This can be a toughie to get behind. People often ask how I avoid imploding when mentioning Lean and ERP in the same breath. Like the other tool sets, ERP has both strategic and tactical aspects. Tactically, ERP tools tend to emphasize software functionality to support the strategy. However, those tools are not confined to software packages. On the strategic level, all it really says is that I need to know: What I need to supply (my end-item demand) What I need to make or buy (my BOM – what I will buy and what I will make to create my end-item – and my inventory) What it takes to create my end item (processes and resources, including capabilities, capacities, availabilities) How long it should take A baseline plan for fulfilling the end-item demand THOSE FIVE PIECES OF INFORMATION are just as applicable to the design of a kanban or DBR system as they are to the coding requirements for a business data management software package!
Integrating Lean, TOC, Six Sigma and ERP: Tying Them Together Seattle Chapter APICS presentation October 22, 2008 Russell M. Field Orig. 8/08 rev IND1A
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Record and maintain process, product and resource data
Help manage volume, variety and variation of business data
Support business processes and decision-making
ERP = Business Data Management
Putting the pieces together … TOC = Revenue Flow Leadership and management Lean = Effectiveness Continuous Process Improvement (CPI) ERP = Business Data Management Bottom-line performance Quality - COST - Delivery 6 σ = Efficiency … around a core of Continuous Improvement! 1
Three products – A, B & C - take 5, 3 and 2 standard hours respectively (total 10 std. hrs.)
$800/day total costs = $80/std. hr. (Operations Rate)
Cost Absorption Issues Process Improvement A 5 $400 B 3 $80 240 C 2 160 Std Hrs. Rate ERP Cost B & C are now perceived as being more costly, though only change has been to A ... $800 10 hrs. Before A 3 $ 300 B 3 $ 100 300 C 2 200 Std Hrs. Rate ERP Cost $800 8 hrs. AFTER 4
Cost Absorption Issues Process Improvement – Extended Supply Chain Impacts A $300 B 300 C 200 ERP Cost Tier II Tier I Part A is sold to Product Line ABC, while Parts B & C are sold to Product Line XYZ; XYZ’s inventory – both components and used-ons – increases because A was improved ... > Product ABC inventory Product XYZ inventory
Understanding that there’s overlap between the elements, let’s take each in turn:
1) " IF a task takes the same amount of time regardless who does it …"
Standard work needs to be in place;
If everyone follows the same sequence of process steps, using the same types of equipment in the same ways, consistent results are much more likely and the process baseline is consistent.
The process has to be stable, reliable and repeatable ;
Driving out variability helps assure that the process can in fact be executed with the same cycle time and results time after time with fewer interruptions (e.g. TPM) and less frequent delay. It also means that the labor content to produce good product is more consistent.
The output must be of high quality ;
Rework and scrap are major sources of variability in resource requirements. Costs of secondary inspection, rework and scrap are minimized or eliminated with high “first time” quality. That also means (among other things) that forecast labor capacity and requirements are more stable.
Cross-training and multi-skilling promote the ability to interchange individual workers with assurance that each can meet the standard (planned) cycle time.
2) " AND all the workforce is paid the same … "
Cross-training and multi-skilling also help remove major skill distinctions that can drive differences in pay.
Simplification of processes and resources (e.g. table-top equipment and Engineering redesign) makes that cross-training easier to accomplish.
Stabilizing the overall demand - in part through level-loading and S&OP activities - helps control fluctuations in the size of the workforce population, which in turn stabilizes the overall cost of labor.
3) " THEN I can apply a single hourly $$ rate to the product's standard time. “
There’s no need to account for variation in order quantity, labor input or anything else because those variations have been driven out;
The labor content is known because of the standard work, stable processes and high reliability;
There's no rework to account for either in cost or capacity because of the high quality;
Worker profiles are interchangeable from both a skill set and pay standpoint due to cross training, multi-skilling, process standardization and equipment simplification; and,
The number of workers on the payroll is stabilized as a result of process stabilization and demand leveling; therefore the aggregate labor costs are stabilized over a period and a single hourly rate across all operations is feasible.