Lean Manufacturing, Inventory and ERP

For today’s mid-market manufacturer, a critical consideration is to continuously improve business processes by using effective techniques and technology to cut waste and reduce costs.  In essence, these are the pillars of lean manufacturing.

Through the work we do with our clients, we see that many of these waste-cutting efforts need to be focused on inventory.

Waste and Inventory

We’ve defined lean manufacturing in a previous blog post about Lean and ERP as eliminating waste, and producing more goods at higher quality with fewer resources.

Excess inventory can cover up waste in your processes.

Many companies find that they can eliminate unnecessary waste by finding just the right balance between too much and too little inventory on hand.  Having the right amount of the right inventory is the best strategy for an overall lean approach, plus it helps companies obtain business value for their inventory investment.

With too much inventory on hand, often in the form of excess “safety stock,” companies expend limited resources in the following wasteful processes:

• Storage
• Warehouse personnel
• Physical inventory counts and other wasteful processes
• Paper intensive administration
• Manual-based communication

Additional impact is seen in what we term “factory waste” in the areas of excess, and extremely costly, work-in-process inventory and raw material inventory.

A Better Approach

What can manufacturers do now and in the future to reduce wasteful inventory management processes, without increasing the risk of shortages that disrupt production and impact delivery of finished goods?

Implementing lean tools is a great place to start. For example, putting into pace 5S on the factory floor can result in effective workplace organization and standardized work procedures. 5S focuses on having visual order, organization, cleanliness and standardization of a workplace.

Likewise, Kaizen Blitz Events are a fast and effective way to cut waste in specific, discrete process issues within a few days.

While these targeted approaches deliver specific performance improvements, very often the improvement plateaus and waste is still evident within the organization.

Here’s where an effective ERP selection process is needed, to leverage ERP features for effective inventory management.

Strategic Use of ERP

A powerful example of using ERP to cut waste was evident at a recent ERP system demo delivered by Infor Syteline.  Our team was able to see some of the strengths the system offers in areas of:

• Effectively Merging Lean Concepts with MRP Functionality – Choosing items to be managed by a Pull-system is always a challenge.  Once chosen, calculating the most cost-effective lot size becomes the next challenge. During the subject demo we were exposed to the robust functionality contained in the SyteLEAN toolkit. SyteLEAN is an electronic kanban system that automatically “right sizes” the selected inventory items based on “average usage”, forecasted usage, while factoring into the formula the variability within the data. These kanban-planned orders are then combined with MRP-generated orders, which can be reviewed from the Planner’s Workbench.
• Analytics and Reports – The SyteLean system provides reports showing the Pull-system status, Spike demand, Exceptions and a Supplier Forecast. With these tools supervisors and planners can readily see which items have inventory below lead-time usage in enough time to take effective action to head off a problem. In addition SyteLEAN will provide recommendations covering items that are likely candidates to be managed by a Pull system
• Inventory Management and Rigorous Cycle Counting Tools – Unlike many systems, Infor Syteline does not freeze the inventory during a cycle count. So materials personnel are not required to perform a count when the factory is not functioning. Instead the count can be scheduled when it’s convenient for the materials function. The Syteline system will monitor transactions that take place during the cycle counting process and adjust the inventory balance so that the cycle count remains valid. Another nice feature of this tool is included in the unit of measure conversion function. In Syteline this tool carries out the calculation to 12-decimal places providing a robust balance between inventory quantities that may use unique units of measure in different process steps.
• Office Work Flows and Metrics – Finally, Syteline provides the workflow messages and notifications required to assure that key individuals are alerted when kanban signals have been sent to Planners. This provides visibility to shop floor management allowing them to follow-up as needed, while also providing accountability within the Planning function assuring that the proper production orders are released.

Concluding Thoughts

It’s important to remember that continuous improvement is not the result of implementing just one tool or one lean technique.  Effective management of inventory is part of a journey of continuous improvement that includes Lean, Six Sigma, and ERP.

It’s critical to get educated on ERP capabilities, especially those that facilitate lean like demand leveling and JIT inventory, to enable future improvements

We advise our clients heading into ERP selection to implement lean technology solutions that provide a solid foundation to manage lean transactions from the customer, through production, and back to the supplier.

Download the paper Lean, Six Sigma, and ERP: Putting it All Together for Improved Performance for a closer look at best practices in lean and inventory management.