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Regain control over operations by combining ERP and LEAN

Enterprise Resource Planning (ERP) can simplify work for planners and purchasers by calculating, generating, releasing and monitoring production orders and purchase orders. As a way of ‘pushing’ new orders into the value chain, it can speed up production. However, when a production facility breaks down, or the order fulfilment is delayed, the supply of material continues as planned. This means the synchronisation between subsequent workstations is violated and work-in-process increases. This continues until the planner intervenes.

One way to overcome this problem is to combine ERP with the principles of LEAN. It may seem impossible to achieve as they have essential contradictions (outlined in the table below), but from our experience, we know that ERP and LEAN can form a winning combination because they both aim to fulfil orders quickly, reliably and at the lowest costs.
 

  ERP LEAN
Basis for purchasing and production Master production schedule (push) Demand (pull)
Execution Computer Visual management
Planning and control Top-down, central Bottom-up, decentral
Planning principle Time phased Rate based
Order quantity Economic order quantity Actual demand quantity
Inventory Maintaining optimal level Strive for decrease
Focus Shop loading / utilisation Line balancing / flow
Figure 1: Key differences of ERP and LEAN

Finding the winning balance between ERP and LEAN

Companies using ERP tend to plan and control the steps in production and purchasing at a reasonably detailed level. These 'black boxes' – the workstations planned and controlled in ERP – are therefore kept small.

This means there is nothing to worry about as long as the master planning does not change, the purchasing and production performs accordingly to master data (in terms of lead time, yield rate, capacity etc) and data integrity is high. Realistically however, last-minute changes in priorities of sales orders, production interruptions, variations in waste, lead time and quality, or incorrect inventory data may result in rescheduling. So, the more detailed the planning, the larger the impact on rescheduling, which means the system is seen as nervous.

A natural reaction to ongoing planning problems is to ensure there is further detail in the ERP planning to get a better grip on operations. However, this just weakens its grip as transparency decreases, control burden increases and the gap between the system and reality widens.

It is therefore important to break through this cycle, by pushing back ERP planning to a higher level (larger black boxes), and combining it with LEAN. The synchronisation of successive production steps inside these black boxes can be organised via Kanban control – a LEAN control technique. This is where the material is ‘pulled’ into the logistic chain at the moment it’s required for further processing. Where possible, ERP-generated purchase orders can also be replaced by Kanban. This will allow ERP to become more stable, while the self-regulating ability of Kanban irons out most operational wrinkles without the intervention of central planning.

 Figure 2: From ‘push’ to ‘pull’ for synchronising two subsequent production steps
Figure 2: From ‘push’ to ‘pull’´ for synchronising two subsequent production steps

Creating an achievable action plan

Pushing back ERP planning and control in favour of LEAN is easy in theory, but in practice, it is a gradual process. Kanban sets high standards in reliability, flexibility and agility – particularly for the supplying workstation or supplier. It may therefore be necessary to work on these prerequisites first, prior to implementation of Kanban. Further process improvements can then be stimulated by a gradual decrease of the number of containers.

From combination to cooperation

When applied properly, ERP and LEAN form a strong alliance. However, its success depends on the level of process control in production and procurement. LEAN can even increase the effectiveness and stability of ERP by reducing changeover time and improving flexibility. Therefore, the negative effects of ERP rescheduling are greatly reduced. Through a good growth strategy, 'the best of both worlds' can be realised to help companies regain control over operations.

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