Author: David Dehne

Why Data-Driven Manufacturing is Not Enough

Occasionally, someone will mix up DDM (Demand-Driven Manufacturing) with another DDM acronym in our industry: Data-Driven Manufacturing. There are similarities. For example, executing demand-driven principles relies heavily on data and shop floor visibility. However, it doesn’t stop there.

In this post, we’ll take a look at Data-Driven Manufacturing and why it’s useful but not enough to help you reach your goals.

Data: It Is What It Is

One of the main problems with data is that it’s just data. It passes no judgment on whether the results you’re getting from the shop floor are good or bad. Nor does data provide guidance on how to use it to improve operations.

As an example, let’s say you’re monitoring the utilization rate for a new piece of equipment in which you recently invested several hundred thousand dollars. Suddenly, the utilization rate starts dropping. Is that good or is that bad?

The knee-jerk reaction you’ll probably get from your average, stressed-out production manager (or the CFO that signed off on the order for the equipment) is that it’s bad. However, to make that call, you need to put the data into context.

Maybe your new equipment is so efficient that it is no longer a constraint in the system. At the lower utilization rate, you are still producing product fast enough to meet demand. In that case, the drop in utilization rate isn’t a problem. In fact, if you can find profitable ways to use that extra capacity, such as taking on new business, then the drop in your utilization rate is actually an opportunity.

Trying to address the “problem” without putting it into its proper context could lead you to produce more than you need, which could lead to even greater problems like inflated inventory levels.

You’ve Got to Have the Right Principles

You often see continuous improvement talks or articles that promote the idea of the three levers of improvement: people, processes, and technology. To that, I’d like to add a fourth: principles.

I’m not talking about ethical principles as in “doing the right thing.” (Although that’s never a bad idea.) I’m talking about manufacturing principles such as Lean, Theory of Constraints (TOC), Flow. and Demand-Driven Manufacturing.

In the example I gave above, in making a judgment call on whether the drop in utilization of your expensive new equipment was good or bad, we put it into the context of Demand-Driven Manufacturing and TOC.

Creating Chaos

Many manufacturers take a principle-agnostic approach. They don’t necessarily discount that concepts like Lean, TOC, and Demand-Driven Manufacturing have something to offer, but they understand push manufacturing and MRP because that’s the context they’ve been using for years.

Instead of jumping wholeheartedly into something new – though most of the concepts behind Demand-Driven Manufacturing are hardly new as they’ve been around since at least the middle of the last century – they figure they’ll just take the best from all of these principles and combine them into a holistic approach to continuous improvement that is as unique as their organization.

Unfortunately, this just creates chaos in an environment that is already prone to chaos. Without common principles, senior management might issue an edict to improve productivity and efficiency, while shop floor managers initiate a pull-based skunkworks project. Individual work center operators see one thing from the CFO and the COO, but hear another from their manager. In the end, no one knows quite what their priorities should be.

If you’re still taking the agnostic approach, we can help. John Maher recently wrote a series of posts exploring the use of TOC, Lean, and Six Sigma in a demand-driven environment. In addition, we have a number of white papers that may prove useful such as our Kanban Series White Paper: Gaining Control: Exploring Push v. Pull Manufacturing. Finally, we also have a recorded presentation on YouTube explaining Theory of Constraints if you need a refresher on the concept.

And as always, I welcome your questions and comments. Either reach out to me directly or add them in the comment box below.

June 25, 2018
Kanban Series White Paper: Gain a Competitive Advantage for Bottom-Line Results

In this white paper, we look at the competitive edge Demand-Driven Manufacturers gain by not only being devoted to driving flow and eliminating waste, but also in enabling their organizations to become best-in-class by using Pull and eKanban software technology. These manufacturers provide valuable opportunities to their customers and, because of their Lean Manufacturing approach and continuous improvement efforts, are equipped to increase their effectiveness, productivity and capacity while achieving a competitive advantage in the marketplace.

Download

June 20, 2018
Kanban Series White Paper: Gain a Competitive Advantage for Bottom-Line Results

In this white paper, we look at the competitive edge Demand-Driven Manufacturers gain by not only being devoted to driving flow and eliminating waste, but also in enabling their organizations to become best-in-class by using Pull and eKanban software technology. These manufacturers provide valuable opportunities to their customers and, because of their Lean Manufacturing approach and continuous improvement efforts, are equipped to increase their effectiveness, productivity and capacity while achieving a competitive advantage in the marketplace.

Download

June 20, 2018
ERP is an Oxymoron

Have you ever had one of those moments when a thought hits you that is so obvious that you wonder why it never occurred to you before? I just decided that there couldn’t be a technology less aptly named than Enterprise Resource Planning, more commonly known as ERP.

Before I go into why, let me lay the groundwork so we’re all using the same terminology.

What is ERP?

