
Inc. and Oracle Corp.
Respironics, for instance, has been using JCIT's Flow Power system
for a year and a half. "We use Flow Power to run the manufacturing
elements of our Pittsburgh plant, and the rest of the business
is run with SAP's ERP system," says Kulikowski of Respironics.
American Saw & Mfg. Co., East Longmeadow, Mass., is installing Oracle's Release 11 ERP
applications, which contain support for a number of flow concepts.
"Part of the reason we chose Oracle was because they did have flow
functionality," says Tom Demers, project manager at the manufacturer
of blades for band saws and hand tools.
For its part, Oracle made an effort to integrate flow principles
into its latest manufacturing software release. "We have more than
two dozen companies represented on our customer advisory board that
have contributed to the design or have been implementing Oracle Flow
Manufacturing," says Thomas Chang, product-marketing manager for
manufacturing applications at the Redwood Shores, Calif., software giant.
But the rest of the ERP software community remains asleep when it
comes to lean, despite the fact that demand-flow concepts are
sweeping the manufacturing community as companies see the stunning
benefits to be had in terms of plant-floor productivity -- something
ERP doesn't even begin to deliver even on a good day. Nearly half
the 500 largest industrial firms are deploying continuous-flow
production strategies, reports Industry Directions Inc., an IT
research firm in
Despite the conflict between ERP and lean, some manufacturers say
they haven't encountered any major difficulties integrating the two.
Hay & Forage Industries, a Hesston,
manufacturer of hay balers and harvesters, is in the early stages of
using both MRP and flow. "People say MRP and flow don't go together,
but we haven't found that conflict," says Terry McCloud,
manufacturing-flow manager. "We've been getting into flow
manufacturing for better than a year, and we've had some successes.
But we're doing it step-by-step, and it's a slow process."
One software vendor that is advanced in supporting flow concepts
with its systems is American Software. American's Flow Manufacturing
module helps plant managers to model new production-line designs,
simulating capabilities and aiding in setting up the daily
"We found it necessary to develop a complete flow-oriented
application because the transactions are so different," says Karin
Bursa, vice president of marketing at the Atlanta software firm.
"For instance, our product supports kanbans so that triggers for a
kanban go from the
line to suppliers automatically." The software's graphical
line-design feature also can be used to model changes and their
effects "to see if they create any kinks or bottlenecks," Bursa adds.
As if to prove that oil and water can mix, American Software has
integrated the Flow module with its ERP system, as well as with that
of another ERP software firm, JBA International Inc. The idea, Bursa says, is to facilitate the necessary
points of connection between the two. "Some critical information has
to be shared," she explains.
This includes inventory data, demand information (customer orders or
forecasts), supplier information on material availability and
procurement, cost data, and the item master. Four out of five of
American Software's 55 installation sites at 15 companies using its
Flow Manufacturing module are integrated with other ERP systems.
"The bottom line is that enterprise information such as inventory,
financials, and customer orders is critical whether you're in a lean
environment or not," Bursa says.
Although some lean manufacturers have done away with MRP, it's true
that most still need some mechanism for long-term planning. "We do
look out at least six months for sales," says Alexander. "We grab a
forecast from our customers by fax or e-mail weekly or monthly. We
use those to project capacity, and we have contingency plans to
handle extra workloads." Regardless, the main thing is, she says,
"You only produce something if there's a demand for it."
Another thing lean has in common with ERP is that both require a
major commitment on the part of employees -- and management. "This
is a major culture change for U.S. manufacturing," says Maytag's
Briatico. Alexander of Greencastle Metal Works agrees: "It's a whole
change in the culture and philosophy of the company."
And it's not just retraining the workers, but getting everyone --
including management -- behind the new plan, she points out. "You
run into managers who can't make that change." A recent AMR Research
survey of 20 companies that adopted lean manufacturing reveals that
19 had to change the factory management, Grace says.
Clearly, though, for the vast numbers of manufacturing companies
that have committed to the lean concept, it's almost a religion,
with each convert becoming a true believer. As Briatico of Maytag
puts it, "Superior execution of lean will lead to superior
So long as ERP doesn't get in the way.