An Executive Overview – Traditional IT Tools versus Lean Manufacturing; the Technology Applications Needed to Support the World-Class Organization.
This paper and presentation will briefly cover some of the differences between traditional Information Technology (IT) approaches like Enterprise Resource Planning (ERP) and Lean Manufacturing approaches to managing business. We will also explore the opportunities to synergistically leverage the application of IT tools in a Lean environment.
Objectives of this paper and accompanying presentation:
- Brief overview of traditional IT and Lean approaches to the same business problems
- The phenomena of a “Loss of Corporate Consciousness”
- Desired attributes of Lean IT enablers to support Lean companies
- Deep-dive into certain key elements of Lean where IT Lean enablers can play a vital role
- A group exercise continuum – “Rate your Lean IT support needs” (presentation only)
- Building the business case for using IT tools in the Lean environment
- IT solution selection suggestions and resources
- Q&A forum
Many people think that talking about Lean Manufacturing and IT together is an oxymoron. One definition of an oxymoron is: “conjoining contradictory terms (as in `deafening silence’).” In the Lean/Flow “purist” mind this is a true statement. They would have us believe we don’t need our traditional IT systems to support running the business – that people can do it all with manual tools. While this is true with many powerful parts of Lean, there are many aspects of IT Lean-enabling technologies that should be considered by a business embarking on the Lean journey.
The Lean Purists are Often Anti-Technology Types
First, we need to consider why there is tension and major differences of opinion between the IT and Lean communities. Many Lean purists hold that traditional IT applications, like ERP systems, are by definition anti-Lean: using “push” logic to populate the production system with inventories, rather than pulling material and value added operations through the system based on physical consumption driven by actual customer demand. They are uncomfortable with a process that puts “control in the hands of the few,” versus simplifying processes and putting control in the hands of worker teams. They also hold that in many cases traditional standard costing and “least total cost” logic often drive lot-sizing decisions that prove to be counterproductive and even directly opposed to the implementation of Lean Manufacturing. I agree with them on all these beliefs . . . to a point.
While these aspects of traditional systems and accounting approaches are anti-Lean, this does not make ALL applications of these systems and techniques inherently evil. Nonetheless, the Lean purists cannot decipher how to go about leveraging systems to overcome the shortcomings of pure manual execution. Based on these beliefs, companies following the purists’ advice have taken a “ready, fire, aim” approach to implementing Lean Manufacturing, without fully evaluating how and when IT tools should play a part.
Let’s examine this a little more closely. Many Lean purists insist that legacy IT systems should be abandoned to free the organization of the paradigms of mass thinking and pursue new ones in Lean thinking. In my opinion, they are partly right and mostly wrong. In Lean environments where variety, mix changes, and demand are relatively stable, they are right in that IT support in the form of a traditional ERP system is arguably of minimal value. However, one must consider the limited ability of human beings to manage complexity as companies move up the complexity continuum. As the complexity and the rate of change increase beyond a certain level, IT tools can be an enabler in helping Lean practitioners to move beyond “information barriers” imposed by “manual information flows.”
Why Corporate Consciousness from an IT and Management Perspective is Lost in Many Lean Thinking Companies
Lean companies, and those who are actively on the journey toward a World Class level of performance are generally admired and used as a bench mark. If this is true, how can a “Loss of Corporate Consciousness” enter into the picture? Many companies in their quest to “get Lean” have fallen victim to what we will call a “Loss of Corporate Consciousness” by moving toward manually implemented and supported Lean Manufacturing Methodologies. Is this a bad thing? Only when the company loses sight of the total dynamics of the business and loses its ability to quickly react to changes in the market place. When “corporate consciousness is lost”, so are some of the benefits that Lean Manufacturing offers.
