CSCO Feature Article, 27th, January, 2006 - http://www.cscomagazine.com/index.php?option=com_content&task=view&id=150&Itemid=42

Journey Toward the Lean Enterprise

April Terreri, Friday, 27 January 2006

Manufacturers eye lean manufacturing as a means to success. Implementation, however, requires a totally new mindset, say the experts.

Lean thinking is in, but a surprisingly small percentage of U.S. manufacturers are actually deploying lean practices and technologies. Although some estimate the number is around 30 percent, others say it is much lower—in fact, less than 1 percent. Ralph Keller, president of the Arlington Heights, IL-based Association for Manufacturing Excellence (AME), says there is no agency collecting that kind of hard data. SIDEBARS: Flying Lean Collaborative Kanban

To put this quest into perspective, Keller notes that about 28 million people work in U.S. manufacturing companies, according to Census Bureau data. “But at our recent AME annual conference, which is focused on the leaders of organizations making lean-based improvements, we had only about 1200 participants out of this huge potential population,” Keller says, adding that AME’s membership is just under 6000. “So what that tells you, in my view, is the number of manufacturing companies really trying to implement lean is low, even though a lot of people are talking about it.”

One of the reasons for the slow deployment, continues Keller, is because the process of implementing lean is difficult to begin. “It’s not just about applying tools to improve efficiencies,” he says. “It’s really about changing the culture of an organization and how it is managed and run. Most lean implementations are modeled after the Toyota Production System (TPS),” he explains. “And Toyota would be the first to tell you, it’s not about the tools—but it’s all about the culture.”

Judy Sweeney, research director at Boston-based AMR Research, agrees the actual percentage of companies that have implemented lean is difficult to determine. She also adds that lean was one of the top business initiatives influencing IT investment decisions driving spending in a recent AMR Research survey.

Pam Lopker, CEO of Carpinteria, CA-based QAD Inc., says the adoption rate worldwide (and in the U.S.) is less than one percent. “The interest level is huge, though, with about 80 percent of U.S. and global manufacturers having some kind of lean initiative,” Lopker says.

Responding to bottom-line pressures, manufacturers are looking to lean to optimize their manufacturing operations and streamline their supply chain networks—from supplier to manufacturing floor to the front office. Lean methodologies offer manufacturers real-time visibility and control that is so critical in today’s supply chains stretching to the four corners of the globe.

Lean manufacturing is an ongoing process, say the experts. “Some manufacturers don’t see it as a long-range journey and expect big results very quickly,” says Gerry Mendelbaum, principal at Archstone Consulting in Stamford, CT. “This thinking goes against the TPS approach of continuous improvement in small increments that add up over time.”

The Lean Umbrella

Some confusion still exists about what lean is, exactly. Lean can be boiled down to a single phrase: the elimination of waste, says AMR Research’s Sweeney. Lean focuses on pulling products based on actual customer demand, versus building (and pushing) products to a manufacturing forecast. In its purest form, your goal is to achieve a batch of one, Sweeney says.

Lean is not a one-size-fits-all proposition, says David Gleditsch, Chief Technical Officer (CTO) for Boulder, CO-based Pelion Systems. “There is not one manufacturing technique that applies to every market, process, and product out there,” he says.

In today’s highly competitive world, manufacturers are continuously pressed to deliver on-demand products at lower price points. “Manufacturers are forced to be more efficient and this, to me, is what lean is about,” says James Henderson, CEO of Long Beach, CA-based Apriso Corp.

While targeting their prescribed metrics, manufacturers want a solution with minimal intrusiveness to their shop-floor operators. They need solutions that balance lean initiatives with the dynamics of their business, continues Henderson. “Our Process Authoring or Business Authoring platform addresses this and sits on top of a service-oriented architecture,” he says.

“Lean transcends operations within the four walls of the factory floor,” notes David Wireman, principal at Archstone. “But some executives, particularly non-manufacturing executives, react negatively to lean concepts, saying they only apply to the shop floor.”

Deploying lean requires a multidisciplined approach. “This includes [the integration of] sales and marketing, product design, quality control, and operations throughout a manufacturing supply chain,” Sweeney says. Manufacturers excelling in lean almost never get to the point of having a huge problem, says Archstone Consulting’s Mendelbaum. “Lean practices are engrained in their day-to-day processes,” he says.

