An IT Guy Gets Lean

Regular readers know that we often focus on how software solutions can create problems for lean.  This isn't to mean that all software is a problem, and we definitely believe that software tools, appropriately deployed, can create value.  But more often than not they mask waste and reduce the ability to change by enforcing rigid processes.  Once you reduce inventory and move to pull production, is MRP really necessary?  Does a complex system to manage NCMR's, CAPAs, and other exception documentation really add value, or should the focus be on reducing root causes that are creating the need for those documents in the first place?  You get the picture.

Apparently some in the IT world are starting to understand.

IT a roadblock to progress? Never, you say. How can that be when IT lives and breathes innovation? Who else but IT dared to usher open source, XML, SOA, and cloud computing out of the high-tech labs and into production systems? Nevertheless, there is one aspect of technology where all of that daring doesn't seem to be in play.

Could he... really... be talking about lean?  Yep.

Manufacturing has traditionally been a push system. Up until lean, business analysts would forecast demand, and manufacturers would ship products to market based on those forecasts. Unsold goods would sit in the warehouse or distribution center either waiting to get into the pipeline or never to be sold due to a missed forecast.

More than a decade ago, Toyota created kanban, a system that builds to demand rather than forecast. It is a pull system based on what the market currently needs. Demand doesn't have to be just from a downstream customer; that is not the only "market" recognized by Kanban. If a product ships from a distribution center, the system recognizes that the center needs more of that product, as Kanban is continually sending pull signals to an upstream work center.

When done right, inventory can go from being held for a month down to a day, or it might never even see the inside of a warehouse, going instead from the manufacturing plant straight to the customer.

Nice summary from an IT guy!  So how does that rock his world?

SAP or Oracle MRP are a problem because they cannot set up an "execution" system to perform based on lean principals. SAP and Oracle are irrelevant; both are good planning tools, he says, but planning is batched-based and does not involve real-time execution. Customers typically trim back on their ERP systems. It is still the system of record, but they tend to turn off the MRP function.

"One of the things MRP does is to take a forecast into a consideration of how we order," says John Young, materials and supply chain leader at Trane Residential Systems, a manufacturer of HVAC systems and subsidiary of Ingersoll-Rand. "In a Kanban environment, we basically throw that away." Young says that he still pays attention to the forecast as a planning tool, but because of Kanban, everything is "replenishment"-based. In the last 120 days, the company has saved about $300,000 in parts held.

I'm sure SAP and Oracle would dispute that they are purely batch-based, as both have supposed "lean modules."  But we're admittedly biased so we'll let it ride.  The author then tries to simplify the concept further to help out his readers.

Young describes Kanban this way: It's as if you lived 100 miles from the closest grocery store, and if you need to buy a container of milk, you would buy two gallons at a time. But now with Kanban, you only need to buy one gallon. It is this new concept that is the biggest stumbling block for IT in terms of adopting lean manufacturing. Most major companies have invested multiple millions in their ERP system, and it's IT's job to run the system.

On top of that, these software-acquisition decisions for the major ERP systems are made by the CEO and CIO, who don't understand the shop floor.

Oh yes, how many times have we heard that directive from the top?  The IT groups need to step up and see how they can help create value for the company, even if it doesn't directly create work for their departments.

If IT views itself as a cost center that just says, "Yes, sir, we can do it," then nothing changes. If, however, IT decides it has something of value to contribute and suggests there is a better way, someone upstream might just listen.

Bottom line, manufacturers are struggling, and all IT is saying right now is, "Don't worry, we're going to put an Oracle system in place, and in three years, all your problems will be solved. Trouble is, the manufacturer may not be around in three years.

Think about it.

We have.  We're glad you are too.

Comments

[Al Forthman]

I'd agree with you in part, and disagree in part. When it comes to execution, rather of production, or of material replenishment, IT hasn't always shown up to play. However, there is still value in forecasting new business volumes for the purpose of ensuring supplier capacity adequacy. Is that the only valid "lean" use for MRP? Maybe.
I would also like to see some discussion of how lean principles can evolve the biopharmaceutical manufacturing space. For those not acquainted, some of the relevant dynamics include: sole-sourcing and rigid insistance on in-house material release, capacity constrained by tanks and changeover cleaning requirements, etc. On the other side, not a constraint, but a background reality - a cost structure that makes raw material inventory cost relatively irrelevant. In part, these constraints reflect wastes allowed by the high profit margins; in part they reflect conservatism due to a highly regulated industry, in which every player has a local monopoly.

[david foster]

"IT lives and breathes innovation? Who else but IT dared to usher open source, XML, SOA, and cloud computing out of the high-tech labs and into production systems?"...there is nothing particularly "innovative" about writing purchase orders to buy whatever technologies are currently being pushed by vendors and/or hyped by the press. What *would* be innovative is to figure out how to apply technologies, whether old or new, to solve actual problems. Most IT organizations seem pretty uninterested in doing this, and in general, the IT function acts as a dragging brake on American business.

[Scott Whitlock]

Hey Kevin - good post. As you know, we are fully behind this concept and completely believe the velocity of tomorrow's manufacturer is going to be governed by how their technology solutions enable their good business processes. We have all heard it, "don't automate bad processes", but in reality, the CEO and CIO are the ones with the money, and when they get "sold" a new solution like ERP, APS, PLM, etc., they often times do not know how that new system will affect (or improve) their operations.

Love the post!