SCM Lean Strategy: Adopt the new framework model and re-invent Lean

I have written earlier about the importance of practicing Lean methodology in your organization, multiple times and have tried to highlight that whether it is manufacturing operations or deployment of your ERP system, Lean can be quite useful in all of them. Infact, the article on blending of Lean principles with ERP whether it is 5Ss or 8 wastes, was liked by corporate leaders, business analysts as well as ERP vendors alike. Lean is obviously not new, so you might ask an interesting question: why are we seeing an increasing focus on Lean, which is one of the top two strategies being deployed across manufacturing today? The answer, however, may not be too hard to discern, given what has happened in manufacturing industry across the world over the past decade. Multiple early users & pioneers of Lean, and even some that weren’t using it, experienced an unprecedented expansion in production and corporate profitability over much of the 2000’s. Accompanied with this growth, there was a new focus on maximizing throughput and a slow migration away from the principles of Lean, including demand driven manufacturing, a focus on eliminating waste, and strict controls on inventory explosion.

Such a scenario left many manufacturers vulnerable to the collapse or increased variability in demand for their goods. Even so, the immediate pain that many organizations felt for the most part subsided. Inventory levels have been reduced, waste has been cut out, head count was reduced, and even in the industries like automotive, many companies slowly returned to profitability. Now, however, demand has begun to return, production and inventory levels have begun to increase, and there is a need to not repeat the mistakes of the past.

 

InfoVerto recommends utilizing a new framework model of utilizing Lean in your organization which is built on 4 principles as below:

• EXTRACT: It does not whether you are already practicing Lean principles or want to start, there will always be room for improvement and this principle will make sure that you know those improvement areas to start implementing Lean in those. The Extract principle is all about extracting the ideas from your own workforce and bringing their innovation and knowledge about their own niche operations to fore. Not only your employees, but this needs to be extended to whole of the supply chain including your partners, suppliers and customers. Devise ways and means to get their ideas registered in system and implement a system to evaluate their ideas, reward the good & implementable ideas and encourage everyone to contribute
• MEASURE: Almost all organizations have well defined Key Performance Indicators which tell them how well, the organization is moving towards achieving their goals. Though measuring KPIs is already present in the system of organizations but the emphasis in this principle is to measure them consistently with the same standardized manner every-time so that an apple to apple comparison can be done. This measurement should be done across the enterprise and not locally by independent shops
• INFORM: Lean is not an activity that can be done by an independent. It is best done in teams and sometimes, the dependence on other teams activities makes it little more complex and here comes the importance of information quickness, consistency and clarity into fore. Whether it is an action that is pending on the other team or partner which can be communicated with the help of a workflow based tool or it is sharing of progress of the project which can be dome through the dash boards, information always play a key role in implementing Lean ideas. Also visibility into operations, orders and KPIs like supplier performance will make sure that requisite benchmarks are updated in time and by the time Lean is over, you are not already behind the benchmarks again
• IMPROVE & REPLICATE: As I said earlier, room for improvement is always there and it is upto us to find out that room and start working on it. This principles guide you to focus on Lean and Re-Lean activities and makes sure that after implementing Lean once, the workforce does not think that their job is over and they are best in class now. By the time, you are done, somebody else have started jumping one step ahead so keep on looking for improvement areas. Also, success of one Lean idea implementation needs to be replicated to other shops, business entities and at your partners as it is relatively much easier to replicate rather re-inventing wheel once again. Replication will be possible only if you have good knowledge management solutions in place so make sure that the knowledge of implementing the idea is getting captured and is available for re-use

As per me, these are four new principles of implementing Lean in your organization and please note that these compliment the already established principles of Lean and do not provide an alternative approach. Also, you would have noticed that technology has started playing a major role in implementing and keep practicing Lean and this should be seen as one of the key enablers in your Lean endeavors.