From a manufacturer’s perspective, ERP was born with the addition of MRPII to the core financial functionality already found in existing systems. Pretty much all of these early systems provided modules for GL, AR, and AP. (Sometimes called “GLAPAR” in industry jargon.) Many of the early ERP solutions provided some procurement functionality as well as sales orders, though not many offered manufacturing-oriented functionality like the ability to configure products on the fly.

Sometime in the 80s, ERP vendors realized if they wanted to target the manufacturing sector, they needed to provide tools to help manufacturers deal with what is arguably their biggest issue: inventory. That’s when Material Requirements Planning (MRP) – a concept that had been around since the 50s – was codified in software form.

There is a belief that manufacturers are slow to adopt technology. I think it’s more that technology is slow to adopt manufacturing. Historically, ERP vendors have focused on manufacturing last, and many never quite get it right.

And that leads me back to my original premise: ERP is an oxymoron.

Garbage In/Garbage Out

As Trey Jordan recently wrote in his post Going Lean: Should You Replace Your ERP System? (insert link), ERP systems are great at collecting financial transactions from all over the enterprise. The E in ERP is just fine. My problem is with Resource and Planning.

In this post, I’m just going to look at inventory, since many ERP systems don’t even try to manage capacity. If you want to look at this from the capacity perspective, you might enjoy our white paper: The Next Generation of Planning and Scheduling Solutions.

The core resource planning tool in ERP systems is, of course, MRP. Put simply, MRP looks at future material requirements and works backward using inputs such as current inventory levels, order lead time, and so on to create time-based requirements for raw materials and components.

In theory, that makes perfect sense. If I want to make 100 widgets by the end of the month and it takes me two weeks to do it, I need to make sure I have the materials available by mid-month in order to reach my goal. If some of the materials required are subassemblies built in-house, then the system issues production orders so they will be available when needed as well.

The problem lies not in the algorithms, but in the inputs. Or to use a technology axiom that’s been around even longer than MRP: Garbage In/Garbage Out.

Where does the order for 100 widgets come from? The quick answer is the production schedule, but what are the inputs into that? In push-based manufacturing environments, the primary input into the production schedule is the sales forecast.

Therein lies the problem.

Sales forecasts are always inaccurate; the only question is by how much. I just Googled “sales forecast accuracy” and got 2 million hits, most of them having to do with why sales forecasts are always wrong. I skimmed a few of the results to see how accurate forecasts are on average, and the answer seems to be around 75%.

However, many of these articles and posts looked at forecasts from the perspective of the sales team: Did sales hit the numbers? A 100% accurate forecast from the perspective of the VP of Sales can still be wildly inaccurate from the perspective of production if the products sold were different than those forecasted.

Wisely, many manufacturers have learned not to trust the forecasts generated by sales. They hold weekly S&OP meetings to look sales leaders in the eye and review what’s in the forecast so they can adjust their production schedules based on what seems realistic and doable. These meetings can get tense. And, as much as the participants would like to apply proven processes to their S&OP meetings, they don’t do much to fix the core problem: Everyone is still guessing.

Manufacturing Demands a Different Approach

Maybe I should cut the ERP vendors a break. It’s not that their systems are coded poorly; it’s that they start with the wrong premise. That is, they were developed for push-based manufacturing, a generally accepted practice even though MRP has never been proven to provide the sustainable performance improvements manufacturers need.

The opposite of push-manufacturing is pull, where resources (including capacity) are synchronized to customer demand. Pull is a core element of manufacturing principles such as Lean Manufacturing and JIT Inventory Management, so many readers are probably familiar with it. We often used pull-manufacturing or pull-replenishment synonymously with Demand-Driven Manufacturing, though our software Platform also applies other core principles of Lean such as Theory of Constraints.

If you’re tired of dealing with an Enterprise Resource Planning application that does nothing to help you plan resources effectively, I encourage you to investigate Demand-Driven Manufacturing. Our website is filled with white papers, articles, on-demand product demonstrations, and case studies that can help you learn more. If you’re brand new to the concept, check out our YouTube video: What is Demand-Driven Manufacturing?

June 18, 2018
Thought Leadership: What is Demand-Driven Manufacturing?

Thought Leadership: What is Demand-Driven Manufacturing?

Demand-Driven Manufacturing combines the best of Lean Manufacturing, Theory of Constraints and Six Sigma principles. Find out why more and more manufacturers are turning to the proven methods of Demand-Driven Manufacturing to synchronize their operations, improve flow and gain a competitive edge. Download this resource brief on Demand-Driven Manufacturing to learn more.

June 18, 2018
Going Lean: Should You Replace Your ERP System?

By Trey Jordan, Senior Software Consultant

Enterprise Resource Planning (ERP) has been around for decades. You’d think, by now, the industry would have it figured out. Yet, every year, we hear news about ERP implementations that fail. For every one of these high-profile flops, there are many, many more implementations that simply fail to live up to expectations.