Deciding the degree which IT has a place in a Lean enterprise depends a great deal on the complexity of the environment. Does the company have a stable and low complexity operating environment, or a volatile and complex operating environment? The following section reviews some of the reasons for this “Loss of Corporate Consciousness” occurring. Later we will explore how an enterprise can incorporate IT Tools and Lean synergistically to help achieve and maintain market dominance.
In Low-Complexity and Non-Volatile Environments, the “IT Reality” can Closely Match the “Shop Reality”
Where a company’s situation is a stable demand environment with low levels of product variation (in the form of customization and design changes), there is a very low risk of losing touch with the physical reality, from an IT database standpoint. Likely the legacy planning, costing, quoting and accounting system view of reality is pretty close to the actual reality after Lean Manufacturing is implemented.
For example, at most tier one automotive supplier plants, where lines and cells are dedicated to producing a single part or family of similar products for a single vehicle line, there is good alignment between “what we think is happening” and “what is really happening” from a systems point of view. Keeping a handful of routings, bills of materials and master schedules valid at all times is a “doable” task with a small group of people. Providing certain interfaces between shop floor data collection and the main company system is fairly common. Examples of these include things like barcode labeling and reading on completed production, for automated back flushing and quality data interfaces with machines, to highlight corrective actions.
If changes in demand or design are expected to occur, a “what if” scenario using the existing IT infrastructure is likely to provide a realistic view of the impacts to people, machines, materials, space requirements, cash and the like. Simply exploding different demand patterns, planning routings and bills reflecting expected changes does work to provide some visibility. In this way, many traditional ERP systems permit the management team to derive a global view of the business from a costing and capacity standpoint. Advanced Planning System (APS) applications are available to supplement or replace this type of functionality in ERP systems.
Additionally, companies in low-complexity environments often find that spreadsheets and manual tools can be an effective means to support their planning and execution. Models of demand can be built in spreadsheets and exploded against routings and bills of materials to make rudimentary line balancing decisions and calculate Kanban (pull/replenishment signal) quantities. Spreadsheets and manual models are also useful for basic Heijunka and Mixed-Model load balancing to smooth the demand for a given period over constrained resources and materials. A relatively simple spreadsheet can easily be created to demonstrate how this works.
When Variety, Mix and Demand are of Increasing Complexity, the Value of IT “Intelligent” Support Increases Due to the Risk of “Losing Consciousness”
Figure 1 illustrates the dynamic of increasing shifts in demand combined with higher levels of product variation – in design and mixes create higher risk.
When is There a High Risk of a “Loss of Consciousness”?
Problems can and do arise in the management of Lean businesses in more complex and dynamic environments using traditional ERP systems, as well as those who choose to use manual and/or spreadsheet-based tools. Just as mentioned previously for low-complexity entities, complex environments can and should perform forward-looking demand and mix/variation scenario assessments against the database to derive answers to “what if” questions. In fact, I would argue that complex and volatile environments would justify much more frequent cycles of “what if” questioning than the less complex ones. That is, if the data in the system really reflects “what it takes” to make the products. This tends to be one of the main “kickers” – which we examine more closely next.
The “Loss of Corporate Consciousness” occurs when the maintenance of the detailed (granular) “how we do it” information in the main ERP systems becomes invalid. There are two principle reasons for this information to become invalid. The first is the tendency to listen to the Lean purists and migrate to manual or spreadsheet tools in the quest to rapidly implement Lean. The “ready, fire, aim” approach of purists driven by the need for rapid results seldom leaves time or resources to update the data upon which “Corporate Consciousness” depends. The ERP or APS forward-looking functionality and or relevance is weakened or severed entirely.
To add to the dilemma, the detailed granular information required to do many of the tasks needed to lean-out processes may not be supported by the legacy IT applications. This is the second primary reason why the primary “how we do it” information deteriorates. Consider a process where 15 components are assembled at a work station by one person. As processes are leaned-out and rationalized, it may be discovered that many products should be built on a cell or line that has more people and a mix of equipment to produce a large variety of products with fewer total machines, people and space. Now the detailed steps for each part must be broken down, detailing for each component the time, material and equipment required to add each part of the value-add process.