SCM Lean Strategy: Keep your Vendor Master clean and well maintained

Vendor Master Management is one of the most critical parts of the procurement and accounts payable business functions and often it creates inefficiencies in the processes and stops their movement towards a leaner supply chain. This failure of system controls due to unclean, redundant or ambiguous data in vendor master can result in duplicate and erroneous payments, missed potential discounts, delay in check realization, un-applied or misapplied credits, reporting errors for tax and fraud etc. There is a strong business case to maintain a healthy vendor master so that the vision of lean supply chain becomes reality as soon as possible for an organization. The steps that we need to take care of, for a well maintained vendor master are:

• Identify the right owner: While every organization has an owner for the vendor master but it is equally important that the owner know about the vendor master requirements, its standards, data quality-accuracy-consistency maintenance ways etc.
• Deploy Master Data Management Solution: Modern MDM solutions are an excellent value-add for maintaining your master data and vendor master being one of most critical masters, will benefit a lot from this initiative. It will ensure that you have enough controls, automation, access-create-modify-delete rules in place and are being monitored by management regularly
• Clean the data and deploy cleaner rules: It is well known that duplicate, redundant and inconsistent data spoils the whole procurement cycle in terms of reduced effectiveness and efficiency and it has bullwhip impact on the end to end supply chain. Many a times, this data inaccuracy robs an organization to claim volume discounts, deflation etc. from suppliers. We not only need to clean the data but also make rules stringent enough so that the data stays clean
• Standardize naming conventions: No need to mention that if a supplier is named as Alkes Info Systems and AIS and Alkes and all of them are coming as different vendors in your report, how in-effective will be our vendor management policy. We need to standardize the naming convention of naming vendors, items etc. so that no duplicate data is created – Most of this will be taken care of if you have right owners and an MDM solution in place
• Separate out one time vendors with regular vendors: Often, one time vendors (or less than 5 transaction vendors) inflate the data in vendor master and the supplier reporting MIS gets skewed. Explore strategic sourcing and the use of p-cards to reduce need for one-time vendors. For lowering the risk of duplicate payments, consider not allowing manual or electronic data interchange transactions with vendors on p-card programs

Other than above, smaller measures like purging the unused records, retaining the right records, updating the policies regularly etc. will also help in keeping the health of vendor master as good for supply chain.

Lean Transformation through Value Stream Mapping

Recently I got the opportunity to interact with Phil Coy, Chief Technology Officer for Future State Solutions and our discussion roamed around Lean Transformation using value stream mapping. I thought to share the excerpts with my readers as there were quite a few learnings for me and I am sure these will help all of us in one way or other.

Future State Solutions is a key player in Value Stream Enterprise Management (VSEM) space and have redefined the utilization of the methodology for Lean Transformation. I was keen to know how their solutions could help the organizations earn or save dollars specially in these tough times and Phil told me that since companies today are faced with a myriad of challenges including fluctuating demand, continual product innovation, customer pressure to respond faster while maintaining exceptional quality, and increased global competition, it makes a perfect scenario for them to step in and contribute. He reminded me that Lean principles have been proven in many companies to provide significant financial benefits. Typical savings from a successful lean initiative are 40% inventory reduction, 50% decrease in space required, 40-50% reduced distance moved, 20-30% labor reduction, 50-80% lead time reduction, all the while improving on-time delivery to high levels, typically 95% or better. Phil added, "While lean transformation has a compelling history with tremendous potential to improve the bottom line, the “staying power” of lean initiatives however has been much less than stellar. Surveys referenced by the Lean Enterprise Institute indicates that a very high percentage (around 80%) of lean initiatives realizes only marginal improvement and are either dropped or stalled. Clearly there are obstacles to lean transformation that have not been consistently overcome."

Phil emphasized that their product VSEM is a complete lean transformation software solution to manage all of the data in a lean (and green) initiative and to implement lean principles of takt time, pull, flow, heijunka, and kaizen within a quantitative model of the operation of a value stream and it is extremely helpful challenging situations where there are many product variations with unique cycle times and changeover times, when there are different routings for each product variation, when there are alternate routings for many products, when there are shared resources, when demand changes daily or weekly, or when the business moves from make-to-stock to make-to-order.

