ERP & DRP, Lean Manufacturing are not compatible.
How many companies are finding their IT investments are a major blocker to releasing the benefits of Lean Manufacturing and why a new planning approach is needed.
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Over the past 10 years a great number of businesses ranging from SMEs to Blue Chips have been rolling out or updating their Enterprise Resource Planning (ERP), Distribution Requirements Planning (DRP) and Advanced Supply Chain Planning solutions (APS). There are a variety of reasons for this intense activity, ranging from the need to consolidate IT following an acquisition, through to the desire to improve the IT capability in order to implement a particular supply chain strategy.
When the dust settles after the implementation many businesses, having spent a lot of time and money, are left with a very inflexible IT solution whose core planning principles are routed in the thinking of the late 60s, and not compatible with the agile, flexible, supply chain processes required to be competitive today.
It seems that our understanding of what is required to build a competitive supply chain has evolved considerably over the past 40 years, however the range of IT solutions available to support our ambitions has not.
This white paper examines the key elements required to build a successful and low cost supply chain, how the majority of IT offerings fail to support these key principles and how a new approach to planning can enable the benefits of Lean Manufacturing without throwing away your IT investment.
The problem with Forecasts
Fundamentally, most ERP/DRP systems provide a very robust operational platform, on which the majority of a business processes are supported, from Finance to HR. Where they are weak however, is in the provision of planning tools. Most come equipped with a basic MRP (Material Requirements Planning) engine, and the more advanced ones may supplement this with predictive safety stock planning or re-order point logic, usually under the guise of an Advanced Planning Systems (APS) module. Or to put it another way, your multi-million dollar IT super-car has a tractor engine lurking under the bonnet. The fundamental flaw with all of these MRP variants is that the starting point for all calculations is a Forecast.
Most planners know that the best Forecasts are 70% accurate at best. APS systems may buy a few percentage points of improvement in exchange for a hugely disproportionate monetary investment, but have categorically failed to deliver the advertised benefits. The real problem is that MRP then compounds the situation by using this imperfect forecast to precisely raise planned orders and set predictive levels of safety stock. What this does is push wildly unplanned and unpredictable levels of inventory, effort and cost into our supply chain.
Where Push meets Pull
At the same time as businesses are trying to tame their ERP/DRP systems, many have recognised that their customers are demanding higher levels of flexibility, responsiveness and reliability, and that these factors are becoming the differentiators in an ever more me too marketplace. In order to compete and meet the challenge, many companies are leading a campaign to implement Lean Manufacturing principles.
The interface between MRP Push and Lean Pull generates a lot of Heat & Light in the planning and purchasing department
Lean manufacturing is based around the principle of pulling only the levels of inventory through the supply chain that are required to satisfy an agreed customer service level. Lean Manufacturing recognises that not all SKUs are the same, and that different inventory replenishment rules are needed, based upon the volume and variability of demand. There is an obvious incompatibility here with the ERP/DRP IT systems, which take a one size fits all approach to planning.
This is where the push replenishment signals generated by ERP/DRP systems clash with the pull signals required for Lean. This interface typically generates a lot of heat and light, normally in the planning and purchasing departments. The interface between these two methodologies drives a lot more resource into translating and managing the incompatibility. This increased overhead can minimise or even eliminated any of the cost benefits desired from Lean Manufacturing.
A Back to Basics approach
Many of the latest IT planning offerings contain ever more complex statistical and mathematical solutions, all striving to improve our ability to forecast, and therefore make the rest of the MRP logic work. From the software vendors perspective this approach is understandable, given the amount of MRP based software currently in the market. Sooner or later we must face the truth that MRP planning logic is totally inappropriate for 95% of businesses involved in batch manufacture. In fact not just inappropriate but damaging to their profitability and growth potential.
Sooner or later we must face the truth that MRP planning logic is totally inappropriate for 95% of businesses involved in batch manufacture
We need to stop chasing the perfect forecast and take a step back. We need to consider the key elements required in a Best Practice supply chain design. Only once we understand these can we then select and tailor our IT tools to automate and support the new process.