Armed with this information, the Lean Continuous Improvement Team can perform line-balancing calculations and balance the flow of work between people and machines to eliminate wastes and promote a smooth flow or product. The challenge then falls to someone to decide whether or not this detailed and granular information will be updated to the legacy IT system.
This is where the wheels come off. Chances are the legacy IT application is incapable of defining all the new elements in these new groupings of equipment and people for two primary reasons. First – the new grouping probably violates the standard costing model required by the company. How do you now group these machines and people with different hourly pay and burden rates to get accurate cost data?
Second, if the ERP system does handle all the details, it is probably so difficult to use and maintain that the necessary updates will simply not occur. Why? Usually this will be due to a perceived or actual shortage of resources. In these cases, the “payback” for maintaining the detailed data is difficult, if not impossible to measure. You can already guess what your Lean purist will say – “maintaining all that data is a WASTE of time!”
I have to be careful here: I am usually the first to argue vehemently against creating or maintaining data for its own sake and usually come down on the side of reducing the efforts to maintain data in systems. I will passionately, carefully, and articulately build the case that a majority of accounting and data management tasks in production are wasteful in the extreme. The purpose of this paper and presentation is to help you understand the difference between wasteful and high value-add activities in support of your IT and accounting systems – and how to make informed decisions on what is done, why and the expected results thereof.
Companies who fail to understand, assess and manage these issues are sure to experience a bevy of headaches and problems. In the above scenario where a “loss of consciousness” is occurring the company often finds while it is still capable of doing the high-level decision support tasks, the process becomes too lengthy/costly to complete in a short enough period to be helpful. Worse, in complex and volatile environments they will likely find that the frequent updates of data to keep current with physical reality simply do not happen. It then becomes nearly impossible to manipulate the model to reflect the current reality in operations without valid data as a basis.
As a consequence, the validity of the planning system and management decision support tools break down rapidly due to a disconnect between “what we think it takes to make products” and “what really is happening on the shop floor or supply chain.” Reality in Lean companies is often changing on nearly a daily basis due to Continuous Improvement and Kaizen activities. As “consciousness” decreases, the ability to quickly assess, on an enterprise basis, the impact of a changing environment, is lost and with it, a loss of agility, a cornerstone of Lean Manufacturing. The resulting paradox has led many companies to abandon their pursuit of Lean Manufacturing as “not suitable in our environment” or settle for a sub-optimal mixed-mode approach. Thus the “Loss of Corporate Consciousness” occurs, by default. So, what’s a poor CEO to do?
Consciously Weighing the Business Case for IT in Support of Lean
Building the business case for utilizing IT tools to support the Lean enterprise must, therefore, occur through a pragmatic examination of facts and opportunities. Let’s assume that through traditional approaches in implementing Lean with conventional manual and spreadsheet supported approaches has already netted some good gains for the business. Moving to the next level requires breaking through the information barriers to attack the remaining wastes.
Even Lean Operations Still Have a Lot of Waste
Consider that even a leaned-out system still has considerable waste. Even best-in-class companies such as Toyota considers 10% value-add time (see definition at the end of this paper) in a series of processes extremely difficult to accomplish. That sounds to me like a 90% opportunity remains. These remaining wastes take many forms including buffer resources that are put in to handle expected variations in demand.
It is very common for the Lean purist to put 10% or more additional resources and inventory in place, above and beyond what is required to handle expected variations in demand. This means that if demand is expected to be plus or minus 10% from a given level, an additional 10% of resources and inventory are committed to cover this variation plus an added 10% safety factor – meaning about 20% more resources and inventory than required for the nominal average demand.
