Lean manufacturing and ERP not mutually exclusive, experts say

By Lauren Gibbons Paul, Contributor 07 Oct 2008 | SearchManufacturingERP.com

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"There is a 25-year history of people believing that lean and ERP were fundamentally incompatible," says Jim Shepherd, senior vice president at AMR Research Inc., a Boston-based market research firm. "But the reality is they are nowhere near as incompatible as people have tended to think."

For more on lean manufacturing and ERP Visit the lean manufacturing topic section to find more articles and resources Read a case study of how lean manufacturing failed at one organization Browse advice or ask a question of our lean manufacturing expert

The roots of lean manufacturing

At a high level, lean involves continuously wringing waste out of every production process. As such, lean strategies help manufacturers and other companies become as efficient as possible, to save money and boost productivity. However, lean concepts can apply to just about any process (such as operating a cafeteria or hiring an employee), not just manufacturing.

Most agree that Toyota Motor Corp. perfected the lean discipline in the latter half of the 20th century. Even today, the Toyota Production System, or TPS, is lean's gold standard and has driven the automaker to great success while its competitors struggle. Because of its heritage, most key lean concepts are expressed in Japanese, such as "kaizen" principles (a concentrated effort to remove waste from a single process) and "muda" (one form of waste).

"There is no mystical significance to these terms that make them incompatible with ERP," says Shepherd, though ERP stakeholders must be properly educated and trained to understand lean basics.

It is important to know that lean production concepts can be implemented without ERP (or other types of technology systems), just as ERP can be implemented without lean. That is where the misunderstanding sprang up that lean and ERP technology are mutually exclusive. Just because each can be used in the absence of the other, does not mean they do not play nicely together.

In fact, an increasing number of midmarket ERP software packages specifically target lean manufacturers and say their systems enable lean practices. QAD Inc., for example, has promoted lean for more than 20 years, making it one of the earliest enterprise software vendors to espouse lean-ERP.

"Lean is part of our corporate DNA," says Phil Friedman, vice president of consumer products and life sciences at Santa Barbara, Calif.-based QAD. Midmarket manufacturers must cope with the same pressures as their larger peers, but with fewer resources. Lean can help.

"They have a huge need to be more effective and efficient. They need to maximize people and raw materials. They need to maintain margin and quality," Friedman says.

Lean methodology can be a powerful weapon in the midsized manufacturer's arsenal.

What is lean-enabled ERP?

So, what does it mean to say that an ERP software system is "lean-enabled" or "works with lean"? According to Friedman, this assertion can refer to any number of different features within the software that allow a manufacturer to embody lean principles.

For example, QAD has a supplier visualization component that allows manufacturers to gain visibility into their suppliers' operations in order to immediately see if the supplier can meet a specific order. This reduces waste by eliminating the manual processes, such as calling or faxing, that a typical manufacturer might use to determine if the item is in stock. The same QAD module enables a manufacturer to set up automatic replenishment so the supplier can send the item without an order being placed. Cutting out steps in this way is an example of a leaner process.

The early results of this change are promising for this Caterpillar plant. A month after the assembly and packaging operations began running under the pull model at the Morton, Ill., distribution center, the amount of inventory not meeting target levels was down 10% and order lead time had been cut by 50%. In addition, Caterpillar's Nuevo Laredo plant has been able to reduce the staff required to run the manufacturing operation by two, while increasing the capacity.

Though lean production can certainly be undertaken without technology, for most midsized manufacturers today, that is not realistic, Shepherd said.

"In a very limited environment you could do everything based on visual cues and kanban cards," Shepherd said. "But it's a much different world now, especially with global supply chains. The truth is, you need an ERP system today."

The good news: That doesn't mean you won't get the benefits of lean. The old ERP vs. lean debates have largely subsided into academia and maybe an Internet forum or two. For everyone else, it's business as usual. And today, that is just as likely to mean ERP and lean working together without skipping a beat.

Lauren Gibbons Paul is a freelance writer.

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