Lean Planning is required to compliment Lean Manufacture
Whilst the past 20 years has seen a lot of Thought Leadership and energy around the implementation of Demand Driven Lean Manufacturing, there has been a distinct lack of activity around the development of planning tools to enable the benefits of Lean to be realised. To the extent that MRP is still considered amongst the vast majority of companies to be leading edge.
What is required is Lean Planning. Lean Planning fills the gap between the legacy Forecast Driven MRP based ERP/DRP systems incumbent in most companies, and Demand Driven Lean Manufacturing. Without needing to discard the current IT investment, there is now a set of processes and software tools that provide the missing link. Lean Planning will fundamentally support the 10 key elements of Best Practice Supply Chain.
The concept of Lean Planning encompasses the two key areas of planning, i.e. Conditioning and Execution. The principle being that Planners should set a plan (or condition) and then execute against it. Workload and Inventory increase when planners try to do both Conditioning and Execution at the same time, by the way, a characteristic of MRP logic.
Conditioning – Build and Agree the Plan
Conditioning is the range of planning activities designed to support the Sales & Operations Planning process. Conditioning is about building and agreeing a capacity and inventory plan. Lean planning requires a toolkit that will segment large numbers of SKUs along the lines of Forecast Volumes and Historical Demand Variability. Depending upon this combination of volume and variability a Lean Planning tool should enable the correct replenishment rule to be applied and a target maximum level of inventory to be calculated.
Execution Generate and manage Demand Driven Orders in line with the agreed Plan
A Lean Planning Tool must be designed from the perspective of the planner and not the programmer
Once the Conditioning is complete, the rest of the month should be spent raising and executing orders in line with the agreed plan. The conditioning process may have led to the need for a multitude of replenishment rules and techniques, from Make to Order through to Cyclic Replenishment. Once again Lean Planning should provide a software toolkit that interfaces into an existing ERP/APS system and enables the generation of Orders in line with whichever replenishment technique is appropriate for the SKU concerned. Lean Planning should provide for the configuration of current MRP systems so that they can mimic the action of a true Demand Driven planning tool where appropriate.
Orchestr8 Lean Planning
Lean Planning is the answer to all those companies struggling to implement a Demand Driven supply chain in an ERP/APS dominated environment. Lean Planning web-based software tools are now available through Orchestr8 Limited.
Orchestr8 is a UK based supplier of software and consulting services to support the implementation and operation of Lean Planning techniques.
Orchestr8 offer a 5 module solution;
Orchestr8 is the worlds first and only supplier of Lean Planning tools
Orchestr8 supporting Lean Planning – Conditioning and the processes required to generate an inventory and capacity plan, achieve SKU segmentation and inventory target calculation. It also contains a suite of tools and reports necessary to run a successful Sales & Operations planning process. It also contains some of the best tools available for Lifecycle management and Seasonality.
Oper8 supporting Lean Planning – Execution and the tools needed to generate and manage orders in line with appropriate replenishment rule identified through conditioning. Oper8 is an order management environment designed by planners. Orders are controlled by exception allowing one planner to handle three times the number of SKUs normally possible with traditional ERP/DRP systems.
Simul8 a software workbench that enables complete business cost simulation models to be built in order to analyse the impact of any number of planning strategies, rolled up to any level within the organisation. Simul8 can extract data from one or many planning locations.
Collabor8 a web portal containing comprehensive reporting, metrics and issue logging tools, designed to provide a multi-faceted view of supply chain information for all supply chain partners involved. Collabor8 links multiple instances of the other lean Planning modules to achieve a complete cross company view, spanning multiple sites or even continents.
Configur8 a dynamic configuration tool allowing any configuration of the other four Lean Planning modules to be achieved. This allows for the support of any client supply chain, no matter how complex. In addition Configur8 interfaces seamlessly with all of the Communic8 web services designed to import and export data with all of the major ERP/DRP products.
For more information contact email@example.com or visit our website at www.orchestr8.com.