Phil Coy’s response for my other question where I wanted him to throw light on the top business functions or activities or areas that he thinks, are not given due importance in this recessionary period in manufacturing organizations worldwide was very straight forward. He started with quoting the founder of Toyota Production System, Taichi Ohno, who said, “All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.” He said that the 1st thing that the organizations lack in this period is to put energized efforts to become more efficient or in lean terms, to increase the flow of value creation and eliminate waste. The frozen financial credit markets and downward cycling demand have created a “fear” that has resulted in “spend nothing” attitude. So an opportunity to educate and implement lean has been squandered. With demand is starting to ramp back up, more and more companies are coming to realize that they face major challenges to meet increasing demand after having so aggressively shed people and equipment.

The next big thing that the organizations missed giving the importance it deserved as per Phil was “Green”. He says that reducing environmental impact from operations opens up another dimension to elimination of waste. In too many organizations, Operations are completely separated from Environmental, Health and Safety (EHS) functions. Phil emphasized that there is clear and strong evidence is that green initiatives create significant cost savings instead of increasing cost as per popular perception and in addition, provide a strategic advantage to differentiate products from competition.

I had doubts if Future State Solutions can help in highlighting the importance of areas identified above and assist in improvements in these and he clarified that Future State Solutions supports lean transformation with a very complete software solution integrated with a proven methodology that allows companies of all sizes and complexities to actually realize the benefits of lean principles and lean techniques. Specifically, companies can use VSEM to identify product families properly, to stratify demand and variation requirements, to create value streams with a quantitative model for business decision making, to set buffering strategies and sizes of supermarket inventories and kanban quantities, and to establish production sequencing and optimum lot sizes. The result is a balanced value stream that supports the demand requirements of volume and mix at every process with staffing levels, working schedules, and machine resources identified. This quantitative model is then used in Sales and Operations Planning to review long-term capacity requirements and in short-term scheduling to create load-leveled heijunka schedules at the pacemaker process.

For the contribution in Green Initiatives from his organization, he said that a complete integration of lean with “green” supports energy, resource, and non-product outputs identified at the process level and reported. This includes a complete carbon footprint based on the value stream model that can become the baseline GHG inventory for emissions management and ISO 14000 compliance. Sustainability reporting consistent with GHG Reporting Protocol standards includes Scope 1, Scope 2, and Scope 3 reporting. The integration of lean with green is a powerful combination using the lean focus on process and process improvement to implement “green” objectives consistent with environmental initiatives.

Phil shared a case study with me on how could VSEM helped an organization achieving the Lean Objectives. He shared the need and challenge as, “A specialty steel company approached us with a problem – they had too much inventory and knew it. But they didn’t know how much less they could run with before impacting customer delivery and they “didn’t know how to know.” They provide around 400 different products requiring 25-30 processes involving milling, plating, normalizing, slitting, cutting, etc. Of the 400 products, there are several dozen independent “flow paths” through the value stream. Their lean initiative had begun a few years before with a 5S effort and some individual kanbans but their efforts lately had stalled. The core of their operations remained as a tangle of processes that they couldn’t seem to unravel”.

The solution in his own words - Our involvement began with a three-day (from a total of 8 days) assessment using data extracted from their SAP ERP system. The result of the assessment was a value stream map generated from their data that calculated the EPEI (Every Part Every Interval) for each process. This reflected the specific demand for each process based on only the products that the process runs. The overall bottleneck process was a particular mill. Drilling down into the details further, we found that sequence of products was essential to reducing changeovers, particularly by segregating by surface type and then sequencing from wide to narrow widths. Planning for changeovers was further challenged by the fact that a changeover was needed after a certain number of coils or hours of processing time even with the same product being run. Adding this next level of detail into the data model led to a fresh calculation of EPEI. The EPEI forms the basis of the queue length needed to support production at the takt time requirement. In effect, this gave them a quantifiable basis for the queue lengths that they would then load as manufacturing lead times for their MRP calculation. As a result, they began a “WIP burn down” strategy to lower their WIP to match the lead times.

Result and Business Impact achieved was a whopping 9000% return on investment. Over the course of 60 days, the customer could reduce their inventory by over $16 million (30-40%) without change to any of their operating procedures.