While some in the industry contend software is unnecessary in a truly lean operation, others note technology plays an important role. “Even Toyota uses a lot of software,” continues Sweeney of AMR Research. “There are many critical elements of ERP systems that support lean initiatives even in a completely manual, visual factory environment. Technology helps sustain and increase the value of what they are doing,” she says.

Apriso’s Kevin Sullivan, director of products, uses the phrase “Lean compliance.” “Pure lean is the elimination of all non-value-added tasks,” he says. “However, there are compliance initiatives from the FDA, DoD, and medical and pharmaceutical devices environments with mandates that contradict lean,” he explains. “So the question is how to combine lean initiatives with compliance to deliver a true lean compliance solution.”

For example, lean initiatives and compliance mandates each compete against the other on the human interaction side of lean, explains Sullivan. “Lean says minimize non-value-add actions to your manufacturing process, while DoD, FAA, or FDA mandates tell you that you need to track at a level of detail, the who, what, where, why questions, such as date, time, employee involved, duration, and batch information in order to support reporting mandates,” he says. Employees may be working on multiple systems supporting the level of details necessary for compliance, such as starting and stopping labor activities at a data collection terminal; retrieving documents at a paperless tracking workstation; and building genealogy on a third system, explains Sullivan. “You can build in these flows regarding how humans interact with these systems to gain the advantage of compliance reporting without disrupting a worker’s normal work activities,” he says. “A lean initiative may say present only the correct and minimal data to support an operator's work activities,” continues Sullivan. “The system needs to make as many of the other decisions as possible. Non-intrusive computer systems help lean initiatives that say focus on the value-add for manufacturing.”

Lean still embraces the principles of TPS, but extends beyond the factory, adds Sudipta Bhattacharya, senior vice president of manufacturing and PLM for SAP America Inc. in Newtown Square, PA. “When Toyota set up their lean model, everything was vertically integrated and within the four walls of their factory,” he says. “So there was visibility and control over the seven deadly wastes [over-production, waiting time, transportation, processing, stocks, motion, and defective products].” Developing a company culture is critical to success, where shop-floor operators feel ownership of manufacturing practices. “They need to know they can feel free to offer suggestions to change the way things work,” says Archstone’s Wireman. But this kind of environment requires superior leadership. “It goes beyond only stating a vision,” he continues. “It’s about driving your company to where you want to go as a company by walking the talk. You have to have in place the mechanisms of accountability for meeting continuous improvement goals up and down the enterprise and rewarding folks when they meet those goals.” Outsourcing adds additional challenges. A U.S. manufacturer might have several factories throughout the world, thereby having more manufacturing nodes to deal with, Bhattacharya says. “Not having visibility into each factory is tantamount to having the weakest link in my chain,” he says.

How To Think About Your Lean Architecture

As a system supporting the enterprise, lean must have an overriding architecture, say the experts. “Unless you serve a larger plan or architecture, all the little events within a lean program are meaningless,” cautions David Fitzpatrick, principal at Deloitte Consulting LLP in New York City. Deploying random projects with no connective tissue leads to a failure mode, which is closely related to the common deployment mode in lean and Six Sigma, he says.

Fitzpatrick points out how lean practices must extend and connect from local activities to the overarching enterprise. If not, there is the danger of having a false sense of your real savings and efficiencies. For example, he continues, the local calculation might show you are saving $2 billion after several months of counting local savings on random projects. “But if you are only a $1 billion corporation, you will have the CEO asking how this can be.”

Asset bloat (excess buildings, locations or square footage) can counteract competitiveness. “People need to think about their larger operations, manufacturing strategies, and their competitive challenges and how that relates to employee productivity or technology,” says Fitzpatrick. “You have to ask what your large-scale competitive needs are so all your kaizens contribute to a strategic objective.”

Suppliers need to be included in the architecture. “Manufacturers need to share the costs and benefits with their suppliers and act as if they are one outfit,” Fitzpatrick says. “Servicing a single integrated logic will improve the operations in all plants simultaneously, and will enhance balancing lines and managing capacity while linking quality with production.”

