The big question! Lean vs ERP

Or is it Lean AND ERP?

After 25 years in manufacturing, and the last 8 in lean/sigma, this is the big question that still eludes me. My thinking thus far is.... (but keen to hear yours!)

i) When in doubt, keep it simple.
For small companies and low complexity you should be able to cope with lean approaches such as single point scheduling, kanbans, FIFO, supermarkets, safety/buffer stock calculations, flexible repeat schedules etc.

The downside of this is is the lack of management information, but if you can keep it really lean, you shouldn't need the management info, as you can see the stock and the customer service from the visual control boards!

ii) When things get more complex (multiple distribution points, more than 100 SKU's, large sub assemblies, multiple levels in the BOM etc. then you need MRP/ERP but....

Keep the ERP for coping with variable lead-times to distribution centers, and consolidating demand through DRP, financial reporting and long term capacity planning. Use forecasts for medium term capacity planning and resource planning, but use a combination of forecasts and historical demand for adjusting buffer stock calculations.

iii) S&OP is valuable in either scenario. The focus of S&OP should be on families of products (based on common sub assemblies) and should be used to periodically check whether you have the right safety/buffer stocks, the right products in supermarkets, and the right inventory stocking points.

iv) When people really get stuck it is trying to use MPS in conjunction with lean inventory policies, as many systems do not have planning policies that reflect the use of stock for buffering against both demand side and supply side variation. This means you have to do multiple manual adjustments to the MPS,or cope with (ignore) lots of expedite/de-expedite messages.

v) Finally, BAN the use of 'Days forward cover' as an inventory policy, as it immediately leads to demand amplification as you not only make the stock needed fro the increased demand, but also to adjust the stock up to the increased level generated by the system. (and conversely when demand falls)

These are my views, please feel free to disagree on any points, but I think it would be good to get some dialogue going on this important topic for operations planners everywhere..
John Hardwick
FIOM

John H and John T each make some excellent points here. I am totally in step with them on the KISS principle – it should be our goal at all times. With regard to planning it’s never ERP ‘or’ Lean. That’s like asking if a car should have automatic transmission or anti-lock brakes. The automatic gearbox (like the planning elements of ERP) may or may not be required whereas ABS is always useful. We should decide if we need to use ERP in some form and then, if we do, how do we keep it as simple as possible?

As for runners, repeaters and strangers, the first two categories presumably always need some element of safety cover (assuming we can’t always meet customer demand by making / buying to order). I agree with the points made about simplicity and maybe one of these would be to remove the complexity of worrying about the distinction between variation in supply and demand. Should we consider just agreeing a reasonable, justifiable and understandable safety level for each part to be managed? I know this clashes with many of the established principles – but why not start an argument every now and then?

I have tried to attach an article from Control, written with a client, where MRP was needed – but used only to maintain stock at the purchased item / raw material level. Runners and repeaters had safety stock defined but strangers were bought to order and product lead times reflected this. Manufacturing in this MRP environment was then managed to customer order using heijunka – the drumbeat, no batching, no safety. The end result wasn’t the ultimate in waste-free operations but inventory levels and lead times fell to unprecedented levels, with customer service better than ever and the foundation for considerable growth.

Although the article isn't attached it is available via the 'Journal & News' archive option. It is titled "Lean, Agile - and Simple".