I wanted to know if organizations like Future State Solutions have a vision of having their own IT systems that help in implementing the solutions for their customers or are planning to use respective ERP systems for integrating their solutions. Phil highlighted that there is no need of re-inventing of wheel as ERP holds the full set of data that they need for implementing VSEM. The typical ERP system is designed from a financial perspective and captures the details to record the financial impacts properly. In some instances, though, the detail provided in ERP is not enough, for example, there’s a difference if the operator must be physically present throughout a machine production cycle or not or if a portion of changeover can be done off-line to production. Phil thinks that all of this data must be captured, managed, and then combined in order to analyze opportunities for improvement. He added, “Our lean solution includes this lean and green data repository held as a database. Data is easily imported in common file formats from data pulled from ERP systems, PLM or CRM systems, and from the myriad spreadsheets and personal databases spread around the organization. Typically we begin from an ERP and use as much information as possible and then drill down from there as opportunities to improve are identified.” Again, Phil feels that data accuracy and reliability is a huge challenge for many businesses. So orientation of Future State Solutions is to begin simply, use all that is readily available, identify where the data is missing, prioritize processes based on the opportunities for improvement, and then drill down in those processes to capture more detailed data as necessary.

Overall, the interaction was very informative for me and I tend to believe that tools like VSEM will rule the Lean and Green initiatives in near future.

Phil Coy is CTO of Future State Solutions, the leading provider of integrated lean and green business software solutions. Future State Solutions’ products enable businesses to successfully implement and sustain lean transformation and to support energy and environmental initiatives with a lean approach - enabling business decision makers to consider the triple bottom line of people, planet and profit.

Strategy: Marry Lean principles with ERP...Part 2

In my last post, I mentioned how 5Ss of Lean can be applied in ERP for larger benefits. Similar to 5Ss of Lean, we also have 8 wastes classified in Lean that can be applied in ERP scenario and when blended with already matured processes and IT management strategies in the organization, these acts as a cataylst to improved ROI of ERP investment. Let me articulate these 8 wastes in terms of ERP environment and how these can add value.

I will start with the first waste that is Overproduction. The definiion if overproduction in Lean is well understood but to apply this in ERP, it certainly means that do not eat database space with more modules installed than required, more functionalities deployed than needed as per IT strategy or with more custom components than ablolutely necessary. This not only eats costly database space (specially when on premise ERP implementation is still the most popular service and SaaS has just acquired less than 10% of market) but also creates confusion in users, leads to more unnecessary documentation, increases staff cost in non value added trainings and increases instability in system. In addition, this will reduce the scalability of ERP in some situations. So this waste is a perfect fit for ERP.

Moving to the next one, which is called as Waiting. We have seen in ERP like manufacturing, that many a times, users are waiting for their turn to take actions just because an activity is still happeneing in the system or another is taking time to complete a task in the system. This reduces efficiency of staff and is sure shot case of dollar leakage. The To-Be processes as we call in a typical ERP deployment project, needs to be designed keeping this in mind so that the waiting time can be reduced to minimum. Also, the custom components running time needs to fine tuned in the build phase so that they take minimum possible running time and no users have to wait for their completion to start their set of activities to take the process forward.

The 3rd waste is Stocks and Inventory. Lean advocates minimum stocks or inventory as same is true for ERP too. ERP is deployed by a large number of organizations just to reduce their stocking levels with sustained service levels so ERP understands the importance of this waste, to the maximum. But to comeback to the chain of thoughts on how to articulate this waste in terms of ERP scenario, we need to again tie this back to the first waste where we are keeping the modules, functionalities or custom components to the lowest possbile level. Also, this susggests that we need to move from the make to stock situtation to make to order situation by increasing forecast accuracy as well as reducing lead times - the processes mapped to ERP product needs to take care of these aspects accordingly.

Let me move to the 4th waste here, which is Transportation. Lean highlights that transportation of material should be minimum possible in an manufacturing scenario ans same is true for ERP also. Though most of the ERP products these days, are web cased and do not need to be installed on client machines, we still need to keep in mind that we do not select a product that is not enabled on web and hence can not be accessed from Web. Also, the integrations of ERP with 3rd party systems need to be seamless and real time so that no time is lost in data transportation from one system to another.