Deloitte advocates focusing on one business unit or one product in implementing lean. “Understand it, then drill into it,” Fitzpatrick says. “We suggest the theme of following the money. Have your program move horizontally so it crosses all the functions and always encompasses the entire value stream. That might mean choosing a particular product line first.”

Tic ToC Takt

Standardizing activities along the supply chain and then developing an architecture of best practices enables streamlining and rationalizing, with a constant focus on product quality and customer satisfaction. Reducing safety stock and delivering on time and in full requires complete visibility, with a focus on component inventory and reduced finished goods inventories, notes Apriso’s Sullivan.

Although most experts agree that TPS is the core of lean, they would add in the same breath that other methodologies need to be combined with lean, depending on the products produced. These methodologies include Theory of Constraints (ToC), demand flow technology, Six Sigma and Class A MRP. Manufacturers are combining lean with Six Sigma (Lean Six Sigma), with lean’s focus on eliminating waste and Six Sigma’s focus on eliminating process variation. “A toolkit that only does TPS will not work,” says Pelion’s Gleditsch.

i2 Technologies’ Lean Replenishment is a next-generation solution to its original products, which were a combination of ToC and lean. “Lean Replenishment is a combination of supplier collaboration and lean replenishment,” says John Cummings, Chief Marketing Officer for the Dallas-based company. Lean alone is not perfect, continues Cummings. “The concept of pursuing perfection assumes there is no point of diminishing returns,” he says. “Using ToC addresses the diminishing returns concept while focusing on throughput, revenues, and investment.” A systems approach to manufacturing is critical, Cummings says. A manufacturer using a cost-per-unit metric will make a lot of units to gain that metric, but the units might sit unsold in inventory. “You have to connect the demand and throughput side into an integrated system,” he says.

ERP platforms connect multiple plants, factory floors, and business offices, SAP’s Bhattacharya says. “This is where all the information sits to do the analytics and collect business intelligence, while giving an accurate snapshot of inventory levels and what costs are,” he says. SAP’s xMII product (a Lighthammer collaborative solution) solves the disconnect between shop-floor systems and business operations, ensuring all data affecting manufacturing is visible in real time. “You have the visibility, responsiveness, and performance you need to succeed,” Bhattacharya says.

ERP platforms connect multiple plants, factory floors, and business offices, SAP’s Bhattacharya says. “This is where all the information sits to do the analytics and collect business intelligence, while giving an accurate snapshot of inventory levels and what costs are,” he says.

Adaptive manufacturing is SAP’s version of Lean Six Sigma and is enabled through a comprehensive ERP platform integrating Lean Six Sigma, manufacturing execution, quality maintenance, and environmental health and safety on the shop floor, explains Andy De, SAP’s senior director of manufacturing and PLM. SAP’s NetWeaver product delivers real-time integration of business processes and manufacturing execution systems.

Adaptive manufacturing also considers front-line plant managers, production supervisors, technicians and operators on the manufacturing floor, empowering them with the necessary tools to monitor lean manufacturing processes. “We use intelligent dashboards that deliver composite metrics to show how well they are performing against their KPIs,” De continues. “This also allows manufacturers to sustain an institutionalized process like Six Sigma for continuous improvement.”

Apriso, a close partner of SAP, offers FlexNet, which the company calls the ‘Jell-O’ of the ERP system. “It fills the critical gaps, adding functionality and increasing the value of manufacturers’ business systems such as ERP, CRM, or PLM,” says Sullivan at Apriso. He adds the majority of Apriso’s deployments are with SAP, who manages the business side from the top down, while Apriso manages the plant floor, integrating with control devices. Connectivity and integration is the talk in the industry. Pelion, for example, has a slogan to “synchronize globally and optimize locally.” “We have logistics and planning, manufacturing and materials management, and product design all working collaboratively and synchronized across the supply chain and within an enterprise,” explains Gleditsch. Customers have the tools to drill down to any one element to optimize at a factory node, a distribution center, or within the factory/supplier relationship.

The ultimate pull signal happens at the POS (Point Of Sale), says i2’s Cummings. “We say you can connect from Tier 1 to shelf, and some of our implementations of Lean Replenishment are driven off the actual POS,” he says. A pull system extends across multiple trading partners, so a purchase at the POS level ripples throughout the supply chain back to manufacturing.