If the variation in demand is expected to exceed 10% from a nominal level, then the buffers must be increased. Buffer equipment, space and people may be hard to see in these situations. However, it is easier to see the buffer in the inventories to support Kanbans/Pull signals, which may have 30%, 50% or even a 100% buffer, beyond average expected lead time usage, built into the quantities to compensate for variation in demand. It is through these manually setup and maintained approaches that we can begin to understand some of the opportunities that lie in leveraging IT tools to minimize additional wastes.
An additional indicator that sizing of resources is problematic is the presence of feast and famine cycles of layoffs or short-shifts, alternating with sudden expenditures of overtime. These are not indications that a Lean approach is bad, rather that information is either not flowing, or the ability to do something about it (like re-size Kanbans) is too large a task to perform frequently enough to match shifting customer demand.
All of these gaps are quantifiable as wasteful. Depending on the complexity of the environment, these can be substantial – in actual dollars and in the form of unhappy customers who do not understand or care about your problems.
Place a Value on the Gaps in Performance
A pragmatic assessment of the current state of performance is needed. What is the average inventory turnover? Obsolescence? Unplanned overtime? Expediting costs? Lost order opportunities? Angered customers? What about all of the people in the organization who are endlessly frustrated with feast and famine? How much are these worth?
First, it is necessary to put a value on these wastes in dollars. If the situation is one where there are lost sales opportunities due to execution issues, then some kind of market share value is needed as well. The difference between the current and ideal performance is effectively the gap that IT can and should be tasked with helping you to close. Wastes of information, due to a lack of timely and accurate information, are to be avoided. All too often companies find themselves awash with data, yet still grasping for relevant decision support information. This is due to the fact that in many cases the data collected is the wrong data from a Lean perspective.
Create a Matrix of the IT Tools and Applications
Create (or produce) a matrix* of the IT tools that are expected to attack waste, and perform the following analysis of each:
- Start with the customer and work backward to your suppliers. Generate a thorough list of all functions that need information (timely and accurate) to support the Lean enterprise.
- For each feature/function, spell out the rationale for the “Lean Value” it generates.
- For each, determine which of the eight Lean wastes it attacks directly and indirectly:
- Under utilized human resources
- Bonus Points for identifying the NINTH Lean waste – Information – which is specifically not data. Information is the relevant actionable facts and correlation in the data, or “the differences that make a difference.” Information waste may be in the form of useless irrelevant data or missing or inaccurate data used for decision support. Worse, information waste can be missing the opportunity to leverage “what you have” for rapid and accurate decision support.
- For each IT tool, a further correlation might be made to the Lean Metrics, such as those used by Toyota:
- S – Safety
- Q – Quality
- D – Delivery
- C – Cost
- P – Productivity
- M – Morale
- Take the financial gap calculations and correlate them to each IT solution to verify where they intersect. Note: one financial measure will likely be affected by multiple IT solutions. For example: “excessive and unnecessary overtime” will likely be improved by multiple IT solutions which might be:
- Kanban Planning and Execution Tools
- Forecast Consumption and Demand Management Tools
- Line Balancing Tools
- Alternate Process Routing Management Tools
- For each IT tool that “makes the cut” by promising a tangible improvement in performance, prepare a list of possible solution sources needed. Candidates are ERP, APS, MES, Flow/Lean Software, custom developed applications and others.
After this matrix is completed a simple Pareto analysis should uncover which “20% of the IT solutions provide 80% of the benefit.”
* Due to the depth of detail this matrix should include, the details in this analysis are beyond the scope of this paper.
Assess Existing Infrastructure First and Then Proceed with Selection and Implementation
An assessment of the existing IT infrastructure and operating parameters will identify where there are opportunities to leverage the existing investment and target improvements for the future support of the Lean enterprise’s quest for eliminating waste. Using the matrix and the identified “big hitter” functionalities that promise a good payback, carefully review what you already own. Investigate add-ons that your current providers can offer to fill gaps. Most of the larger ERP providers now offer Supply Chain Planning, Line Balancing, Kanban Planning and Execution, and other functionality that supports Lean approaches.