The next waste focuses on reducing the Motion in shop floor and in the cases of ERP it means that there should be minimum manual touch points or hand-offs in the system/process. The processes should be sufficiently automated in ERP so that minimum time goes in subjective decision taking and business logic incorporated in ERP takes care of automated decisions in most cases. For example, order scheduling for customers takes too much time and have high subjectivity but can be smoothened with the help of automated logic incorporation in ERP which will then automatically schedules orders and reduces motion in the process.

Processing is the next waste as per Lean and it has a direct impact on ERP as the system is supposed to take minimum processing time for the programs, integrations, custom components and information availability.

The next waste in Lean processes is Defects. Defects is something that applies almost everywhere - whether you are manufacturing, managing a supply chain or running an ERP system. Like the manufacturing defects, IT systems have their own defects or issues or bugs as they are popularly called and these are required to be minimum possible as these not only reduce the instability of the system and makes it vulnerable to outages and hence business disruptions but also reduces the efficiencies of staff and increase staff cost. Defects resolution is seen as one of the most nono value added activities after ERP goes live and shaves your revenue off due to maintenance of huge support teams to keep the system stable. We need to make sure that enough testing for each and every component that goes into ERP, is done during the ERP cycle so that these deadly post implementation defects can be kept at bay.

I will move to the last one that is called as Information. Genrating and communicating information is also seen as a waste in Lean and it too is valid in the case of ERP. Though ERP is seen as wealth of information and it is believed that it helps in informed decision making for the stakeholders but we need to make sure that we are keeping the reports to an optimum level as per our requirement as huge number of reports in different formates will not only create confusion in the eyes of ever changing users but will also increase load on the system. Focus should be on the flow of information from and to ERP from the 3rd party system and the accuracy of the data that resides in ERP.

I could summarize my thougths on how ERP can be blended with Lean Principles, whether they are the 5Ss or the 8 wastes. I am sure these can be utilized in an ERP scenario in much more ways as the list I higghlighted is no way closer to an exhaustive list. Keep thinking and evolving.

Strategy: Marry Lean principles with ERP

As I wrote in my last article about blending Lean and ERP while doing an ERP deployment for your organization, I thought of extending the whole thought and take it forward to usage of lean principles in ERP so that real benefits of this combination can be extracted. We all are aware about the 5Ss of Lean that are the basis of Lean application in any scenario in your organization, be it manufacturing or supply chain management or for that matter sales and operations management. Let us see how different and yet same, will be the interpretation of these 5Ss in both Lean and ERP and they guide us to similar benefits.

The first S stands for Sort: For Lean, it means to eliminate unnecessary tools, instructions, items etc. by tagging them red and disposing them off after final need disposition. If we apply this in ERP, we can articulate this like – Thoughtful usage of only those parts of the ERP that benefit the organization. The modules or functionalities need to be in sync with the overall business strategy and not just that it is to be used if it is part of the package or if it is coming as free with the package you just ordered. Also, eliminate the unnecessary and redundant processes, manual efforts for data entry, programs or reports as part of the Sort 5S execution in ERP.

Simplify is the 2nd S of Lean which suggests that there needs to be a place for everything and everything should be in its place. In ERP, this can be interpreted as straight forward business processes needs to be implemented as part of the ERP deployment and they need to be integrated with each other to enable automatic Lean methods like back-flushing. The customizations needs to be lowest and manual hand-offs should be minimum in the processes. Simplify also means that the code deployment for the custom components is as per established standards and it can be re-designed, de-bugged or modified easily in case of changed or expanded requirements.

The 3rd S for Lean is Shine, which simply means clean everything daily and in ERP also it has far reaching consequences if it is articulated correctly. ERP depends on data accuracy as much as Lean Manufacturing depends on cleanliness, hygiene and proper instructions. Applying Shine to ERP means that our data that goes into ERP or that stays in it or that goes outside ERP, needs to remain accurate, consistent and upto date. The duplicity or incompleteness in data will skew your results and as we know that one of the main functions of ERP is to help the top management take informed decisions – this function will get defeated because of inaccurate data and not only this, but this will have a cascading impact on other processes to create a chain reaction within the application. So shine your data regularly.