Horizontally Challenged

Monitoring and tracking processes is another critical goal in lean manufacturing. “The ability to trace any problem back to a specific manufacturing event that took place at a specific time and at a specific plant by a specific worker is critical, particularly in medical devices manufacturing,” Apriso’s Henderson says. Tracing and validating quality can minimize the risk of lawsuits, which is a lean initiative from another vantage point, he says.

SAP’s Joyce Swanke, CFPIM, Six Sigma black belt, lean & Six Sigma product manger, adds that pharmaceutical companies are showing more interest in Lean Six Sigma, as they balance price pressures and reduced cycle times. “Lean Six Sigma helps deliver a higher probability for producing quality products every time,” she says.

But don’t jump blindly on the lean bandwagon, caution the experts. “Some products are suited for traditional MRP, while others are best suited for lean,” advises SAP’s Bhattacharya. When demand is relatively stable and inventory levels are under control, MRP planning is fine.

However, if products are expensive to hold in inventory, if demand is relatively unstable, and if cost continues to be added as products move from step to step, lean might be the proper choice. “I want to hold back production from that particular pinch point to avoid adding a big chunk of cost to something that will sit in inventory, diminishing my margins,” Bhattacharya says. Supply chain managers are responsible for the same results as traditional factory managers, even if they do not sit within the four walls of the plant, notes Pelion’s Gleditsch. “They had better own all the demand data, product information, and visibility across the supply chain, just as if they were running their factories as plant managers,” he says.

Designed for Lean

Lean Six Sigma is used in product design. “Six Sigma provides the science (and metrics) necessary in the design and operation of process design decisions which correlate to product quality and reliability,” says Pelion’s Gleditsch. “If I do a good job of scientifically analyzing the levels that correlate to customer satisfaction, I can find acceptable tradeoffs.”

Modularity in product design increases efficiencies. “Designing modularly allows you to have a nice efficient pull in the supply chain so you have similar subassemblies and family parts,” says QAD’s Lopker. “For example, my Blackberry has an ingeniously designed recharger plug that can be configured for just about every outlet around the world.” Six Sigma can get specific in a particular operation, Lopker notes. Standardizing your process eliminates random actions, delivering a process that tests well for quality, she says.

Without designing for manufacturing, takt [time required to produce a finished product] time becomes unbalanced, Bhattacharya says. “Being able to connect BOMs [Bill of Materials] from design to engineering to manufacturing means you need the inherent data structures so you can target the suppliers who can provide you with the material you need as you move from design to engineering to manufacturing,” he says. Product life cycle management in a lean program also leads to greater efficiencies. “When customers throw engineering changes into the mix, that product must still allow me to continue to maintain my pull system,” Bhattacharya says. “Otherwise, I have to consider building inventory or add buffers at particular points along the manufacturing chain.”

The Lean Journey into Global Supply Markets

Sourcing components from overseas adds additional challenges, with a major tradeoff being loss of control. “Part of your cost is someone else’s cost plus their margin,” says Deloitte’s Fitzpatrick.

AMR Research’s Sweeney notes manufacturers use a combination of pull with core ERP functionality to send a longer-term forecast to their overseas suppliers. “They are saying ‘Don’t send me anything until I send you a signal, yet be aware of what we anticipate demand will be,’” she says.

Manufacturers want to maintain control, standardization, and consistency throughout the global enterprise shop floor. “You need to ask which software solution will deliver manufacturing processes for your markets in Brazil, which may be different from your China markets,” says Apriso’s Henderson. He notes Apriso’s Process Builder allows manufacturers to take a best practice from an efficient plant and replicate that throughout a company’s global enterprise.

Adaptive manufacturing, notes SAP’s De, brings visibility home. “You have the flexibility to source your components from one of your other global facilities if a line in your Chinese plant has gone down,” he says. SAP’s XMII and Collaboration Solutions delivers real-time visibility so manufacturers can drill down to discover root causes and take the appropriate course of action.

“Lean is not an end objective,” says SAP’s Bhattacharya. “You have to keep asking if you are lean compared to your competitors; therefore, lean will always remain a journey.”

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