At some point in their Lean journey, nearly every manufacturer faces the same decision: Do you take the time to fix or replace your broken ERP systems or just keep working around them?

Is “Rip and Replace” Really Worth the Effort?

If you’re even a modest-sized manufacturing enterprise, you’ve probably already sunk hundreds of thousands of dollars into your ERP system. If you add up everything including the software costs, implementation, training, maintenance fees, etc., the actual figures can get pretty scary.

Perhaps even worse than the costs, though, is the chaos that typically surrounds an ERP implementation. Some years ago, Gartner created a model called the Hype Cycle that they used to represent the life cycle of a technology. Though the intent was to represent technology as a whole, I think it also pretty well represents what we see in a typical ERP implementation. The only difference is that many manufacturers never emerge from the Trough of Disillusionment.

Gartner Hype Cycle

Does Your ERP Implementation Meet Expectations?

Depending on what study you reference, roughly three-quarters of ERP implementations fail to some degree. Many studies look specifically at whether or not the implementation finished on-time and on-budget. They often fail to consider whether the ERP system helps the organization achieve its desired objectives. If that were factored in, I suspect the percentages of “does not meet expectations” implementations would climb even higher, especially in manufacturing.

The challenge is that Lean Manufacturing, which unquestionably can help manufacturers achieve a wide variety of bottom-line benefits, requires a pull-based approach that is tied to customer-demand (throughput). ERP systems, with their forecast-driven, push-based approach to resource planning and production scheduling, aren’t necessarily designed to support a Lean environment. Even most ERP systems that claim to support Lean Manufacturing are still built around push-manufacturing, with pull implemented using a variety of add-ons and workarounds.

Interestingly, if you do a Google search on why ERP implementations fail, you will get lots of different answers, from lack of executive support to poor change management practices to unrealistic expectations. All of these may be valid, but they fail to address the core underlying issue: the ERP system wasn’t designed to work in a Lean Manufacturing environment.

Even if ERP systems were easier to implement, success isn’t likely to be achieved even with a new ERP system when success is measured against desired outcomes such as increased velocity and reduced inventory levels. So, why would anyone go through the hassle of replacing their ERP system as part of their Lean journey?

ERP: What is it Good For?

Now that I’ve completely ripped apart the concept of ERP, let me head back in the other direction for a moment. While ERP doesn’t do particularly well at resource planning and production scheduling, it does have its uses.

For most organizations, ERP is the system of record for all financial transactions and information. As things happen in the business, e.g., something is bought, sold or produced, these events trigger financial transactions that flow through the ERP system and eventually to the general ledger.

In addition, ERP is also the backbone of the sales system. Whether your sales team is using the sales order module that comes with your ERP system or add-on applications for configuration, pricing, and quotes, the ERP system is the system of record for master files such as bills of material, pricing and customer information.

Likewise, your current ERP system can create a solid backbone for a Lean implementation as it can provide the master data information needed and collect the financial transactions that result from production. You just need to overcome the inherent shortcomings of ERP in a Lean environment. For example, SyncManufacturing synchronized planning, scheduling and execution software (part of the Synchrono® Demand-Driven Manufacturing Platform) sits on top of your current ERP application(s), giving you the power to transform a push-based production environment into to a demand-driven, pull environment. It doesn’t really matter which ERP you use; SyncManufacturing can accept data from any source – even multiple ERP systems.

Related post: The Pros and Cons of Consolidating ERP Systems

But What if You Don’t Have ERP?

Occasionally, I will run across a manufacturer that doesn’t have an ERP system at all. Much of the time, the manufacturer started out as a small job shop using no more than a simple financial system and a few spreadsheets to manage their operations. Over the years, the business grew, and perhaps even changed manufacturing modes, but their systems didn’t quite keep up.

The question I often get from this type of manufacturer is a bit different. They want to know: Do I need to implement ERP at all in a Lean environment?

The answer is not necessarily. Technically, all master data (resources, items, BOMs, routings, inventory, purchase orders, and sales orders) can be entered and maintained directly into SyncManufacturing planning, scheduling and execution software. SyncManufacturing is also creating inventory transactions as parts are produced, consumed, received, and shipped. The business will probably want some sort of financial system of record to collect financial transactions and produce reports, but it is not strictly necessary to have even that to implement Lean using SyncManufacturing software. It is certainly not necessary to have MRP or production scheduling functionality in place before implementing Lean.

Still have doubts? That’s not unusual. Early in our careers, most of us were taught that getting MRP right was the key to improving results. It’s hard to give up MRP and ERP, if not totally, at least as the keys to all our operational challenges. But no matter where you are in your journey, I welcome your questions and comments. Please add them below or reach out to me directly, and I will do my best to respond to each and every one.

June 11, 2018

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