Next one in Lean Principles is Standardize which simply means in Lean to have documented instructions and rules to maintain the above Ss. It means to have same set of procedures for everybody for the same work so that the efficiency of the process can be consistent. This S in ERP is of biggest use as it goes with the whole purpose of ERP which is standardization of processes across the departments, countries, operations and distribution channels. Not only, we need to have a set of procedures (SOP) to run the ERP system from the users point of view but also the process mapping needs to be done as per the standard rules set by the implementation team. Any deflection in the process to accommodate exceptions in the processes will result in a sub optimal solution that caters more to exceptions and less to the major regular process activities. So standardize S can be used to make the most impact in an ERP environment.

The last S of Lean principles is Sustain and this means in Lean that the daily operations need to be carried out in a proper and pre-decided sequence, with utmost safety and minimizing waste in the process. Again, for ERP it holds maximum importance as after you implement an ERP, only after that you have a greater challenge to utilize it to the fullest to take out maximum advantages out of it and reach the level of target ROI sooner than later. It means for ERP we need to have a clear cut strategy after Go-Live of minimizing the waste means the system bugs, data issues, or training bugs that waste the organization’s time are at a minimum. This will help not only in eliminating waste but also in improving the operations and information system for instant organizational benefits as well as for future mergers and acquisitions.

So I tried to explain 5Ss of Lean and apply them in ERP scenario so that we can take the best out of both worlds. I am sure, these can still be expanded further and it is one area where good research can bring ERP and Lean together and can usher a new era in both the fields.

ERP Strategy: Blend Lean and ERP

One of the long time complaints of Lean practitioners with the ERP product vendors is that there are no Lean enabling functionalities built in the ERP products rendering the Lean initiatives depending on spreadsheets and other offline tools. This makes Lean less responsive and takes more time to come out with the proposed changes in the way we work due to a new situation. In this turbulent time, this is what we expect least from a team or business function that they are slow to respond and more effort is required to make them respond. Lean experts and practitioners have been impacted by this perception (not only a perception though) and the return on investment as well as the targets of process improvement and increased efficiency takes longer than required. Ultimately, the organizations are disillusioned with Lean activities (sometimes) and start focussing on other initiatives more.....This is one of the biggest mistakes they make, in my opinion. Any business scenario, be it low or high demand, good or bad cash flow...process improvement is one area where we can not compromise or have second opinion and Lean is one of the best catalysts to achieve it and this is why we need to blend Lean and ERP.

There is a strong need to automate (beyond templatization) the lean frameworks and as per the Lean practitioners, ERP can play an excellent role in it by incorporating the functionalities in this respect. It can work in as simple way as it is done by incorporating multiple forecasting techniques by large ERPs in their products. This will sure take Lean to next level and the business fraternity as a whole will benefits for this and this includes the ERP vendor, the customer organizations that implement ERP and the service provider or consultant. Finally, it will help the consumer because of many reasons.

But, let us go a little beyond our obsession of incorporating Lean related stuff in ERP products and find out how else we can blend both of these (even with current offerings) during an ERP implementation and take benefits from this blend.

Ideally, as soon as it is decided that the organization is going for an ERP product deployment (or even a product upgrade or re-implementation), one of the activities, that need to take off is to start inventorying the business processes that we intend to move to this platform and start looking at improving them by using the best practice process databases available. Though, too much effort should not be spend on any process improvements at this stage but we need to start collecting data at this stage so that we are ready for the next stage. After deciding the product, going ahead with the requirement gathering and penning down as-is processes, there comes this point where we should start blending Lean into our ERP endeavor. This point is: To-Be Process Design. Here is when we should break the processes into smaller activities and tasks and use Lean tools like SIPOC, Fishbone, FMEA, QFD, value stream mapping etc. to first identify the target activities and tasks to be Leanergized and then design the processes in such a way that the processes fit into the ERP product as well as are the best processes as per the business operations. Remember that this exercise of designing the To-Be processes will be done with the help of the service provider (consultant) and since these days most of the world class consultant organizations have their own Lean frameworks and methodologies, I am sure this will not take more time than budgeted in the ERP project. But make sure that it is communicated as one of the success criteria for selection of the implementation partner when you float the request for proposal document.

The importance of Lean and ERP blending in time, increases with the fact that it is seen multiple times that point solutions (Lean) deployed after ERP deployment, have not provided the requisite benefits and have rather become counter productive in most cases.