After exhausting the possibilities for closing the gaps with your current IT investments and partners, widen the search to include other sources. Some of these to consider include:
- Third party APS tools.
- Third party “Bolt-On” Lean enabling IT applications such as Kanban Planning and electronic execution tools.
- Evaluate web services that handle coordination of replenishment data between trading partners.
- Investigate 3PL and 4PL sources – some have the capability to leverage logistics and fulfillment.
- Custom applications developed for specific needs (this would be the last resort!).
Then and only then, should an IT implementation plan be developed. All IT interventions should be measured to verify effectiveness to help reduce the risk of falling into the trap of “technology for its own sake.” A pragmatic approach to scoping, defining and scripting must be followed in defining new applications. These must be tested with each of the potential solutions and weighted for their short and long-term value to the enterprise.
Do Your Homework and Due Diligence
The same effort and examination that should take place in evaluating and selecting an ERP system needs to apply in selecting your “Lean IT enabling” solutions. It’s particularly important to script-out what you are trying to fix in detail and make sure your candidate provider can fully demonstrate their ability to solve the problem.
Make sure you get a detailed understanding of what data and support files/tables are needed to operate the applications. If it is a tool that “bolts-on” or interfaces with your applications, it is important to understand the process and costs to maintain the links between the two systems.
Be sure to get a good understanding of what it takes to maintain the data and exactly how the records are maintained. If the interfaces are not intuitive and user-friendly it is a near certainty that your Lean purist friends will object to using these applications.
If possible, get the software vendor to provide some kind of guarantee of results and if nothing else a “90-day trial” using the new tools. If their stuff is as good as they say it is, they should not balk at this request (if they do, it’s a red flag). If at the end of 90 days measurable improvements are not evident you were either over-sold or your user community is resisting the changes required to get the benefit of the new applications. The former should be easy to assess and you owe it to yourself to carefully manage the change management aspects of the latter to prevent the waste of your company’s time and energy.
Decision support information and the appropriate application of technology to empower the people of the organization literally touch every aspect of the business from product development to aftermarket support – and will become more important in the years to come. Uniting Lean thinking with IT can restore corporate consciousness, and permit the synergistic results possible from leveraging the best of both approaches.
Recognize that Lean Manufacturing, like many other continuous improvement tools including Six Sigma, fall prey to not having access to information – the “differences that make a difference” in your data. Each company must consciously weigh the importance of having appropriate, accurate and timely information for all of those who need it to drive success.
Ron Crabtree, MLSSBB, CPIM, CIRM, CSCP, is a director-at- large for the Greater Detroit Chapter of APICS and president of MetaOps, a consulting firm that aligns inside realities with outside perceptions. He serves as adjunct faculty in the Villanova Professional Education on-line series (www.villanovau.com). He may be contacted at (248) 568-6484 or email@example.com.
Definitions, Acronyms, Abbreviations
Please note that included here are first the key definitions from the APICS Dictionary. Each of these is followed by some added commentary on my part to help expand on each of these definitions for the purpose of this paper.
Advanced Planning System (APS): As defined in the APICS Dictionary – “Techniques that deal with analysis and planning of logistics and manufacturing over the short, intermediate and long-term time periods. APS describes any computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management and others. These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise and capable-to-promise capabilities. APSs often generate and evaluate multiple scenarios. Management then selects one scenario to use as the “official plan.” The five main components of APSs are demand planning, production planning, production scheduling, distribution planning and transportation planning.”
Typically, an APS is a set of applications that gathers data from existing ERP systems and other demand and execution data sources to perform forecasting, distribution planning, resource optimization iterations, alternative assessment and optimal plan inputs. The outputs from APS are typically then input back into the ERP systems as Master Schedule inputs to execute the best possible plan balancing all conflicts in an optimal manner. Some APS applications are great tools for identifying bottlenecks, creating an optimized schedule for maximum value through-put and then automatically perpetuating this schedule up and down-stream to other operations and to the supply chain. This kind of functionality can be a good engine for managing Kanban quantities and balancing resource commitments.
