In response to: “How Manufacturing Software Should Adapt to Support Lean Principles”

by Derek Singleton

ERP Analyst, Software Advice
December 16, 2011

http://blog.softwareadvice.com/articles/manufacturing/how-manufacturing-software-should-adapt-to-support-lean-principles-1121511/.
Nice position article; we appreciate thoughtful discussion on issues critical to optimizing value chain effectiveness and profitability. I think productivity is even critical today given current competitive and regulatory environments.  That said, I am not sure I agree entirely with your point of view: I think you miss the other side of the equation which, together with your position, would actually create the cohesion you espouse.

So a couple of two or three points to consider.

First, one consistent between the two philosophies is the need for production requirements i.e. demand; it goes without arguing that the more accurate the production requirements, the better both will perform. So one way to bridge the gap between the two is to agree that both approaches are made better through improved demand planning and specifically improved forecast accuracy at the execution level.  It does no good to plan production, in either approach, to 4 decimal places only to have the forecast or production requirement end up being off by 30 or 40 or 50% at the execution level.  I am sure this point does not surprise you coming from me.

Second, this is an important discussion because it focuses on execution which is important to us.  No matter how accurate a forecast, it is worthless unless used to improve specific supply chain activities within the flow that you rightly highlight in your discussion.

Lastly, the core hypothesis is that software can and should work to accommodate “lean” and you highlight three areas within which to do so.  And, coming from the perspective of lean, these are solid focus points that I would agree should be address; I would go so far as to say they are being addressed by certain S&OP and manufacturing software vendors.

However, I would argue that lean also needs to grow and adjust to accommodate the principles of MRP.  There are some who argue that lean was developed in the vacuum of driving an accurate forecast and demand plan – hence the revival of demand driven supply chains by the people you mentioned as well as Gartner/AMR and others.  in general is a reactive dynamic; given a specific production requirement, what do we need to make and then how do we do so most efficiently.  And in a perfect world that is great.  However, what if the needed production requirements change?  What if they change by 40% (up or down) in a 2 week window?  What if the vendor does not show up with the needed WIP until 7 days later?  Not everything goes perfectly and this is where MRP and it related and perhaps even more important cousin DRP come into play.

When done well, DRP/MRP take into account variables such as forecast error, vendor performance, inventory costs (full costs), order fill rates and consumption patterns (to name a few) in order to help anticipate issues and drive supply chain operating decisions not only in optimizing performance for today but also for various time frames into the future based on lead times and customer promises etc. and in so doing, help minimize the risks of disruption.  Practically, this helps drive decisions such as what specific inventory to carry and who much which would actually work to make lean perform that much better in a more flexible manger.

There is no question that software can always look to improve ease of use, flexibility and value add.  But it should do so within a framework that takes advantage of what technology can do while supporting operational philosophies such as lean so that both sides can progress.  This is true for expansive ERP systems as well as useful spreadsheets.  And, if they are expected to execute based on a forecast with measurably decreasing forecast error, there is no need for these two approaches to be mutually exclusive.

I think we are going to continue our new years theme and focus on the possibilities. I am pretty sure you didn’t toast in the New Year last Saturday night with jaded apathy. Far likelier you thought of the vast accomplishments on the horizon in 2012 for your personal life, your health and your career.  Like new hires and those newly promoted – your intent is to hit your metrics, earn your bonus, set yourself up for future success and have the best year yet.

This optimism stands in stark juxtaposition to what we hear from prospective clients when we tell them we can lower their forecast error by 25%. We touched on this skepticism in previous blog post discussing now being time to raise the bar for demand planning and forecasting outcomes. It very well might be the high rate of IT implementation failures alone that create disbelief but their reasons (dare I say, excuses?) for not moving forward, span from a company process that doesn’t align with individual goals for their position to the simple fact that there are only 24 hours in a day and 36 hours of work. Having dealt with the realities of their roles they seem willing to simply meet the minimum requirements.  In these conversations they initially cast aside what they consider to be “impossible” because of a limited perspective of what could be.  And that is bad for them and that is bad for their company.

Have you stopped believing in POSSIBILITY and settled for mediocrity?

You would never purport that someone who has resolved to lose 10lbs in the New Year would be successful without a scale because you know it’s a critical component of measuring progress towards their goal. You also know that weight is not the only component for good health and because muscle weighs more than fat, you could actually gain weight while improving overall health.  You need the right tools in to set yourself up for success in a complicated environment characterized by huge amounts of data, fast moving market dynamics and a changing customer environment.   Accordingly, without specific improvements, you cannot expect that your ERP will lower your inventory or increase perfect order performance. Nor will traditional statistics based modeling drive a significant, measurable decrease in forecast error as effectively as modeling based on global optimization. Run your antiquated forecasting tool as many times as you want but old fashioned, static and linear models that everyone else uses and incorrect forecasting models will most likely leave you with the same inaccurate and profit reducing, customer infuriating  forecasts.

There are better tools than the one you are using today that will get you to your 2012 goals.  You can have an accurate forecast. You can blow your metrics out of the water. You can get out of the office earlier because you had more accurate data and made smart and informed decisions.  When a prospective client accepts that a 25% reduction in forecast error is possible based solely on our proprietary Interactive Neural Computing, the doors open to the opportunities they can create for themselves.  Our clients achieve 3-8% improvement in pre-tax profitability because they believe in the possibilities.

More about our forecasting and planning software.