Lean branches out

"We thought we were good at lean, but now, having implemented lean IT for the back office and into purchasing and our supply chain, we know we were a million miles away." So says Tyrone White, manufacturing manager at specialist medical equipment and supplies firm Talley Group. "We now have a live lean system, so that, for example, as soon as a product ships, that creates a series of demands that run automatically all the way through to purchasing." That may not sound particularly remarkable, until you consider what's not included in White's sequence of events - people or administration. Talley's lean IT project has enabled the company to take that giant leap from where most lean-persuaded manufacturers find themselves - languishing with lean only on the shopfloor and maybe just nudging key suppliers - to the nirvana of near waste-free, virtually business-wide lean. So what does it look like? "There's no WIP and no human intervention: every action is live, every transaction is live, every posting is live," explains White. "So, as components move from one stock location to another, backflushing is immediate. That applies to all points of consumption, as well as the labour element. The system then generates purchase order suggestions for purchasing to see, live, in real time." But there's more. "Since material is on kanbans to the point of consumption at lineside, again with live bookings, we can also do something about material prices - because we can manage our supply chain partners' expectations. In the 13 months since going live with our lean IT system, that has generated a further 35% reduction in purchased inventory, which equates to £44,000 cash that we can now do other things with - such as buying equipment, improving processes, etc." And White insists that all of this was on top of Talley's earlier improvements from conventional shopfloor lean. That had already resulted in "massively reduced inventory, reduced WIP and manufacturing lead times cut from 11 hours right down to 32 minutes", he says. So where was the hidden waste? "We had done all the right things in our first lean project, and those had filtered through into better customer service and value, too. But we still had some big overheads, such as R&D and the other business functions - and underlying all of these was poor information flow. The problem identified was that information on costs, on where products were etc, was always out of date. And that was mainly down to running two parallel systems - for example, yes, we had our lean shopfloor operation, but its administration was manual." That much is a common enough story, and the vast majority of manufacturers fail to grasp this particular nettle. Many simply don't know it's possible to go further. For others, it's about not having the stomach to take on yet more turmoil. And for others again, plain scepticism gets in the way of believing that any ERP system might deliver an extension to their lean projects. White's message is not only that this is possible, but also that the rewards are impressive. So how did Talley Group do it? White says the key was finding appropriate IT support. "We spent six months looking at various ERP solutions and narrowed it down to SAP Business One and Microsoft Dynamics AX. And although there was a lot of similarity, we went for AX, because one of its features was the 'lean-enabled' eBECS [software] component." What did that allow? "Within manufacturing, our old parallel information flows involved, for example, lean on the kanbans, but then someone having to do something with the kanban cards - such as data entry - which meant information wasn't live." White says part of the problem was the size and complexity of its BoMs, in turn necessitated by the range of product configurations. "So we used the system to simplify the BoMs, and then changed the point of consumption and made all information live [and automatic] from the lineside," he states. Briefly, White explains that lineside terminals now create tickets for jobs at the point of consumption. The operator then scans barcodes on completion of an activity, and the system automatically recognises both material and labour, and moves parts on to the next stock location. "Even scheduling is now done using digital heijunka. Nothing is printed off or put on a board, because it would be instantly out of date - which, when you're running with a 32-minute lead time, could be a problem. So, as a result, visibility is always absolute: anyone can interrogate our system to see where things are, what's happening, what's consumed and so on, in real time. That makes a huge difference." For Talley, it doesn't stop there, though. White gives three key examples. First, his lean IT also accommodates configure-to-order manufacturing, with kanban-based automation right from the point of engineering customisation, and all under batch and lot control. Second, it handles massively more complex 'pick and ship' operations, necessitated by its latest products' consumables sales. And third, it allowed the company to launch a new equipment rental business, with the system providing support all the way from time- and date-stamping products and processes to managing logistics and pricing. All well and good, but to what extent can Talley Group's extended lean project be generalised, in terms of both other systems and other manufacturers? Phil Burgess, senior vice president of sales for the UK and Ireland at manufacturing ERP giant Infor, insists that, from a systems perspective, this is now fairly standard fare. "ERP systems have changed over the last four or five years to accommodate lean thinking, with, for instance, electronic kanbans that get away from push manufacturing," he observes. "Other examples include enabling single piece flow and managing the way demand is passed into cells, with visual triggers." Perhaps unsurprisingly, he suggests that, irrespective of your chosen system, you should also be able to minimise