Strategy: Catalysts to achieve your Lean Objectives

Few weeks back, I wrote an article on the role of demand planning, forecasting and inventory optimization in achieving Lean Manufacturing. This article evoked a great response among readers and since the comments on this blog were not working for some time in between, I got maximum comments in my mail box or in the discussion I posted on one of the social media sites.

The responses were largely questions and expert opinions and I thought to share some of them here with the readers as these are highly rich in content and will be helpful for all of us to think about our strategies to achieve lean manufacturing with or without the help of planning.

Largely, there were two schools of thought on whether planning (forecasting and demand planning) helps in achieving lean manufacturing to an extent that the investments made in these areas are justified and are able to provide the returns accordingly. Thoughts were divided and one group was sure to say that forecasting is just a guess and will remain a guess so it is sheer time wastage to improve your guesses and hope that these will help you in your lean objectives whereas the other group was as sure as the first one on the fact that forecasting can surely help in achieving lean objectives as it reduces inventory and improves the service levels, which makes easier for the manufacturing operations to stick to a single product line for optimum period so that the manufacturing line efficiency improves.

To quote some of the responses, Wally Johnson (VP Supply Chain/Operations at EPIC Technologies LLC) said, “A forecast is nothing more than an educated guess. The better your guess, the closer you get to maximizing you revenue and minimizing the waste in either lost sales or excess inventory. As you reduce your lead times and your ability to respond, the forecast becomes less important. At the limit, planning is reduced to communicating needs to suppliers and aggregating immediate needs from customers. So, no planning doesn't help you get lean, but the less lean you are, the more you need it”. Another comment from Michael Pitcher (President, Operations Excellence LLC) is - “Forecasting can be used, at least initially, to size buffers and marketplaces. This is especially true for new products, cyclical/seasonal products, or short life-cycle products. Once buffers are established, actual pull must be used to recalculate and resize buffers and marketplaces. So, there can be value to demand planning and forecasting. On the other hand, it can be a huge waste of time and energy when over emphasized.”

We had quite an opposite viewpoint from Connie Wendzicki (COO at Griffin Technology), who says – “The demand planning is what you do to calculate the correct inventory levels when you implement the lean system. These inventory levels have to be revised frequently as the demand and supply patterns change. Even Toyota had an extensive planning department to accomplish this function. If you set-up lean without figuring out the right inventory levels you can be in for a few big surprises! On the other hand - analysis paraysis is not good either. Better to put the system in place with the best inventory levels you have vs. wait forever until you figure out what the "perfect" inventory levels and reorder points should be. There is some tolerance for error. You will at least see where the problems are (where inventory is piling up or where lines are starved for inventory) if you implement the system and you can tweak it then”. Connie is helped by the comment from Ron Golan (Director at XML Limited) who mentioned that, “…my experience taught me to believe in continuously trying to optimize demand planning and forecasting - you may not hit bulls-eye, but the closer you get, the more efficient you are in minimizing lost sales and excess inventory. And the build-to-order approach - that might work for Dell, but is completely unpractical for so many other companies. Plus, in many cases you'll just be passing the issue to your suppliers, and remember some of us may be on the receiving end of this”.

Carlos Moreno (Senior Logistics and Supply Chain Analyst with Medtronic) mentioned a third approach with his comment – “Lean is a tool for continuous improvement is a cycle that never ends. It may be applied to improve lead times, supplier performance, operations and supply chain processes just to give some examples. Forecast and demand planning are useful as strategic and long-term planning tools and also subject for continuous improvement. Since forecast and demand planning are estimated guesses based on crystal ball projections (marketing and sales forecast), I would see them as variables out of the control of the supply chain management processes for inventory control and customer order fulfillment”.

These were few of the responses and comments and the one thing that came out clearly and I replied to them in most of my replies is that alone forecasting or demand planning is not enough and the another part of our strategy here needs to include reduction in lead times so that the dependence of operations on accuracy of forecast reduces. Basically, if the supply chain responsiveness is fast (in other words lead times are low) then the organizations have more capability of responding faster to the changing demands and hence they can achieve leaner manufacturing processes as well as lower inventories with improved service levels.

