Most firms have moved on from the low cost/high volume mantra that dominated manufacturing twenty or thirty years ago. Only manufacturers of the lowest margin commodity items might still be operating in this way. Most other firms need to respond to the demand for short lead times, higher quality and lower cost. There are of course conflicting drivers here. Lower costs do not fit well with the smaller batches that characterise much modern manufacturing. A resolution of these conflicts can only come through a tightly integrated and coordinated information backbone.
The real-time, global economy most of us are exposed to has resulted in much greater market volatility, increased competition and greater opportunity for major adverse events such as the meltdown in the financial markets two years ago. If organisations are to survive they need to be capable of real-time responses to real-time events, which can only come through competent use of information.
The new generation of Enterprise Resource Planning (ERP) applications support manufacturing executives as they attempt to build greater flexibility, efficiency and responsiveness into their processes. All of this bears very little resemblance to the manufacturing environment of just ten years ago when batch based ERP was common. The trend to greater flexibility, efficiency and responsiveness will continue with the customer sat firmly in the driving seat. Organisations should make sure that the information infrastructure they use not only meets current demanding requirements but that it can accommodate new developments in a timely manner.
Integrated Lean Manufacturing
Lean manufacturing originated over twenty years ago with the Toyota Production System (TPS). At the core of this is the philosophy that ‘value’ within various processes should be unambiguous and those unproductive activities, and specifically those which deliver no value to the customer, should be eliminated on an on-going basis. The essential dynamics which drive this activity originate in a ‘pull’ based method where each step in a process is a response to an order from the next in-line customer. This process not only engages the enterprise but should ripple down the supply chain and involve other business partners.
The removal of non-value added processes is also key to the way most firms operate today and value is increasingly defined by customer requirements. The whole value stream is subject to lean principles and this is an attempt to make the delivery of goods and services to the customer more efficient, flexible and profitable. It should be added that lean principles apply to all aspects of a firm including finance, sales, marketing and product development, as well as the more obvious production effort.
Lean manufacturing becomes possible through an ERP system that supports methods such as just-in-time (JIT) and an assortment of associated techniques such as work orderless manufacturing using kanban signalling.
To make all this possible the new generation of ERP applications need to support
- demand based flow
- automated workflow
- mixed-mode manufacturing
- automated material flow
- quality management
- collaboration with partners
The adoption of lean processes has applicability throughout the enterprise and should embrace more than the manufacturing process. Customer relationship management (CRM), supplier relationship management (SRM) and product lifecycle management(PLM) are some of the more obvious candidates, and supporting systems should provide integration between these activities. Perhaps less obvious are finance and human resources. But even here lean principles can be applied, driven by the need to create value for the customer and reduce non-productive activities.
Systems which support lean manufacturing should offer strong support for demand-based flow so that the link between customer and task is always visible. Paperless manufacturing should be driven by electronic work queues offering full information to those executing tasks. This capability can then be enhanced through automated workflow, allowing complete coordination of activity. Finally an organisation may opt to implement business activity management (BAM) systems, allowing proactive business rules to be implemented so that real-time situations can be handled effectively.
Productivity
The productivity benefits associated with an effective ERP implementation will be found at all levels within the organisation. High volume repetitive tasks require an efficient user interface that is both easy to use and powerful. Users should be able to search for the information they need from any location within an application. Navigating around menus is a fairly inefficient way to move around an application. Some of the more contemporary ERP suites support a ‘move to anywhere from anywhere’ paradigm.
Productivity gains are usually to be found in the details of how an ERP suite works. Simply the ability to auto-fill fields and terminate a form at any time may transform the productivity associated with some data input processes.
At higher levels within the organisation productivity will depend upon the ease with which data can be accessed and reported on. Once again ease of use is very important. Clumsy interfaces and arcane procedures will inhibit use and result in the low usage that is common in many organisations. It is a fact that in many companies ERP licences are usually not fully used.
As far as the initial investment case is concerned productivity improvements tend to focus around issues such as reduced stock levels, reduced head count and other cost reduction mechanisms. While many investment cases focus on these ‘hard’ returns, the most meaningful productivity improvements tend to be harder to define. Availability of an integrated view of company operations is key to management efficacy through better decision making. An effective ERP implementation will also mean less management time is tied up dealing with routine operational processing, providing more time to deal with important strategic issues.
Conclusion
Process efficiency, responsiveness and flexibility are on-going quests in most organisations and improvements are increasingly linked with the supporting information infrastructure. The new generation of ERP solutions provide such an infrastructure and allow organisations to pursue their lean manufacturing and quick response targets. While there is a common understanding of what ‘lean’ means today, managers should be looking at what it might mean five years from now and investing in technology that will deliver competitive advantage. Social networking will become very important in all of this, as will the new Business Execution methods which tie actual execution to business strategy. Managers should select technology suppliers with a track record of contemporary offerings and timely introduction of leading edge functionality.
It is clear that increased global competition needs a decisive response, and for most firms that response will be effective strategy, lean execution, flexibility and competitor beating responsiveness. The new generation of ERP solutions is pivotal to achieving these things and is worthy of sustained attention and on-going investment.
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