Enterprise Resource Planning (ERP): As defined in the APICS Dictionary – “A method for the effective planning and control of all resources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company.”
ERP is a set of computer applications that addresses the basic business operations of a company from order to cash receipt. Think “data management workhorse” with capacity management and MRP tools blended into one. Typical components include accounting, costing, order entry, bills of materials, routings, scheduling including Material Requirements Planning, Capacity Requirements Planning, purchasing, perpetual inventory and other applications that are transactional in nature to operate the business. Typically, ERP includes the ability to operate across many business units, making Supply Chain Planning effective and providing operating information readily available to people in many locations.
Heijunka: As defined in the APICS Dictionary – “In the Just-in-Time philosophy, an approach to level production throughout the supply chain to match the planned rate of end product sales.”
In many production settings Heijunka can take the form of a “visual schedule” wherein the planner simply puts orders or materials into pre-defined slots or boxes corresponding to the hour and shift to be made. This has been preceded by a careful plan that sets limits on how many of any product can be made in tandem with certain combinations of other products. In this way, no bottlenecks in production capacity or Kanban controlled inventories will occur and all products will be produced in a predictable time with minimal waste.
Kanban/Pull Systems: Kanban – as defined in the APICS Dictionary – “A method of Just-in-Time production that uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centers signal with a card that they wish to withdraw parts from feeding operations or suppliers. The Japanese word Kanban, loosely translated, means card, billboard or sign. The term is often used synonymously for the specific scheduling system developed and used by the Toyota Corporation in Japan. See: move card, production card, synchronized production.”
Pull System – as defined in the APICS Dictionary – “In production, the production of items only as demanded for use or to replace those taken for use. See: pull signal. 2) In material control, the withdrawal of inventory as demanded by the using operations. Material is not issued until a signal comes from the user. 3) In distribution, a system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant.”
Kanbans and Pull Systems are methodologies that trigger replenishment activities based on downstream customer consumption. This approach is opposite that of MRP/ERP approaches that plan for shipments (or actual customer orders) and then schedule and “push” all materials and resources to meet due dates. Kanban/Pull systems are specifically not a perpetual inventory system – look to your ERP systems to do perpetual inventory management tasks. Also, don’t overlook leveraging Kanbans and Pull Systems techniques to simplify and improve the accuracy of your perpetual inventory management strategy.
Lean Manufacturing: Lean Production as defined in the APICS Dictionary – “A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves identifying and eliminating non-value-adding activities in design, production, Supply Chain Management and dealing with the customers. Lean producers employ teams of multi-skilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. It contains a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all manufacturing and support processes. Syn: Lean, Lean Manufacturing.”
Lean Manufacturing is an operating approach based largely on Japanese methods such as the Toyota Production System (TPS). The writer’s one-sentence definition: “A culture and way of thinking that purses the endless and systemic elimination of waste, driven by customer expectations.”
Value Add Time: Value Added as defined in the APICS Dictionary – “1) In accounting, the addition of direct labor, direct material and allocated overhead assigned at an operation. It is the cost roll-up as a part goes through a manufacturing process to finished inventory. 2) In current manufacturing terms, the actual increase of utility from the viewpoint of the customer as a part is transformed from raw material to finished inventory. It is the contribution made by an operation or a plant to the final usefulness and value of a product, as seen by the customer. The objective is to eliminate all non-value-added activities in producing and providing a good or service.”
For the purposes of this paper Value Add time is the amount of time a good or service is having direct transformational work preformed versus the total time the good or service is in the system. Another way to think about this is taking “dock to dock” time – the number of days a dollar of inventory takes to cycle out compared to the time the good or service is actually worked on. It is not uncommon to get a calculation of .00001% in initial value stream mapping activities. Approaching 10% value add time in a value stream is extremely difficult.