I liked the idea of freeing up of operations with their dependence on forecast accuracy and as put up by Swaminathan Appu Iyer (DGM – Distribution & Logistics at Reliance Retail Limited), “The manufacturer whose efforts to effectively forecast and plan demand are being undermined by an increasingly complex business environment. Manufacturers large and small are struggling with the fact that demand forecasting and planning, never a simple process, are today being made much more difficult by trends such as globalization, shortened product lifecycles, and customer demand for more product variety. In fact, many manufacturers are finding that, despite what they thought were their best efforts, forecasting error rates are actually rising”. This shows that planning is something that most organizations are still struggling with.

All these comments and inputs lead me to think about a joint strategy that has to have a blend of both i.e. a focus in planning as well as supply chain responsiveness to achieve our lean objectives. I echo comments from Charles Stuart (Director at TGX Limited) who says that – “Puneesh, I would like to clarify my view - it is as you also approach it - a blend of both. A forecast is a forecast - a guess, a prediction etc. Good tools and good process will generally make a better forecast. But fewer businesses put the same kind of effort into LT reduction which can have responsiveness and an inventory benefit. I have worked in businesses that have done both approaches with significant benefits from each element. I suggest it should not be either/or but both”

Before I sign off, I would like to thank all the experts who shared their approaches and thoughts on the topic. I could not highlight comments or inputs from all contributors in this post due to similarity in thought communication in rest of them but tried to capture the essence of all so that readers get to know from who’s who of the corporate world on the future strategies on the topic and accordingly design the same for their organizations.

Demand Planning, Forecasting and Inventory Management's Role in Lean Manufacturing

Years (or is it decades) have passed after the introduction of Lean Manufacturing and the Lean Pandits still differ in their thoughts on what exactly is Lean and how it should be performed to get maximum benefits. A new school of thought that is emerging these days is that we need to identify first that 'how much lean' is lean enough and the role of technology (read ERP and SCM Software) plays a major role in maximizing the Lean Manufacturing benefits. The typical gains that a manufacturing organizations aim to attain through Lean is reduced inventory but still better fill rates, lower cost of manufacturing and distribution (Lean Distribution) , shortened cycle times and hence low inventory carrying costs are always on the wishlist. These objectives though, can be hit substantially with the limited knowledge the organizations have on their current performance but often they are caught trying to make out how can they measure where they were before the exercise and where they have reached. How much exactly they improved in terms of key performance indicators? Without additional software modules (such as forecasting, demand planning or Inventory optimization), a basic materials resource planning (MRP) or enterprise resource planning (ERP) system, it will not be easy for them to drive lean benefits completely.

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Lean focuses on execution, but you cannot get the most out of execution unless you do a better job of planning. You can perfect your shop floor execution according to lean principles, but if you're not making the right item at the right time, you are not going to win in the market. Execution alone is not enough. Demand planning, forecasting and Inventory optimization are areas of focus when applying technology to aid your lean initiative. Other than this, the major technology input is in the field of automation of manufacturing and distribution processes.

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While Demand Planning and Forecasting engines will help in right sizing your inventory, automation of manufacturing processes will help reduce the MFG lead times, increase MFG schedule compliance and will contribute in improving inventory turnover. The latest research report by Aberdeen "Lean Manufacturing: Five tips for reducing waste in the supply chain", also suggests that the one of the top actions for becoming best in class organization is that we need to leverage automated Lean Manufacturing and Supply Chain Tools.

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But the facts suggest that Manufacturers are understandably reluctant, especially now, to buy a lot of software modules they may not end up using right away. This is true more for the SMBs as they can not afford to have the same budgets as their larger enterprise counterparts and hence less utilization of technology in maximizing Lean Benefits. Moreover, they don't want their managers staring at the terminals as opposed to walking around the shop floor. But that is beginning to change now with at least some SMBs taking lead to incorporate technology inputs as part of the whole exercise as they have understood that have an equal need for supply chain visibility and better forecasting as their larger enterprise counterparts.

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The mantra, in my view, should be to Think Big, Start Small and Scale Fast when the organizations, specially the SMBs start to use the technology in this endeavor.