shopfloor data capture by implementing real-time backflushing, also with traceability, if required. "These kinds of capabilities have been around for a while, and today's mobility applications are making them even slicker - with operatives being able to see process information, such as exceptions, wherever they are." Burgess agrees that improving manufacturing businesses, under what might be termed 'phase two lean', is today's issue. He variously describes that challenge as: "streamlining back office activities by eliminating waste and automating non value-add processes"; and "easing the flow of information all the way from sales order acknowledgement to putting demand on suppliers". But again, for him, achieving these is more to do with how you harness your IT, and less the system you choose. Burgess' only caveat: "Workflow plays a massive part in all this - that's what enables the change of approach from having managers look for information to bringing the information automatically to them. You need to look for a system with a workflow engine that's good enough to drive your business processes and tell you when things are happening, but also flexible enough to enable change." So much for IT's capabilities; what about potential benefits for the broad swathe of manufacturers? Aberdeen Group, and Cindy Jutras in particular, is good value here. With more than 30 years' experience in manufacturing, ERP and supply chain management, she authors the analyst's annual best in class report, which seeks to correlate manufacturers' investments in systems and processes, with outcomes. "There's still a lot of fat in back and front office processes, although we are seeing evidence of more companies standardising their processes to streamline and automate them," she observes. For her, that's the way to apply lean thinking here - standardise, then streamline, then automate - and she adds that the most successful companies are a lot more likely to have used ERP first to define their processes and then to enforce them. As for whether phase two lean is worth pursuing for most manufacturers, her answer is an unequivocal 'yes'. She points to Aberdeen's report, which shows that, while around two thirds of manufacturers have now standardised their back and front office processes, that figure rises to 87% for the best firms. She also points to the statistics for inventory reductions over the last 12 months (which average at 23% for the best in class firms and just 9% for the rest) and operating cost improvements in the same period (20% for the best, compared to 11%). "There is an administrative component to those achievements, particularly given that lean on the shopfloor must be seeing diminishing returns by now," explains Jutras. And she adds that on raw admin cost data alone, best in class manufacturers are claiming 18% reductions, against the rest at only 7%. "Clearly, using ERP to standardise and lean out business processes is having a dramatic impact," she asserts. Her findings do appear convincing, and there are plenty more where those came from. Jutras also cites average improvements in times from when issues are raised to decisions being made, noting that the best are showing year-on-year improvements of 33%, compared with the others at 15%. "Other factors most likely to affect this would include their ability to get real-time visibility and exception management, not just at summary level, but also drilling down to the transaction of record. And 75% of best in class manufacturers can do that, with 64% claiming to have real-time visibility of their quote-to-cash cycle. It's real dramatic stuff." As for the IT able to deliver such improvements, Jutras regrets the fact that ERP vendors have turned 'lean ERP' into yesterday's message. "A lot of them - but not all - did things to their software so they could model lean manufacturing processes. But they talked the talk to the point where it is no longer an easy differentiator," she states. However, when it comes to back and front office lean IT, Jutras' observation is that what matters is not only the administrative equivalent of shopfloor backflushing - essentially visibility, as described - but also flexibility. "It's not just about the information you need today, but implementing a system that prepares you for questions you don't know you're going to need to ask next year. You can't wait weeks for the IT department to program a new enquiry for you," she offers. And she adds: "Although there's a lot of electronic communications now, much of it still involves dumb documents. Most ERP systems can generate emails, Word documents or PDFs but, unless the other end has optical character recognition, they're still using people to re-key information. Which means they're missing out on real electronic communication, and can't escape manual tasks and errors." Hence the emergence of 'electronic bill presentment' software, and it's not difficult to see the value in lean business terms. However, the last word goes to Talley's man. For those still thinking that, if lean business IT is only about cutting administration costs, it may not be worth the candle, White claims strong strategic gains, too. "We sell through distribution partners, so we need to offer financial incentives for them to take the volumes - and that means our ability to confirm pricing structures against volume sales is important. Before our lean ERP project, by year end we always found the margins weren't what we expected. This time, we've been able to use the system to make our plan much tighter. And that has led to our partners coming back to us with better deals, because we can be more competitive and still get good margins. "Lean ERP has given us opportunities to get new business and free up cash to do other things. It's given everybody in the business an opportunity to look at what they're doing with their eyes wide open. Before, we were just looking at each other's costs and overheads, not the big picture. Now we can see."